Further to Labour winning the general election, the following changes are expected to the non-dom/ UK tax regime. Whilst we are not tax advisors, we set out below a summary and encourage our clients to engage with their tax advisors and us in relation to the proposed changes, which are due to be implemented from (or possibly before) 6 April 2025.

• Individuals coming to the UK for the first time, or who have been non-UK resident for at least  10 years will benefit from a special regime for their first four years of tax residency in the UK. It is proposed that under this new regime all non-UK income and capital gains (CG) will be exempt from UK tax. Unlike the current regime where foreign income and CG are taxable if they are brought to or spent in the UK under the remittance basis, under the new regime individuals will be able to spend their foreign income and CG in the UK without triggering UK tax.

• After the initial four years of tax residency, individuals will be subject to UK tax on their worldwide assets, including income and gains which arise in non-UK settlor-interested structures (such as companies and/or trusts and foundations).

• After 10 years of UK tax residency, individuals will be subject to inheritance tax on their worldwide assets, not just UK assets. The government envisages that the basic test for whether non-UK assets are in scope for IHT from 6 April 2025 will be whether a person has been resident in the UK for 10 years prior to the tax year in which the chargeable event (including death) arises, with provision to keep a person in scope for 10 years after leaving the UK. The government will engage further with stakeholders on the operation of the new test, so that any refinements can be considered fully. IHT charges arising on deaths occurring before 6 April 2025 will be unaffected by these changes and will be charged according to the existing rules

• IHT on non-UK assets held in offshore structures. The government has suggested that there may be some provisions available for existing protected trusts – these will be published at Budget, following external engagement

• The 50% reduction in foreign income subject to tax for individuals who lose access to the remittance basis in the first year of the new regime will not be introduced, as proposed by the Conservative government

• Increase in capital gains tax rate

• UK resident individuals who are ineligible for the 4-year FIG regime (or who choose not to make a claim for a tax year) will be subject to Capital Gains Tax (CGT) on foreign gains in the normal way. For CGT purposes, current and past remittance basis users will be able to rebase foreign capital assets they hold to their value at the rebasing date when they dispose of them

• Stamp Duty Land tax - Labour have commented that they will increase the charge for non-residents by 1 per cent to an additional 3 per cent.

• Proposed changes to the taxation of carried interest – the government intends to engage extensively with all interested parties.

There will still be situations where the proposed changes will not impact existing offshore structures or provide benefit to an individual. For example:

• Where the settlor of a non-UK resident trust is dead or non-UK resident, we expect that most income and gains will only be subject to UK tax if a UK resident beneficiary receives a distribution or other benefit from the trust, per current regime

• The exclusion of the settlor and spouse/civil partner from benefitting from a non-UK structure could allow income to be rolled up tax free and provide relief from an inheritance tax charge on the settlor’s death

• Planning opportunities with regards to the amount of time spent in the UK.  There may be some ability to reduce UK tax or mitigate entirely if the individual is more closely linked with another country but there would need to be a double taxation agreement between the UK and other country

• Reduction or mitigation of tax can be achieved through some investments – for example certain life insurance bonds which allow the investor to withdraw 5 per cent of their capital a year without triggering UK tax on profits made on the investments held in the policy.  However, it should be noted that tax would become payable if the policy is surrendered

• Individuals wishing to realise a large gain may move to the UK and realise the gain during the first four years of residency, where they would otherwise be subject to tax on the gain where they live currently.

For clients who are already deemed domiciled in the UK we would propose that advice is sought prior to the budget on 30 October 2024.

Please contact Marina Mauger to discuss, at marina.mauger@hfl.co.gg.