Policy Paper published 27 July 2024 – Are you Prepared?
The new Chancellor, Rachel Reeves, has now confirmed that the changes previously announced to the taxation of non-UK domiciled individuals in March 2024 will go ahead with some modifications.
The Government will hold its first Budget on 30 October 2024 which is intended to contain more clarifications about their proposals.
- What is intended to go ahead from 6 April 2025?
Income Tax and Capital Gains Tax (“CGT”)
- To replace the favourable remittance basis and tax treatment based on domicile, the new residence-based regime, i.e. the four year exemption from tax on foreign income and gains (the “FIG Regime”) for new UK residents from 6 April 2025 will go ahead. Individuals coming into this category must not have been UK resident in any of the 10 years prior to arrival.
- The existing Offshore Trust Protections from tax on income and gains arising within Settlor interested trust structures will also be removed from 6 April 2025. Income and gains arising in Offshore Trusts will be taxed on UK resident Settlors who have any interest in the Trust, if they do not qualify for the FIG Regime.
- A form of Overseas Workday Relief (“OWR”) will be retained with stakeholders engaged on this relief over the coming period with further details confirmed at the Budget.
Inheritance Tax (“IHT”)
- The Government intends to proceed with the basic change from the current domicile-based system to a residence-based system for IHT, including the 10 year “tail” for individuals leaving the UK. This “tail” will keep such individuals within the scope of IHT for 10 years after they leave.
- The Government also confirms that the common use of excluded property trusts established by foreign domiciled individuals to keep assets held by such trusts out of the scope of IHT will come to an end. Transitional measures for existing trusts and Settlors are to be reviewed and published at the October Budget, following the external engagement referred to below.
- There will not now be a consultation on the IHT changes, but the Government will be relying on stakeholder feedback over the coming weeks on so-called IHT policy design. In this respect it is acknowledged that “trusts will have been established and structured to reflect the current rules, so is considering how these changes can be introduced in a manner that allows for appropriate adjustment of existing trust arrangements, while ensuring that the treatment of all long-term residents of the UK is the same for IHT purposes”. The wording of the Policy Statement may bring some optimism for existing structures. Further detail will be provided at the next Budget.
- Are there any modifications to the original proposals going ahead after 6 April 2025?
- The proposed 50% reduction in 2025/2026 taxable income for individuals losing access to the remittance basis will not go ahead.
- The CGT rebasing for previous remittance users will be available, but not necessarily as at the date previously announced, i.e. 5 April 2019. Further details should be announced at the October Budget.
- In terms of the temporary repatriation facility (“TRF”) previously announced under which income and gains arising before 6 April 2025 could be remitted in the two years to 5 April 2027 and taxed at a reduced rate of 12%, the Government now indicate the rate and length of time that the TRF will be available is intended to be made as attractive as possible (including the likely extension in scope of the TRF to include income and gains in trust structures which was not part of the original proposal).
- What about any other changes?
- A review of anti-avoidance legislation including the Transfer of Assets Abroad and Settlements legislation was announced. Broadly speaking, these rules result in income and gains of offshore trusts and companies being taxed on the individuals who established or funded them, subject to certain exemptions. It is not anticipated this review will result in any changes before 6 April 2026, but as noted above the trust protections for offshore settlements will be removed from 6 April 2025.
For advice and assistance relating to any of the matters discussed in this Briefing Note, please contact Chris Cooke, Karen Methold, or Robert Drysdale.
Disclaimer: This article is for informational purposes only and does not constitute legal advice. Please consult with a qualified legal professional before making any decisions based on this information.
