Paragraph 5, Schedule 9 of the Finance Act 2025 inserted the emboldened wording to section 809P(12) ITA 2007 concerning the ‘re-remittance’ of foreign income and gains:
“if the amount remitted (taken together with any amount previously remitted that has been charged to tax) would otherwise exceed the amount of the income or chargeable gains, the amount remitted is limited to the amount which (when taken together with any amount previously remitted that has been charged to tax) is equal to the amount of the income or chargeable gains.”
The legislation refers to the treatment of remittances to the UK where the relevant foreign income and/or gains (“FIGs”) had previously been remitted to the UK, but not charged to tax- usually because the taxpayer was not UK resident in the remittance year and did not subsequently fall within the temporary non-residence rules.
The wording of s.809P(12) ITA 2007 prior to the FA 2025 tweak was widely accepted by the tax profession to mean that FIGs could be remitted to the UK at a time when this remittance was not taxable and that would ‘cleanse’ those FIGs such that they could be used freely in the UK thereafter- for example when the taxpayer resumed UK residence having been away for 6 years.
The addition of the emboldened wording now seems to mean that such cleansing will no longer be effective and if these income and gains are subsequently re-remitted to the UK, this later remittance may be charged to UK tax.
Of some concern is that HMRC set out their view on the FA 2025 amends in written correspondence with the CIOT stating that the amends to the legislation in fact simply reinforce/ clarify what has always been the HMRC view- that second/ subsequent remittances are only ever relieved from tax if the first occasion of the remittance had been charged to tax.
Perhaps as a result of this confusion/ conflicting views between industry experts and HMRC, a relief was introduced at Amendment 24 (“Relief for amounts remitted again on becoming UK resident”) to the Finance Act 2025 to limit the impact of the insertion of the new wording to future action only. The relief operates by treating the original remittance as having been taxed so that future re-remittances are not charged to tax. The wording of Amendment 24 possibly adds further uncertainty but the intention is to limit the retrospective impact of the FA 2025 wording.
In short going forward, relief should be available to individuals who cleansed and re-remitted funds prior to 6 April 2025. It will not help:
· Individuals who remitted FIGs to the UK in a non-UK resident period but have not yet re-remitted the FIGs to the UK;
· Individuals who have not been UK resident in 2024/25 or 2025/26;
· Individuals who have made a claim for split year treatment in either 2024/25 or 2025/26;
· Taxpayers who have previously ‘cleansed’ their FIGs by remitting these at a time when they were not subject to tax, for a reason other than a period of long term non-residence. This includes those with a period of non-residence of less than 5 years but where the temporary non-residence rules do not apply (for instance because they were UK resident for fewer than 4 of the 7 years before becoming non-resident) and those who have made a remittance of FIGs which were not subject to tax due to the availability of their personal allowance/ annual exempt amount.
Action Points
Some taxpayers may need to regularise their tax position with HMRC where the re-remittances of perceived cleansed funds have been treated as taxable.
Individuals who had been advised that FIGs were cleansed (but may in fact not be) and could be treated as clean capital may have ceased to operate account segregation meaning clean capital is now be buried deep beneath the affected FIGs. A mixed fund analysis may be required.
Anyone affected should take professional advice.
In his speech delivered on 11 March 2025 at the Chartered Institute of Taxation, James Murray, Exchequer Secretary to the Treasury, announced plans for HMRC to introduce a new whistleblowing scheme. The new scheme will take inspiration from the US and Canadian whistleblowing schemes which substantially reward informants for providing information to tax authorities on tax non-compliance.
The new scheme follows the measures outlined in the Chancellor’s Autumn Budget to “close the tax gap,” and is aimed at tackling “serious non-compliance in large corporates, wealthy individuals, offshore and avoidance schemes.” The scope of the scheme has not been confirmed but given the reference to “avoidance schemes” it is not expected to be limited to reports of tax evasion but also “serious” tax avoidance.
How does HMRC’s current rewards scheme work?
The new scheme is intended to complement HMRC’s current rewards scheme (contained in section 26 of the Commissioners for Revenue and Customs Act 2005) which rewards informants on a “discretionary” basis rather than as a percentage of the tax recovered (and so currently in the UK there is actually no guarantee that an informant would receive any reward for providing information to HMRC).
Rewards under HMRC’s current scheme are relatively modest and not linked to the amounts recovered. Therefore, it is unlikely that money is currently the main incentive for informants to approach HMRC (and the scheme is not widely publicised in any case). In 2023 – 24 HMRC reportedly paid out nearly £1m in awards (the highest payout in recent years). However, in comparison, in the same year the Inland Revenue Service (“IRS”) paid out a total of $88.8m across 121 awards in respect of recoveries totalling $338m.
How might the new scheme work?
Details of the new scheme have not been confirmed but, if the UK followed the US model, then rewards for whistleblowers could be between 15 – 30% of the sums collected (which includes tax, interest, penalties and fines). Whistleblowers in Canada receive less (5 – 15%). The payments are potentially very large sums, and it marks a significant change in practice for HMRC in tackling tax non-compliance.
In the US, the IRS has a dedicated Whistleblower Office which processes information relating to whistleblowing claims. Whistleblowers in the US will qualify for awards for providing “specific” and “credible” information to the IRS regarding tax underpayments or violations that lead to proceeds being collected.
Informants making claims are required to provide the following information to the IRS to support their claim:
• A description of the alleged tax non-compliance and supporting evidence (and a description of documents or evidence not in the whistleblower’s possession or control);
• An explanation of how and when the whistleblower became aware of the information;
• A description of the whistleblower's relationship to the relevant party (for example, family member, client, employee etc); and
• A signed declaration under penalty of perjury if false information is provided.
There are certain “ineligible” whistleblowers who cannot make claims, mainly individuals reporting on non-compliance linked to their roles in the federal government.
In order to qualify for a tax-geared award the information provided must relate to a claim exceeding $2,000,000 or, if the subject of the claim is an individual, the individual’s gross income for the relevant tax year must exceed $200,000 (the Canadian thresholds are less). If the claim does not meet the criteria for a tax-geared award, then the IRS can instead pay awards as part of discretionary programme. It might be anticipated that the UK government will include similar minimum thresholds in order to reduce time and cost spent pursuing smaller claims.
Notably awards can be decreased for claims based on information obtained from public sources or if the whistleblower “planned and initiated” actions which led to the non-compliance. Again, it is expected that a similar provision would be included in the UK rules to prevent, for example, individuals involved in planning and procuring tax avoidance schemes from receiving substantial awards.
