To read the article on Tax Journal click: here
There were several measures introduced by the 2025 Budget that will be of particular interest to HNW internationally mobile individuals, and I highlight a few of these below.
£5m IHT cap for pre-October 2024 EPTs: There will be a £5m cap on IHT payable by a discretionary trust over a ten-year period (to include exit charges and the decennial charge) for pre-30 October 2024 excluded property trusts to be introduced with retrospective effect from 6 April 2025. This broadly means that trusts with more than £83m of excluded property will pay less IHT.
The cap will be stepped from 6 April 2025 (the date upon which these trusts will have become relevant property) to the first ten-year anniversary after that date as that period will not be as long as 10 years, in this period the cap is £125,000 per quarter.
This is a welcome concession given that the IHT trust changes were a key part of what made FA 2025 so troublesome for EPTs. The £5m cap applies per trust.
APR/BPR £1m allowance to be transferable between spouses: In relation to the changes to APR/BPR due to come into force from 5 April 2026, the Budget sets out that any unutilised amount of the £1m 100% relief allowance can be transferred between spouses.
Miscellaneous IHT provisions: Anti-avoidance IHT provisions are being introduced to address various government concerns, including in relation to situs of IHT chargeable assets, as well as restricting charitable exemption to gifts made directly to UK charities and community amateur sports clubs.
Extension to temporary non-residence rules: Currently the temporary non-UK resident anti-avoidance provisions do not apply where there is a dividend or distribution from post departure trade profits to the individual in a non-UK resident year. Where the year of return is 2026/27 or later this will change. The post-departure trade profits legislative provisions are to be removed. This means that an individual who returns to the UK, without more than five complete tax years of non-UK residence, will be taxed on all distributions/dividends they receive in the years of non-residence from: (i) UK resident close companies; and (ii) non-UK resident companies that would be close if UK resident where:
• they held the shares prior to departure; and
• they are either (a) a material participator in the company or (b) an associate of a material participator in the company.
Specific legislation will allow for relief in respect of any foreign tax paid.
Remittance basis: Specific technical amendments (to ensure that the legislation operates as intended) are to be made to the FA 2025 legislation that removed the remittance basis from 2025/26 onwards and introduced the residence-based tax system. There is no specific detail as yet, but it has been announced that there will be further developments to bolster tax incentives for high talent new arrivals. This appears to mean making changes to the current four-year FIG and foreign employment earnings regimes.
Offshore anti-avoidance legislation: The Budget documentation refers to the Government’s commitment to substantially simplify the offshore structure anti-avoidance provisions (such as the CGT attribution provisions and the transfer of assets abroad legislation). The Government has pledged to proactively engage with representative bodies and stakeholders in this regard. It seems unlikely that there will be any significant changes here before 2027/28.
Property: The tax burden on holding UK property will increase. A new separate tax rate is being introduced for property income which will be taxed at 22/42/47%, so at a higher income tax rate than any other income (relief for finance charges will continue to be restricted). In addition, the Budget introduced a high value council tax surcharge (HVCTS) to be introduced from 2028/29 with respect to properties valued at over £2m. Like ATED borrowing is not deducted and there are different rates depending on the value of the property. For 2028/29, the lowest rate is £2,500 for property worth between £2m and £2.5m with the highest charge being £7,500 for £5m plus properties. There will be specific provisions applying to properties held within structures. Specific reference is made to relief for those who are required to live in the property as a condition of their job.
Lynnette Bober, Director, Joseph Hage Aaronson & Bremen
