New residence-based tax regime: FA 2025 fundamentally changed the UK tax regime for individuals formerly known as non-UK doms. The legislation enacting the various changes is extremely complex and, given the time pressure for enactment, inevitably littered with technical anomalies. Some tweaks have emerged in the L-Day papers published yesterday, albeit we are reading from the Parliamentary Statement rather than draft legislation. We understand that:
· The inheritance tax spousal election for non-long term UK resident spouses (i.e. those who are not within the scope of worldwide IHT) to benefit from the full spousal exemption where the spouse that has died was a long-term UK resident (thus within the scope of worldwide IHT). The legislation will be amended so the election lapses, as intended, after ten consecutive years of non-residence.
· The Temporary Repatriation Facility was extended to income and gains pools with respect to trusts that were previously settled overseas and had become UK resident (referred to in the legislation as migrant settlements). Amendments will be enacted to ensure that the legislation works as intended for offshore income gains and migrant settlements.
We are still awaiting further detail beyond what was announced yesterday in this space. Some dramatic U-turns would be most welcome!
Offshore anti-avoidance provisions: No consultation document on the offshore anti-avoidance provisions has emerged yet but a summary of responses was published this week, and further consultation will follow. An update is expected in the Autumn Budget 2025 and any changes to the legislation are not now expected to be in place before 2027/28.
In other measures: We also know that ITEPA 2003 s 690 (internationally mobile employees: where PAYE is operated on only the proportion of the employees’ income that relates to UK duties) will be amended so that the present concessionary inclusion of treaty non-residence will be included within the legislation.
In the world of APR/BPR, there were no fundamental changes to what was announced at Autumn Budget 2024 but it was announced that IHT can be paid by ten interest free equal annual instalments where the property qualifies for either APR and/or BPR. In addition:
· The draft legislation makes provision for the £1m 100% relief allowance to increase in line with indexation – by reference to the consumer price index – from 6 April 2030.
· As with the nil rate band, the 100% relief allowance for individuals is refreshed every seven years.
· For relevant property trusts, the 100% trust relief allowance refreshes after each ten-year anniversary. IHTA 1984 s 69 is amended so that all relevant property trust exit charges are calculated based on the value of trust property before APR and/or BPR regardless of whether the exit takes place before or after the first ten-year anniversary.
· Anti-fragmentation rules will mean that, for trusts created on or after 30 October 2024, the £1m allowance will be divided up between trusts created on or after 30 October 2024 by the same settlor (as per IHTA 1984 new s 124F).
· IHTA 1984 s 131 (relief for transfers within seven years of death) is to be amended such that where the market value of property has fallen between the time of a lifetime gift and death, the lower value is automatically taken into account.
IHT and pensions: The draft legislation for the IHT pension changes effective from 6 April 2027 was published along with a response to the technical consultation.
· Personal representatives and not pension scheme administrators will be responsible for reporting and paying the IHT on any unused pension funds and death benefits from 6 April 2027. HMRC will continue to work with industry experts to develop and refine how the process will work with a view to addressing issues the PRs will face.
· Death in service benefits payable from registered pension schemes should not be within the scope of IHT.
Original article can be found here: Legislation Day 2025: Private Client Perspective (taxjournal.com)