Conclusion
It remains to be seen how the new UK whistleblowing scheme will work in practice, however, some early observations can be made at this stage:
1. Under the new UK scheme, whistleblowing will become a much more attractive option given the powerful financial incentives for informants. In essence, people are being encouraged to whistleblow. Even if the information supplied does not directly lead to a tax recovery, it (the information) will presumably potentially sit on HMRC’s Connect system. It is assumed that there will need to be systems in place to separate reports of genuine tax non-compliance from opportunistic informants providing misleading information to HMRC;
2. Dealing with more claims will require significant resource allocation from HMRC, but also from businesses and individuals who are the subject of allegations;
3. Due to the nature of the information provided, reports are more likely to be made by individuals close to the taxpayer or employed by them. Businesses should be aware of the protections afforded to whistleblowers by the law; and
4. Information obtained from whistleblowers by HMRC can be shared with different Government departments (subject to relevant information gateways), including, for example, the Serious Fraud Office, the Police (in some circumstances) and the Financial Conduct Authority.
The details of the new scheme are not yet available but there is clearly a potential for a significant change in tax compliance work. All of the information supplied to HMRC is likely to involve a breach of confidence of some nature. Some of the information supplied will be accurate, but it is likely that some of the information supplied will be inaccurate or incomplete. Both types of information may have consequences for the taxpayer.
A further note will be produced when details of the new scheme are published.
The latest Finance Bill amendments correct some technical errors and include a few helpful changes to the Temporary Repatriation Relief.
The Finance Bill 2025 Report Stage amendments were published mid-afternoon on Tuesday 25 February. The Committee Stage amendments had been somewhat lacklustre – but following inviting comments around the Temporary Repatriation Relief (TRF) made by the Chancellor at the World Economic Forum at Davos, hopes were high for some softening of the changes to the taxation of non-UK domiciled individuals to stem the surge of wealth leaving the UK.
The relevant Report Stage amendments can be found at: Gov 5 to Gov 17 (13 in total) and then Gov 21 to Gov 66 (46 amendments). There is no substantive change in policy, the adjustments instead largely correct technical drafting oversights.
Mercifully, the changes made in Sch 9 para 5 to the definition of ‘remitted to the UK’ will no longer render cash in an offshore bank account ‘remitted’ to the UK by default! In addition, it seems that capital payments/benefits from any TCGA 1992 s 89 so-called migrant settlements will be able to benefit from the TRF where matching is to pre-6 April 2025 income or gains.
Meaning of ‘remitted to the UK’: The Report Stage amendments fortunately alleviate concerns that money in non-UK bank accounts will result in inadvertent remittances, however, there is still significant concern with respect to the other extensions to the meaning of ‘remitted to the UK’. The ICAEW and CIOT both called for Sch 9 para 5 to be withdrawn in full, but this has not happened. In the absence of clearly drafted legislation, it seems inevitable that the impending issued HMRC guidance will come to be heavily relied on in this arena which in turn creates significant uncertainty and difficulty for those affected who are trying to structure their affairs.
Trust legislation: Various technical amendments (Gov 50 to Gov 55) have been made to Sch 12 which governs the treatment of trust income/gains under the new rules. The technical adjustments hopefully ensure that trust pooling works as intended.
TRF amends: The TRF amendments are contained at Gov 28 to 49 (22 in total). The changes make helpful changes to the way that the TRF will operate. Specifically:
Conclusion: The great speed with which the Government is acting to abolish a long-established set of tax rules will inevitably mean that errors will be made. It is hoped that the changes on the horizon in relation to the personal offshore anti-avoidance legislation (the call for evidence having closed on 19 February) receive adequate consultation and are not also enacted with such haste.
Original article can be found here: Finance Bill Report Stage amendments to the non-dom reforms (taxjournal.com)
We are happy to announce that JHA's Tax Disputes Team has been ranked as Band 1 by Chambers Global today. A special congratulations to our lawyers who also received individual recognition: Graham Aaronson KC (Band 1), Michael Anderson (Band 2) Iain MacWhannell (Band 4) and Paul Farmer (Senior Statespeople).
This is the latest successful ranking, following previous top-tier rankings in Legal 500 United Kingdom 2025, Chambers UK 2025 and Chambers High Net Worth Guide 2024.
Helen McGhee TEP, Elizabeth Dean and Megan Durnford consider HMRC’s ever-expanding criminal investigation powers
The number of civil investigations opened by His Majesty’s Revenue and Customs’ (HMRC’s) Offshore Corporate and Wealthy team more than doubled between 2021/2022 and 2022/2023, rising from 284 to 627 respectively.[1]
The number of Crown Prosecution Service decisions to bring criminal charges rose 80 per cent over the same period, going from 46 to 83.[2]
HMRC has extensive powers to support this increasingly aggressive approach taken to noncompliance.
Should His Majesty’s Revenue and Customs (HMRC) decide to start a criminal investigation, the powers already available to its authorised officers are expansive.
Search warrants
It is not just the police who can carry out ‘dawn raids’. HMRC too, with a warrant granted by a magistrates’ court, can enter one’s property unannounced, often early in the morning, to collect evidence to further an investigation into HMRC-related offences. During the search, HMRC can seize any material to which the warrant relates. Although HMRC cannot use certain documents (those protected by legal professional privilege, for example), it can take months for an independent barrister to determine which of the material seized falls within that limited category. It may be possible to challenge the legality of the search warrant itself, and so the retention and/or use of any documents seized by HMRC, or to argue that the seized material falls outside the scope of the warrant.
Orders and notices
Production orders and disclosure orders/notices are useful instruments in HMRC’s toolkit as they grant HMRC the ability, when conducting investigations into particular offences, to compel those subject to the order or notice (often third parties such as banking staff or accountants) to provide specified material and/or information, including by answering questions relevant to the investigation in an interview with HMRC. Compliance with such orders is compulsory and non-compliance is an offence punishable by a fine and/or imprisonment. HMRC must apply for a production order in the Crown Court. Representations can be made at that hearing on behalf of the individual or company to argue that the proposed terms of the order are too broad in scope. Moreover, the individual or company which is required to produce material and/or information in response to the production order or disclosure order/notice is often given only seven days to comply. It may be possible to negotiate with HMRC to extend time for compliance where that task is particularly onerous.
Arrest
HMRC’s powers of arrest may only be used in relation to HMRC-related offences and in circumstances where the authorised officer has reasonable grounds for believing that it is necessary to arrest the person in question. The consequences of doing so can be far-reaching, for example, the US will often reject visa applications from persons who have been arrested. In addition, HMRC can search suspects and premises following an arrest. Voluntarily attending an interview under caution will normally negate the necessity of an arrest. However, obtaining specialist legal advice is critical in deciding whether to attend an interview voluntarily and, if so, whether to answer HMRC’s questions in full, answer ‘no comment’, or provide a written statement prepared in advance.
Recovery of assets
HMRC can recover criminal assets through the Proceeds of Crime Act 2002.
Accessing data
HMRC can apply to the Court to use intrusive surveillance powers in the context of serious crime. This does not mean however, that one’s data is off limits in any other instance. As HMRC’s criminal investigation policy makes clear,[3] ‘HMRC may observe, monitor, record and retain internet data which is available to anyone.’ This is known as ‘open source’ material and includes blogs and social networking sites where no privacy settings have been applied. We are living in an increasingly digital age and as a result, HMRC have access to a plethora of information on any given individual.
