Member News

Internationally mobile families with UK connections are facing huge changes to how they are going to be taxed in the UK.

We have known about the changes for a few months, but we have been waiting, and to a certain degree we continue to wait, for clarification on finer points. 

HMRC has now released a policy paper which provides further guidance regarding the proposed changes and the Government has set the Budget for the 30 October, so we know a little more than we did.

New Arrivers to the UK 

What is clear is that from 6 April 2025, individuals moving to the UK (who have not been UK resident in any of the previous 10 tax years) will not pay UK tax on their foreign income and gains for the first four years of UK residence (FIG regime). After the first four years, these individuals will be subject to UK tax on all income and gains (foreign and UK source).  We also know that there will be a form of Overseas Workday Relief for those working overseas however further details on this are expected to be confirmed in the Budget.

Individuals already in the UK 

The current tax year will be the last year of the remittance basis regime of taxation for qualifying non-UK domiciled / UK resident individuals. The remittance basis regime, which gives certain non-UK domiciled but UK resident individuals an exemption from UK tax on non-UK income / gains provided the income / gains are not "remitted" to the UK, will be abolished. 

We know that there will be some transitional reliefs in the form of a temporary repatriation facility (TRF) which the Government hopes will encourage former remittance basis users to bring previously untaxed income and gains to the UK. We do not know what the tax rate will be for the TRF, or how many tax years it will be in place, but we know that the government intends to make it "as attractive as possible".

We also understand that current and past remittance basis users will be given an opportunity to rebase their foreign assets to their value at a specific date for UK capital gains tax purposes. The government is considering when this valuation date will be and will confirm this, again in the Budget. 

UK inheritance tax (IHT)

From the 6 April 2025, once an individual has been resident in the UK for 10 years, they will be subject to UK IHT on their worldwide assets. 

A person will also remain within the scope of IHT for 10 years after leaving the UK. This 10-year tail is significantly longer than many would like and unsurprisingly it is worrying to individuals who have left the UK but who have not been non-resident for the required 10-year term. 

HMRC's policy paper suggests that the Government will ‘engage further with stakeholders on the operation of the new test' so we will watch this space, but our opinion is that it is unlikely to result in a reduction in the proposed 10 year tail. 

Trusts 

The proposed changes will hit trust structures hard. 

From 6 April 2025 a non-UK domiciled individual who lives in the UK will no longer be able to protect non-UK assets from UK IHT by establishing an Excluded Property Trust. 

The result of this is that once a settlor of a trust has been UK resident for 10 years, and if the settlor continues to be able to benefit from the assets in the trust, the value of those assets will be subject to IHT on the settlor's death at a rate of up to 40%. 

If the settlor can benefit from the trust, then trust income and gains will likely be taxed on the settlor after 4 years of UK tax residence. However, we understand that a new UK resident settlor will be able to take advantage of the FIG regime to prevent a charge to UK tax on trust income and gains attributable to him in his first 4 years of UK residence.

We believe there may be some transitional arrangements for existing trusts which could be helpful for those who already have structures in place, but we won't know more until the 30 October.

Time will tell 

We will have to wait until the Budget for further details on most of the above and thereafter for the publication of draft legislation. This leaves a relatively short window to plan for the changes. Nevertheless, individuals considering retuning to live in the UK, or those who could be affected by the proposals, should obtain advice. 

Author: Rebecca Goldring, Senior Associate at Trowers & Hamlins