Date: 30 July 2024
The new Chancellor Rachel Reeves has now provided some signposts for taxpayers and advisers with regard to the replacement of the non-dom regime. We outline below what we know, and what we don’t.
New Regime for Income and Gains
The Government has announced that they will be continuing with the Conservative proposal that for the first four years of UK residence after a ten year absence, foreign income and gains (FIGs) will not be taxable in the UK – whether or not they are brought to the UK. We now have confirmation that this will indeed go ahead from 6 April 2025 as originally planned.
Overseas Workday Relief will continue in some form (presumably changed so that it fits with the new regime), but no further information is available here at this stage.
The protected settlements regime will be removed from 6 April 2025 so UK resident settlors will become taxable on trust income and gains from that date.
Transitional provisions
One important departure from the Conservative proposal is that there will be no transitional rules for FIGs, meaning that if a taxpayer has already been in the UK for four years at 6 April 2025, they will move to worldwide taxation immediately.
There will however be transitional rules for capital gains tax on assets still held on 6 April 2025, available to taxpayers who have used the remittance basis. There will be some measure of rebasing, though the rebasing date has not been confirmed.
The Government has also confirmed the Temporary Repatriation Facility (TRF) – where taxpayers can bring overseas income / gains to the UK and pay a lower level of tax on the remittance – will be introduced. We do not yet know the rate of tax to be applied, or how long the scheme will be available for, but the Government’s intention is to make the scheme “as attractive as possible”.
Under the Conservative proposals, income and gains currently in trust structures would not have benefitted from TRF, but the recent Government announcement hints at the possibility that there may be provision to bring such funds to the UK.
Inheritance Tax Changes
Perhaps the most significant change announced is that the Government will make changes to the inheritance tax (IHT) regime to move away from domicile and towards a residence based system, and this will be introduced from 6 April 2025. There will be no further public consultation on the matter but stakeholder feedback received before the July election was announced will be reviewed.
It appears that the Conservative proposal of becoming subject to UK IHT on worldwide assets after ten years of residence, but then only falling out of this worldwide regime after ten years of non-residence, is to be adopted.
The Government’s intention is to end the use of excluded property trusts (trusts where non-UK assets are not chargeable to IHT), and to change the way IHT is charged on such trusts. There is a hint at some form of grandfathering for existing structures, or a transition to a new regime. No more detail is available now but the detailed application of the rules will be published at the Budget – announced for 30 October.
Reviewing Anti-Avoidance Rules
UK residents with offshore structures may be familiar with the anti-avoidance rules relating to trusts and companies overseas. These are complex and at times ambiguous, and so we welcome the review of these rules announced by Government. We also note that no changes are anticipated before the start of the 2026/27 tax year – giving a good amount of time for consultation (which we hope will be forthcoming).
What to do Now?
It is concerning that such a fundamental change to tax legislation as the IHT regime change will take place in such short order and with no further consultation. History teaches us that the best way to create unfairness and obscurity in the tax system is to rush through changes, and so a long timeframe on the existing anti-avoidance rules is to be welcomed.
Non-doms currently living in the UK and who have used the remittance basis will no doubt be interested in the TRF when details are available. If the remittance basis has not yet been claimed by such an individual, it may be beneficial to make a claim for 2023/24 or an earlier year as it would appear this is a prerequisite to capital gains tax rebasing. Perhaps deferring the filing of the 2023/24 tax return until after 30 October could mean further clarity is available.
UK residents who will have been in the UK for four years may also want to consider reviewing their investment strategy in the light of worldwide taxation from April. Likewise, trusts with UK resident settlors may need to consider the investments and possible approaches in advance of the removal of the protected settlements regime.
We don’t yet have enough information about the proposed IHT regime to know the best approach for individuals and trustees; we hope that the documents published at the Budget will give the clarity that taxpayers (and their advisers) need.
If you need specific advice, please do get in touch with your usual team members, or on advice@charter-tax.com
Disclaimer
The information provided by Charter Tax Consulting Limited is general in nature and does not constitute specific tax advice. Professional advice should be sought before deciding on a course of action, or refraining from a certain action, arising from the above information. Tax legislation changes regularly and the information contained herein is provided based on information as at 30 July 2024.
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