A Code of Practice 9 (COP9) is a process whereby a person whom HMRC suspects is guilty of tax fraud is given the opportunity to make a disclosure setting out the background/reasons for any noncompliance and make good any potentially unpaid tax. In exchange, subject to some exceptions, HMRC will formally agree not to open a criminal investigation. This agreement is called the Contractual Disclosure Facility (CDF).
The HMRC COP9 guidance was substantially altered in 2023.[4] One change of particular note was the broadening of the definition of tax fraud. Under the previous COP9 guidance,[5] tax fraud was defined by HMRC as ‘dishonest behaviour that led to or was intended to lead to a loss of tax’. Under the new COP9 guidance,[6] however, this was extended to ‘dishonest behaviour that led to or was intended to lead to a risk of loss of tax’. Taxpayer behaviour may fall within this definition even if the fraud is in respect of tax owed by another, even if the individual does not personally make any gain. HMRC’s definition of ‘tax fraud’ for the purposes of COP9 is slightly different to when it is being prosecuted as a criminal offence. For example, a person will be guilty of fraud by false representation if they dishonestly make a false representation and intends, by making that representation, to make a gain for themselves or another, or to cause loss to another or to expose another to a risk of loss.
It is HMRC’s policy to deal with fraud by use of the cost-effective civil fraud investigation procedures under COP9 ‘wherever appropriate’. HMRC intends to reserve criminal investigations ‘for cases where HMRC needs to send a strong deterrent message or where the conduct involved is such that only a criminal sanction is appropriate.’ When deciding between COP9 or a criminal investigation, HMRC’s criminal investigation policy also confirms one factor will be whether the taxpayer has made a complete and unprompted disclosure of the offences committed.[7] In cases of non-compliance, following a COP9 route will almost always be preferable, particularly given the broad powers available to HMRC in a criminal investigation and the risk of conviction and a potential sentence of imprisonment following a criminal prosecution.
New criminal offence: failure to prevent fraud
The new ‘failure to prevent fraud’ corporate offence is expected to come into force in the first half of 2025. Specifically, the new offence will be committed if one of the relevant body’s associated persons commits a specified type of fraud intending to benefit, directly or indirectly, the relevant body or a person to whom services are provided on its behalf. Although it only applies to large organisations, this new offence has a broader scope than the similar ‘failure to prevent the facilitation of tax evasion’ offence created under the Criminal Finances Act 2017 (the Act). The definition of the relevant body’s associated persons is wider including:
Unlike the mentioned offence under the Act, HMRC will not need to prove that the subsidiary was performing a service on behalf of the relevant body.
Expansion of DPAs
A deferred prosecution agreement (DPA) is an agreement, approved by a court, between either the Crown Prosecution Service (CPS) or the Serious Fraud Office (SFO) and an offending company, as an alternative to prosecution. Under the agreement, the corporate defendant will agree to certain conditions (such as payment of a financial penalty) and the prosecuting agency agrees to ‘defer’ prosecution indefinitely, provided the defendant does not subsequently breach the agreement. Key advantages of a DPA include avoiding a long and expensive trial and minimising the reputational damage caused by a criminal conviction.
Since the introduction of DPAs in 2014, the SFO has entered into 12 agreements[8] and the CPS has entered into one agreement.[9] In Labour’s Plan to Close the Tax Gap,[10] published shortly before the 2024 general election, Labour expressed dissatisfaction with the number of criminal prosecutions and criticised the ‘weakened … deterrent effect’ this has resulted in. One possible avenue they have suggested to address this is to expand the use of DPAs to include individuals (the current scheme being limited to particular offences committed by corporate bodies). One might think that COP9 already serves this purpose but there is a crucial difference: DPAs are public. Should the government go ahead with this planned expansion, it will be interesting to see what impact, if any, this has on HMRC’s willingness to enter into the COP9 process and/or the terms it is willing to agree to under that process.
The end to the non-dom regime
The end to the non-domicile regime, under which certain taxpayers could elect to pay tax on foreign income/gains only when remitted to the UK, is expected to occur with effect from 6 April 2025.[11] Significant sums of foreign income/gains are therefore expected to become taxable for the first time and HMRC will need to consider how to police the new regime effectively. Flexing their muscles in the realms of criminal investigations using their extensive powers may then prove a useful deterrent.
Despite the already broad powers afforded to HMRC, the Labour government has made their dissatisfaction with the current levels of criminal prosecutions in the context of tax non-compliance clear. Should they follow through with the plans set out during their election campaign, it is expected that an extra GBP3 billion will be allocated to HMRC, with the purpose of employing an additional 5,000 employees by 2030 and thereby providing the resources to secure more criminal convictions. With the political push to recover more tax through criminal investigations and/or DPAs, it is more important than ever that clients understand their rights and options during such investigations.
When deciding how to respond to a criminal investigation conducted by HMRC, whether as an individual or company suspected of wrongdoing, or a third party required to disclose information, clients will need legal advice from specialist tax and white-collar crime lawyers.
[1] Taxation, ‘Criminal charges rise 80% in a year’
[2] Above, note 1
[3] HMRC’s criminal investigation policy
[4] Joseph Hage Aaronson, ‘HMRC Makes Changes to COP9’
[5] The previous COP9 guidance
[7] HMRC’s criminal investigation policy
[10] ‘Labour’s Plan to Close the Tax Gap’
[11] Tax Journal, ‘Much ado about non-doms: the new policy paper’
Original article can be found here: Search and seizure (STEP Journal)
This decision is a stark reminder of the public nature of litigation. Before embarking on any litigation, practitioners would be wise to advise their clients on (i) the importance placed on hearings and decisions being public and (ii) the very limited circumstances in which their identity could be protected.
For those considering making an application for anonymity, this decision emphasises the need to accumulate evidence to support an assertion that failure to provide such anonymity would cause harm. That the taxpayer in this case was unable to preserve their anonymity by withdrawing their substantive appeal also flags the importance of considering all the consequences of making an interim application.
Note that the Taxpayer remains anonymous for the time being pending appeal. Either party may later seek to appeal this discrete issue which will continue to remain live, regardless of whether the substantive appeal is later withdrawn or settled.
The decision additionally provides guidance for third parties seeking disclosure of documents, including the test for determining such applications and a reminder of the importance of seeking disclosure from the correct court or tribunal.
In a decision released on 11 January 2024 (the January Decision) the UT allowed an appeal against a case management direction issued by the FTT on 15 September 2021 that ‘preliminary proceedings in this matter shall be heard in private’. The January Decision was temporarily anonymised, pending the expiry of the period for seeking permission to appeal, permission being refused or the taxpayer’s appeal ultimately failing.
On 9 April 2024, the taxpayer made an application to the UT to continue the anonymity proceedings provided for in the January Decision (the Anonymity Application) on the basis that the Taxpayer had decided to withdraw his substantive appeal to the FTT and ‘in those circumstances he ought to be permitted to retain the existing anonymity’. The taxpayer then later withdrew their substantive appeal on 8 October 2024.
Two of the key grounds for the Anonymity Application were:
One of the third parties, Times Newspapers Ltd and News Group Newspapers Ltd (together NGN), also applied for disclosure of a number of documents relating to both the appeal to the UT and the substantive appeal with the FTT.
The Anonymity Application
The UT refused the Anonymity Application. In doing so, it held that it is not the application for privacy which leads to publicity (if a privacy application is refused) but the choice to bring a tax appeal (or any other civil proceedings) [para 26]. The UT ‘firmly reject[ed]’ the taxpayer’s submissions that the very act of making a privacy application (regardless of its merits and without any supporting evidence) (i) generates anonymity for the proceedings in question, (ii) can be carried out with no risk of anonymity being lost, even if refused or overturned on appeal, and (ii) must itself attract permanent anonymity, in circumstances where the substantive appeal is eventually withdrawn [para 34].
A factor which appeared to have played a prominent role in the UT’s decision was the taxpayer’s failure to produce any evidence of potential harm which was said to have justified either the application to the FTT for privacy or the Anonymity Application. The UT further noted that the necessary requirement to justify the Anonymity Application did not disappear simply because the taxpayer had withdrawn their substantive appeal to the FTT.
In reaching its decision, the UT applied the principles for determining anonymity applications set out by Lord Neuberger in JIH v News Group Newspapers Ltd [2011] EWCA Civ 42, stating those principles would be undermined if the Anonymity Application was ‘granted without any consideration of the degree of necessity, the facts and circumstances said to justify anonymity, or the proportionality of the derogation from the principle of open justice’ [para 33].
The UT further confirmed that the guidance on the principle of open justice provided in Farley v Paymaster Ltd (1836) t/a Equiniti [2024] EWHC 3883, in the context of Civil Procedure Rules, equally applies to tribunal proceedings [paras 17–18].
The UT additionally distinguished the exception to open justice established in Scott v Scott [1913] A.C. 417 on the basis that that decision applied specifically to cases where trade secrecy is the subject matter of proceedings. JK v HMRC [2019] UKFTT 411 (TC), A v Burke and Hare [2022] IRLR 139 and Zeromska-Smith v United Lincolnshire Hospitals [2019] EWHC 552 (QB) were also all distinguished as each ‘concerned a situation in which the applicant had a strong, arguable case, supported by evidence, for privacy or anonymity’ [para 29].
Disclosure application
Paragraphs 44 to 50 of the UT’s decision concerned NGN’s disclosure application. In summary:
Original article can be found here: UT considers taxpayer’s application for permanent anonymity and third-party disclosure request (HMRC v The Taxpayer and Others) - Lexis
1. CHANGES TO THE TAXATION OF NON-DOMICILED INDIVIDUALS
The new rules are complex and what follows is an overview. The non dom changes will be effective from 6 April 2025. No changes have been made to the statutory residence test (SRT) effective for UK tax purposes from tax year 2013/14 onwards (prior to then the common law determined UK residence status for tax purposes).
1.1. Who can benefit from the new 4 year FIG regime?
a. Domicile status is no longer relevant, we are looking solely at residence as a UK connecting factor for tax.
b. Residence is determined under UK domestic tax law. Being non-UK resident under a treaty is not relevant.
c. In the first qualifying year the individual must have been non-UK resident for 10 continuous prior tax years.
d. An individual can only benefit within the period of four continuous UK tax years after the first qualifying year. If the individual is non-resident at all in the four-year period, it is not extended.
e. If a tax year is a split year this will mean that the entire year of relief is utilised. In effect the relief period is likely to be much shorter than four tax years.
f. There is a special rule so individuals who have been UK resident for less than three prior tax years as of 6 April 2025 can benefit so long as the individual has been non-UK resident for 10 continuous tax years when they came to the UK in the first year. In this circumstance the maximum relief allowable is four tax years when the years the remittance basis could have been claimed are added to the years when the individual can make claims for the new relief.
1.2. What is the new special 4 year FIG regime?
a. Three relief claims can be made: (i) claim for relief on foreign income; (ii) claim for relief on foreign employment income (what was overseas workday relief); and (iii) claim for relief on foreign gains.
b. These are independent claims, so the individual can choose to make none, one, two or all three for any qualifying tax year. For the claims to be valid the amount of foreign income, foreign employment income and/or foreign gains, must be quantified and included in the relevant tax return.
c. It is possible to claim relief on some foreign income, foreign employment income or foreign gains and not all.
d. The compliance will be onerous with significant disclosure required.
e. Claims must be made on a tax return or amended return. The return deadline is twelve months after 31 January following the relevant tax year.
f. For the two income reliefs the relief is given by way of a deduction from income (so all income is included in the computation then the foreign income nominated is deducted).
g. Not all foreign income is covered by the foreign income relief (for example chargeable event gains on foreign life insurance policies are not covered).
h. For the foreign gains relief all gains are computed then the foreign gains nominated are deducted.
i. If one or more of the three claims is made for a tax year, then entitlement to the personal allowance and other income tax allowances/reliefs is lost as well as the CGT annual exemption. Entitlement to foreign income and capital losses cannot be claimed for the relevant tax year.
j. Any income with respect to which relief is claimed is not disregarded when computing adjusted net income.
k. For foreign employment income relief, a cap is placed on the relief per tax year of the lower of £300,000 and 30% of the relevant qualifying employment income.
l. After the 4 years the individual is taxed on the arising basis on worldwide income and gains.
1.3. What are the transitional provisions in relation to the new regime for foreign income and gains?
a. Rebasing of foreign assets is available as of 6 April 2017 provided specified qualifying conditions are met.
b. Three-year temporary repatriation facility (TRF).
c. See our Insight piece entitled “The End of the Remittance Basis and the Two Transitional Provisions” for a more detailed analysis.
1.4. What about offshore trusts set up by non-doms?
a. The trust protections for income tax and CGT do not apply from 6 April 2025.
b. Unless the individual can claim relief under the new 4 year FIG regime they will be taxed as any other UK resident on anything attributed under the offshore avoidance provisions with respect to tax years 2025/26 onwards.
c. The transitional provisions apply with respect to pre-6 April 2025 income and gains.
d. There will be some changes to the beneficiary CGT gains attribution provisions. Gains attributed to beneficiaries from non-UK resident trusts will no longer automatically form the highest part of the individual’s gains and the prohibition on offsetting personal losses against such attributed gains will be removed.
e. For settlors within the settlor CGT gains attribution provisions from 6 April 2025 they will be able to benefit from the FA 2008 transitional rule referred to as “trust rebasing” which will continue through to the computation of all gains from 6 April 2025 where a valid election has been made.
1.5. The new IHT regime for current non-UK doms:
a. Residence rather than domicile determines who is within the scope of UK IHT going forward.
b. An individual will be subject to UK IHT on worldwide assets when they have been UK resident for at least 10 of the last 20 tax years immediately preceding the tax year in which the chargeable event (including death) occurs. At that point, an individual will remain within the scope of worldwide UK IHT for at least three tax years after being non-UK resident. The number of years the individual remains within scope of UK IHT rises by one tax year for every year of UK residence after 13 years until it reaches a maximum of 10 years after 20 years of UK residence as shown by the following table:
TAX YEARS OF UK RESIDENCE PRECEDING DEPARTURE FROM THE UKLENGTH OF TAIL10 to 13 out of the preceding 20 tax years3 complete tax years of non-UK residence preceding the relevant year.14 of the preceding 20 tax years4 complete tax years of non-UK residence preceding the relevant year.15 of the preceding 20 tax years5 complete tax years of non-UK residence preceding the relevant year.16 of the preceding 20 tax years6 complete tax years of non-UK residence preceding the relevant year.17 of the preceding 20 tax years7 complete tax years of non-UK residence preceding the relevant year.18 of the preceding 20 tax years8 complete tax years of non-UK residence preceding the relevant year.19 of the preceding 20 tax years9 complete tax years of non-UK residence preceding the relevant year.20 of the preceding 20 tax years10 complete tax years of non-UK residence preceding the relevant year.
d. For those who are 20 years old or younger, the test is whether they have been UK resident for at least 50% of the tax years since their birth.
e. There are transitional provisions for those who are non-resident in 2025/26 and not domiciled in any of the three UK jurisdictions for common law purposes as of 30 October 2024 and not deemed domiciled. Provided these individuals remain outside of the UK they will not be within worldwide IHT even if they would otherwise be caught by the 10 out of 20 year rule.
f. Individuals who were not domiciled in any of the three UK jurisdictions for common law purposes as of 30 October 2024 but were deemed domiciled can also benefit from transitional provisions. If such individuals are not UK resident in 2025/26 their UK IHT tail will be restricted to three years, regardless of what it would otherwise be based on their years of UK residence, provided they do not resume UK residence.
g. See APR and BPR changes below.
1.6. The new IHT regime for offshore trusts
a. There are different rules for qualifying interest in possession trusts (“QIIPs”) which broadly refers to trusts with a life interest either created on death or for a qualifying disabled beneficiary and trusts within the relevant property regime (all other private trusts).
b. There will be grandfathering with respect to QIIPs created prior to 30 October 2024 provided the life tenant immediately prior to 30 October 2024 either gives up their interest or dies.
c. Where grandfathering does not apply to QIIPs they will be excluded property trusts where both the settlor and the beneficiary are only subject to IHT on UK situs assets.
d. For all other trusts where the settlor has died prior to 5 April 2025 will be grandfathered meaning that if these trusts were excluded property trusts they will remain so.
e. Where grandfathering does not apply to relevant property trusts, whether their foreign property is excluded will be determined by the IHT status of the settlor in the tax year of the chargeable event (the exit charge or ten-year charge). If the settlor is dead, it will be their IHT status in the year they died.
f. Where a settlor retains an interest in the trust there is a gift with reservation of benefit meaning that the value of the trust property is deemed to stay within the death estate for IHT purposes- this rule has historically not applied to excluded property.
2. CALL FOR EVIDENCE ON THE CHANGES TO THE OFFSHORE ANTI-AVOIDANCE PROVISIONS
2.1. There will be a review to examine:
a. the settlements’ legislation;
b. the transfer of assets abroad legislation; and
c. the CGT legislation in this context.
2.2. The call for evidence closes on 19 February 2025 and poses 5 questions.
2.3. A formal consultation is expected in 2025.
2.4. Legislative change is not expected to be effective any earlier than 2026/27 (so Finance Act 2026).
2.5. See our Insight piece entitled “Review of the Anti-Avoidance Provisions” for a more detailed analysis.
3. OTHER INHERITANCE TAX CHANGES: APR AND BPR
3.1. The scope of APR will be extended from 6 April 2025 to land managed under an environmental agreement with, or on behalf of, the UK government, devolved governments, public bodies, local authorities, or approved responsible bodies.
3.2. From 6 April 2026 the rate of BPR available for shares designated as ‘not listed’ on the markets of recognised stock exchanges, such as on AIM, will be reduced to 50%. A full list of recognised stock exchanges can be found here.
3.3. For other assets where 100% relief was available, effective from 6 April 2026, there will be a material reduction in the relief available under Agricultural Property Relief (APR) and Business Property Relief (BPR):
a. For individuals:
b. For trusts in existence prior to 30 October:
c. For trusts created on or after 30 October 2024 - the £1 million allowance will be divided up between trusts created on or after 30 October 2024.
3.4. The government is committed to publishing a technical consultation in early 2025.
4. INHERITANCE TAX – PENSION CHANGES
Unused pension funds and death benefits, which have previously been exempt from IHT, will be brought into the scope of IHT from 6 April 2027. The implementation of these changes is still being consulted on. The scheme administrator will be responsible for the necessary IHT reporting and paying any IHT due.
5. INHERITANCE TAX – FURTHER FREEZING OF BANDS
The IHT nil rate band (£325K) and residence nil-rate band (£175k) are frozen until at least April 2030.
6. CARRIED INTEREST
6.1. Basic and higher rates of CGT applicable to carried interest are increased from 18% and 28% to a single rate of 32% from 6 April 2025.
6.2. Revised tax regime to be introduced for carried interest from 6 April 2026:
a. This will sit within the income tax framework.
b. Broadly, all carried interest will be treated as profits of a deemed trade and subject to income tax and Class 4 national insurance contributions, with a 72.5% multiplier applied to qualifying carried interest brought within the charge.
7. CAPITAL GAINS TAX
7.1. Standard CGT rates have been increased from 10 and 20% to 18% and 24% for disposals on or after 30 October 2024.
7.2. No changes to the18% and 24% tax rates on chargeable gains realised on residential property.
7.3. The rate of CGT that applies to assets qualifying for Business Asset Disposal Relief (previously Entrepreneurs’ Relief) has been increased from 10% to 14% from 6 April 2025 with a further increase to 18% from 6 April 2026 (matching the lower main rate).
7.4. The lifetime limit for Investor’s Relief is reduced from £10m to £1m. The rates are increased in the same way as the Business Asset Disposal Relief rates.
8. INCOME TAX AND NATIONAL INSURANCE THRESHOLDS
The previous government froze the income tax and national insurance thresholds until April 2028. It was announced that from April 2028 the personal thresholds would be uprated in line with inflation.
9. STAMP DUTY LAND TAX
9.1. The higher rate surcharge of SDLT applicable to purchases of additional residential properties has been increased from 3% to 5% above the standard residential rates of SDLT. The highest rate of SDLT will now be 17% on consideration above £1.5m.
9.2. The single rate of SDLT payable by companies and other non-natural persons on residential properties over £500k has increased from 15% to 17%.
9.3. Increased rates come into effect for transactions which complete, or which are substantially performed on or after 31 October 2024 (the day after the announcement).
10. VAT ON PRIVATE SCHOOL FEES
As announced in July 2024, all education and boarding services will be subject to the standard rate of VAT. This legislation will come into force from 30 October 2024 (it is contained in Finance Bill 2025 which is currently passing through Parliament) but applies to services provided on or after 1 January 2025.
11. HMRC POWERS AND TAX ADMINISTRATION
11.1. The government will invest £1.7bn over the next 5 years to recruit an additional 5000 HMRC compliance staff plus 1800 HMRC debt management personnel.
11.2. Various ongoing consultations and consultations still planned for 2025. Response documents so far have been published on:
a. the regulatory framework in the tax adviser market.
b. the call for evidence on HMRC powers, penalties and safeguards
11.3. From 6 April 2025 the late payment interest rate for tax will rise by 1.5% (currently set at base rate plus 2.5%). Note this will increase the difference between the lower rate paid to taxpayers and received by HMRC (currently the late payment interest rate HMRC receives is 7.5% whereas taxpayers only receive 4%).
12. FURTHER PROVISIONS AIMED AT PREVENTING PERCEIVED ABUSE/TAX AVOIDANCE
12.1. To take effect from 30 October 2024:
a. Changes to the tax rules on liquidations of LLPs.
b. Changes to the close company loans to participators rules.
c. Reducing tax-free overseas transfers of tax relieved UK pensions.
d. Changes to the taxation of Employee Ownership Trust and Employee Benefit Trust.
12.2. To take effect from 6 April 2026:
a. Tackling schemes with respect to car ownership that are felt to have been developed to avoid the benefit in kind rules.
b. Prevent abuse of the charity tax rules.
c. Given the various high-profile cases in this context the government will make recruitment agencies responsible for accounting for PAYE on payment made to workers supplied by an umbrella company. Where there is no agency, the responsibility will fall to the end client business.
12.3. Additional HMRC resources to be committed to tackle perceived offshore non-compliance by the wealthy and intermediaries and corporates they control and other connected entities. The government is also looking to:
a. Increase collaboration between HMRC Companies House and the Insolvency Service to tackle what it refers to as “phoenixism” to evade tax;
b. Expand HMRC’s counter-fraud capability to address high value and high harm tax fraud.
c. Strengthen HMRC’s scheme for rewarding informants.
12.4. There will be a further consultation published in 2025 on new ways for HMRC to tackle non-compliance particularly with respect to promoters of marketed tax avoidance.
13. DIGITILISATION
13.1. There will be a commitment to making tax digital for income tax self-assessment (MTD for ITSA) and an aim to expand the MTD rollout to those with incomes over £20,000 by the end of the Parliament. Precise timetable to be set out at a future fiscal event.
13.2. IHT reporting will be digitalised by 2027/28.
14. ANNOUNCED IN SPRING 2024 AND LEGISLATED IN FINANCE BILL 2025
14.1. The Furnished Holiday Lettings tax regime will be abolished from 6 April 2025. There is an anti-forestalling rule, effective from 6 March 2024, to “prevent the obtaining of a tax advantage through the use of unconditional contracts to obtain capital gains relief under the current FHL rule”.
RELEVANT PROPERTY TRUSTS SOME EXAMPLES OF THE NEW IHT REGIME (see 1.6 above)
SETTLOR NEITHER UK DOMICILED NOR DEEMED DOMICILED WHEN THE TRUST WAS SETTLED
SITUATIONANALYSISIHT CHARGE?An individual is not UK domiciled under commons law as of 30 October 2024 and neither are they deemed UK
domiciled. They leave the UK such that they are non-UK resident from 2025/26 onwards.
The foreign property within the trust (apart from foreign property deemed to be UK situs because of the rules with respect to UK residential property) will remain as excluded property.No.
An individual is UK domiciled under common law but in 2025/26 they have not been UK resident in ten of the
preceding 20 tax years so when they leave they are no longer subject to worldwide IHT.
From 6 April 2025 all foreign property within the trust (apart from foreign property deemed to be UK situs because of the rules with respect to UK residential property) will be excluded property.Yes, an exit charge on 6 April 2025 even though no property has left the trust. Maximum rate of 6%.
An individual is not UK domiciled under commons law as of 30 October 2024. They are, however, deemed domiciled. They leave the UK such that they are non-UK resident from 2025/26 onwards.
From 6 April 2025 all foreign property within the trust will be relevant property because the individual was deemed UK domiciled. The transitional provisions mean that IHT tail will be three tax years.Yes, an exit charge on 6 April 2028 even though no property has left the trust. Maximum rate of 6% reduced as the property in the trust has only been relevant property for 3 years.
An individual of a pre-30 October 2024 excluded property trust is foreign domiciled under common law. In 2025/26 they have been UK resident in at least ten of the preceding 20 tax years so are subject to worldwide
IHT.
No grandfathering as the settlor is alive.Worldwide property within the trust is subject to UK IHT. APR/BPR might apply but changes to be made to reduce the relief that can be claimed from 2026/27 onwards.No exit charge on 6 April 2025 as property is going from excluded to relevant property.Exit charge if property leaves the trust. Maximum rate of 6%. Reduction for quarters when the foreign property was excluded property.Ten-year charge. Maximum rate of 6%. Reduction for quarters when the foreign property was excluded property.GROB transitional provisions apply.
After 6 April 2025 a settlor who was subject to worldwide IHT leaves the UK and has been non-resident for long enough to lose the “tail” such that they
are no longer subject to worldwide UK IHT.
From 6 April of the tax year when the individual is no longer subject to world-wide UK IHT all foreign property within the trust (apart from foreign property deemed to be UK situs because of the rules with respect to UK residential property) will be excluded property.Yes, an exit charge on the relevant 6 April even though no property has left the trust. Maximum rate of 6%.
An individual has not been UK resident in the UK for 10 out of the preceding 20 tax years and becomes so in
a tax year after 2025/26.
The trust will lose excluded property status from the 6 April when the settlor is subject to worldwide UK IHT.No exit charge as property is going from excluded to relevant property.Exit charge if property leaves the trust. Maximum rate of 6%. Reduction for quarters when the foreign property was excluded property.Ten-year charge. Maximum rate of 6%. Reduction for quarters when the foreign property was excluded property.GROB applies.
Tax year 2024/25 (the current year) marks the last year that eligible individuals will be able to make a remittance basis claim. From 2025/26 the remittance basis will be replaced with the 4-year FIG regime. There is no amnesty for existing foreign income and gains that were previously sheltered by the remittance basis regime and have not yet been taxed. Any remittance to the UK after 5 April 2025 will be subject to taxation just as it was before, albeit the new legislation:
a. CGT rebasing (for qualifying assets held directly by a qualifying individual) introduced in FA 2025; and
b. for tax years 2025/26, 2026/27 and 2027/28 the temporary repatriation facility (‘TRF’) which in the right circumstances will enable individuals to make a designated election enabling them to bring capital representing untaxed remittance basis foreign income and gains into the UK and pay tax at a significantly lower tax rate than might otherwise be the case.
Rebasing for assets directly held by the qualifying individual
Conditions for the new rebasing
To be eligible for the FA 2025 CGT rebasing to a 5 April 2017 value both the individual and the asset must meet the specified conditions. The individual:
The asset must have been held by the individual as of 5 April 2017 and the disposal must have been made on or after 6 April 2025. In addition, the asset must not have been situated in the UK at any time in the period beginning 6 March 2024 (so the date of the Spring 2024 Budget) and 5 April 2025- this rule is to prevent individuals taking movable assets out of the UK to benefit from rebasing.
Where the conditions apply, rebasing is automatic though the individual can elect to opt out on a disposal-by-disposal basis.
Amendment to F(No)2 A 2017 rebasing
The FB 2025 legislation makes one amendment to the F(No)2 A 2017 rebasing such that when considering if it applies from 2024/25 onwards one only looks to the end of tax year 2024/25 for the qualifying conditions with respect to the individual being domiciled for common law purposes outside of the UK jurisdictions. Domicile will continue to be important but only up to 5 April 2025.
The Temporary Repatriation Facility (‘TRF’)
Overview
The TRF is an extremely important relief for UK resident foreign domiciled individuals who are not intending to leave the UK and do not have sufficient clean capital and/or UK taxed income and gains to fund their ongoing UK lifestyle and capital requirements. The provisions will form a key part of pre-6 April 2025 planning and planning in the years immediately following.
The TRF concept is simple although, reflecting the complexity of the remittance basis, the legislation is not. For tax years from 2025/26 to 2027/28, the relief allows amounts deriving from tax years prior to 2025/26 to be designated by a qualifying individual and for a low fixed rate of tax to be paid such that the funds can at any future point in time be brought to the UK without further tax being due. A qualifying individual is an individual:
The tax due as a result of the designated election under the TRF is referred to as the TRF charge. For 2025/26 and 2026/27 this is at a fixed rate of 12% and rises to 15% for 2027/28. Amounts designated under the TRF are deemed to be net of any foreign tax and no foreign tax credit is allowed to be set off against the TRF.
Making the designated election
The provisions specify that the designation election must be made in a tax year for 2025/26, 2026/27 or 2027/28 (the TRF charge then being due). The lack of any simultaneous remittance requirement means that liquid and illiquid assets can be nominated which provides significantly more flexibility.
The legislation specifies that the nomination election must be made on the individual’s tax return (or an amended tax return filed) for tax years 2025/26, 2026/27 or 2027/28. In making the designation election the qualifying individual must: (i) set out the total amount designated; and (ii) identify what (if any) of the amounts designated have been remitted in the tax year to which the return relates.
What income and gains the TRF can apply to
The TRF can apply to all unremitted foreign income, foreign employment income and foreign gains provided that the amounts arise/ accrue to the qualifying individual prior to 6 April 2025. The TRF can apply to funds held jointly. It will be necessary to analyse the fund to establish what belongs to which individual and each individual will need to make a valid designated election
Despite initial concerns, trust income distributions can benefit from the TRF as can trust income and gains attributed to settlors and/or beneficiaries prior to 6 April 2025 under the offshore anti-avoidance provisions. Where in the three years post 6 April 2025 (so in the TRF period) a benefit or capital payment is received, and this is matched to foreign income or gains within the settlement before 6 April 2025, the TRF can also apply to the amount matched. Given how the matching rules work (current year and then matching on a last in first out tax year basis) care will need to be taken.
There are special rules with respect to the TRF and unremitted FIG that has been used pre-6 April 2025 or is used between 6 April 2025 and 5 April 2028 for business investment relief purposes. Amounts for which BIR has been/ is claimed cannot be designated under the TRF. No further BIR relief claims can be made after 5 April 2028 (when the TRF window closes).
The requirement for the income or gains to arise/accrue before 6 April 2025 to utilise the TRF means that an individual who resumes UK residence in 2025/26, after a temporary period of non-UK residence, cannot designate sums that are deemed to arise/accrue to them in tax year 2025/26 under the temporary non-residence anti-avoidance provisions even though the amounts relate to tax years prior to 2025/26. The “deeming” under the anti-avoidance provisions that treats the income and gains as arising in 2025/26 takes priority. The individual would though still be able to designate as TRF pre-6 April 2026 amounts that relate to unremitted foreign income or gains in years they were UK resident and subject to the remittance basis.
The TRF facility means that there is no need for a full mixed fund analysis to be carried out but there may be circumstances when some degree of analysis would still be advisable.
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EXAMPLE 1
Wanda is a higher rate taxpayer.
Wanda has a mixed fund account of £10 million. The account was originally funded from remittance basis foreign employment income and then invested such that foreign income and gains has been paid in over the years. Wanda’s account relationship manager has provided evidence that that no foreign tax has been paid on the gains realised and only around 10% of the investment income has any foreign tax credit attached (with the foreign tax credit being a maximum of 20%).
Wanda intends to remain in the UK, has run out of clean capital and needs significant further funds for one off capital expenditure and then to supplement her lifestyle.
Making a designation with respect to the entire £10 million in either 2025/26 or 2026/27 and paying tax of £1.2 million will clearly be the best choice for her given that she needs the funds in the UK and the 12% fixed rate is palatable. There is no need to do a mixed fund analysis as the information available shows that the TRF is the best option for her.
EXAMPLE 2
Pietro is also a higher rate taxpayer.
Pietro has a mixed fund account of £17 million which contains various income, gains (the income and gains being a mixture of UK, foreign with tax credits and foreign without tax credits) and capital (pre-UK arrival and gifts).
Pietro needs funds in the UK so wants to be able to bring the entire £17 million in gradually from tax year 2025/26 onwards.
To avoid having to have a mixed fund analysis carried out Pietro could on his 2025/26 tax return make a designation with respect to the entire £17 million and pay tax at 12% on that amount (tax payable of £2,040,000). Pietro would then be free to bring the £17 million to the UK whenever he wanted with no further tax liability. However, given the mixture of funds in the mixed fund account, doing this could mean that Pietro pays significantly more tax than if a mixed fund analysis is carried out.
Where an account contains of mixture such that it is not clear that the fixed TRF rate will be beneficial it is advisable that some mixed fund analysis work is carried out.
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Special mixed fund rules
Given the complexity of the mixed fund rules (particularly where they interact with nominated funds for the purposes of the remittance basis charge) the TRF could be very difficult to operate in situations where the individual does not designate the entire mixed fund. There are some special rules which would operate in this context to enable qualifying individuals to easily access the nominated funds. For 2025/26 to 2027/28 temporary rules switch off the penal matching rules with respect to the remittance of nominated income. In addition specific rules override the general mixed fund rules such that, broadly, the designated amount within any mixed fund property is deemed to be the first tranche to be remitted regardless of the actual makeup of the mixed fund or the tax years in point.
Special “designated accounts” can also be created. Whilst these are offshore accounts created by way of an offshore transfer, they are treated for the mixed fund rules as if the transfer was to a UK account such that the entire designated amount can be transferred across and kept in the account and then remitted as and when required.
A 29 July 2024 government policy paper announced that there would be a review of the offshore anti-avoidance legislation.
Specific mention was made in the paper of both the Transfer of Assets Abroad and Settlements income tax anti-avoidance legislation, but we now know that the review will also cover the CGT anti-avoidance legislation. The review is said to be to modernise the rules and ensure that they are fit for purpose. The following objectives were set: (i) remove ambiguity and uncertainty in the legislation; (ii) make the rules simpler to apply in practice; and (iii) ensure the anti-avoidance provisions are effective.
A Call for Evidence was published as part of the Autumn Budget documents which outlines the various provisions under review in very broad terms and poses five open ended questions:
1. What could be done to simplify the legislation?
2. What could be done to remove inconsistencies and align this legislation?
3. What are your views on how the motive defence tests are applied and what areas of these tests could be improved.
4. Do you have any suggestions on how the government should approach personal tax offshore anti-avoidance legislation in these areas going forward?
5. Are there any other personal tax offshore anti-avoidance provisions the government should consider as part of the consultation.
The Call for Evidence marks the first stage of the review and is to run for 16 weeks closing on 19 February 2025. There will be a review of responses and other evidence and then a formal consultation in 2025 with respect to “areas for improvement” identified. It is reasonably clear that the government is anticipating making changes to the legislation but not before the start of 2026/27.
Introduction
The run up to a Budget is always a time when rumours and uncertainty abound. When it is the first Budget of a new party in Government this chatter can be multiplied tenfold. Chancellor Reeve’s first Budget looks unlikely to disappoint given the frenzied and rampant speculation evident in the various recent public pronouncements by members of the government such as:
In addition to press coverage around areas where the Chancellor may look to raise further tax, there has also been talk of potential row backs from policies previously announced for fear they may backfire. Including in relation to:
Potential changes to the taxation of non-doms
We have posted a number of insight pieces about the announced seismic changes to the taxation UK resident foreign domiciled individuals (see A regime ripe for reform – but not like this and Changes to the UK’s Special Tax Regime for Foreign Income and Gains).
There has been a flurry of articles in the last month or so suggesting the government could be considering softening the proposals, adopting something of a compromise but still delivering on “the spirit of the manifesto without going as far as previously suggested.” There might be some movement in relation to:
Nothing specific has been said by the Chancellor or any government ministers with a Treasury spokesman referring to the reports as “speculation not government policy”. All we do know is that the government is now refusing to commit to a figure in terms of how much the changes will raise, stating we must now wait for the Budget.
It seems clear that the figures the government (and the previous Conservative administration) were working with were inaccurate. Specifically, more foreign domiciled individuals have left the UK or are planning to leave because of the proposed changes than was anticipated. In addition, the UK appears to have plummeted down the league table in terms of jurisdictions of choice for rich foreign domiciled individuals.
The question that has plagued advisers over the past few months has been whether UK resident foreign domiciled individuals should/can do anything prior to 30 October. It would be surely be inequitable for the Chancellor to announce any changes in the Budget that would disadvantage individuals that had been dissuaded from taking an action because of clear comments made by Labour previously (prior to any row back) and it is very much hoped that there will not be anything that has a 30 October cut-off date.
Grandfathering of excluded property trusts
The Conservatives said they would have a transitional provision grandfathering for IHT purposes, trusts created prior to 6 April 2025. This meant that qualifying trusts (settled by a foreign domiciliary at a time when they were not deemed UK domiciled) would remain sheltered from IHT with respect to excluded property (broadly foreign situs assets).
The Conservative proposals were far from ideal (for the reasons summarised in A regime ripe for reform – but not like this) and were in any event quickly superseded by Labour’s April comments coming so soon after. From an IHT perspective this meant there would be no grandfathering of excluded property trusts and fatally undermined the all important IHT protection that high and ultra-high net worth UK resident foreign domiciled individuals had hoped for.
If Labour does change its policy and announces on 30 October that there will after all be grandfathering this would of course be very welcome. As stated, given the circumstances a 30 October 2024 (Budget Day) cut off would be wrong. Labour was previously clear that there would be no grandfathering. Individuals who would otherwise have set up such settlements will have refrained from doing so because of the clear statements made given the penal tax provisions (both the relevant property regime and for settlor interested trusts the gift with reservation of benefit anti-avoidance provisions) that would apply. Any grandfathering should apply to all trusts set up prior to 6 April 2025.
If a UK resident foreign domiciled and not deemed domiciled individual wants to establish a trust even if there is no grandfathering, then going ahead and getting the trust in place with all the property settled prior to 30 October might be felt prudent just in case. It would be critical to not rush and make a mistake that will cause a significant non-UK tax issue. Where there is a US settlor and/or beneficiaries, for example, it will be vital that detailed US tax advice has been taken and that the American advisers have signed off on the trust as well as the UK advisers. Getting it wrong leaves an individual with a complex structure which cannot be easily collapsed.
IHT – the ten-year tail
The proposal that an individual who comes within the scope of worldwide UK IHT can only break free from UK IHT after ten complete tax years of non-UK residence is ridiculous. No other jurisdiction has a provision which so unfair, disproportionate, theoretically draconian and unenforceable.
There was discussion with respect to extending the current IHT tail in the 2017 changes but enforcement was considered a huge hurdle, hence we have our current tail which is broken if the foreign domiciled individual is not UK resident in the fourth year and the three preceding years were years of non-UK residence. It is hoped that sense prevails in 2024 as it did in 2017, and the current tail is not extended.
The dropped transitional provision - 50% relief on foreign income received in 2025/26
There has been speculation that Labour might bring back the 50% transitional relief with respect to foreign income received in 2025/26 (the first year of the new regime).
This might happen as part of a compromise package but realistically it is not a key issue for those affected. It only lasts for one year. UK resident foreign domiciliary concerns focus on:
It is these issues that the government needs to address to stem the flow of those leaving and to increase the attractiveness of the UK for rich foreign domiciled individuals that are potential new arrivers.
Any other changes?
Labour itself (in its April 2024 comments) announced that it might introduce some type of relief for investing in the UK. Nothing further has been said and it may be that this will feature on 30 October.
Transitional provisions needed to prevent the changes being retrospective/retroactive
As the saying goes the devil is in the detail and the detail is crucial with respect to these changes. It is understood that there is no intention that individuals who have left (or who are not UK resident in 2025/26) will be caught because of the changes. Careful examination of the legislation will be needed though particularly in relation to the IHT tail.
Scrutinising draft legislation
It may be that on 30 October we get the details of the new regime but must wait for any draft legislation which could be released in tranches. There could be very tight timetables that have to be worked to by the professional bodies and other interested parties for comment. Nothing has been said to indicate that there will be a much-needed delay before implementation.
