Private Client Tax Budget Update

07 March 2024

Spring Budget 2024 was littered with the usual political posturing and some ineffective tinkering. Unfortunately fiscal drag will continue to be significant. Wednesday 6 March 2024 was also an earth-shattering day for the non-UK doms and all those who advise them.

CHANGES TO NON-DOM STATUS

For tax years from 2025/26 onwards, the Government announced the abolition of the remittance basis (“RB”) for tax purposes and a plan to move away from the concept of domicile and towards a much-simplified test based on residency when considering whether foreign income and realised capital gains will fall to be taxed in the UK.

Overview of the proposals

Provided they make the necessary claim, new arrivers (those who have been non-UK resident for a 10-year period) as well as those who have been in the UK for less than 4 years as at April 2025 (and been non-UK resident for 10 years prior to that) will not be subject to tax on their foreign income and gains (“FIGs”) arising/ accruing in the first 4 years of tax residence- nor will they pay tax on distributions from non-UK resident trusts in this period to boot!

After 4 years we are told that these individuals will pay tax on their worldwide income and gains in the same way as a UK resident would.

The proposed new regime is clearly attractive for the first 4 years but that is a short period of time, so overall not as globally competitive as one might have hoped.

Examples

  1. Louise comes to the UK for the first time in 2026/27. She is 24 years old so her period of non-UK residence is in excess of the necessary ten years. She is UK resident in 2026/27 and 2027/28. She is not UK resident in tax year 2028/29 and resumes UK residence in 2029/30 remaining for seven tax years. She would be eligible for the new 4-year FIG regime. However because she is not UK resident in 2028/29 it appears that she only benefits from the 4-year FIG regime in tax years 2026/27, 2027/28 and 2029/30 (that is even though she cannot benefit tax year 2028/29 is seen as part of the 4-year period).

  2. Jake came to the UK for the first time in 2023/24. He was 37 years old so his period of non-UK residence was in excess of the necessary ten years. He was UK resident for 2023/24 to 2028/29. The old rules apply for 2023/24 and 2024/25 so he claims the RB. He is then eligible for the new 4-year FIG regime for 2025/26 and 2026/27.

Transitional rules

Transitional rules have been announced to assist non-UK doms already here:

  • Individuals who move from the RB to the arising basis from 6 April 2025 and who are not eligible for the new 4-year FIG regime will benefit from a one off special 50% reduction with respect to the amount of the foreign income that is subject to UK tax in that year. This reduction does not apply to foreign chargeable gains.
  • CGT rebasing – for individuals who have claimed the RB and are neither UK domiciled nor UK deemed domiciled by 5 April 2025. Subject to as yet unannounced conditions, where eligible individuals dispose of personally held foreign assets on or after 6 April 2025, they will be able to elect to rebase the value of that asset to its value as at 5 April 2019.
  • For tax years 2025/26 and 2026/27 a Temporary Repatriation Facility (“TRF”) will be introduced to tax personally arising FIGs of all UK resident current RB users a flat rate of 12% (potentially including those already deemed dom?) The TRF will not apply to pre-6 April 2025 FIG generated within trusts and trust structures.

A relaxation of the mixed fund rules to make it easier for individuals to taken advantage of this TRF has been promised.

Overseas Workday Relief (OWR)

Eligibility for OWR will be reformed in line with the new regime. For the first three years of tax residence OWR will continue to provide income tax relief for earnings relating to overseas duties where there is a mixed UK/overseas employment contract. In contrast to the current regime these earnings can be able to be remitted to the UK without any tax charge.

More on trusts

From 6 April 2025, the protection from tax on future income and gains as it arises within trust structures (whenever established) will be removed for all current non-doms and deemed dom individuals who do not qualify for the new 4-year FIG regime. This means that, unless the 4-year FIG regime applies to an individual, they will be taxed on post 5 April 2025 trust income and gains in the same way as a UK dom.

FIG that arose in protected non-resident trusts before 6 April 2025 will not be taxed unless matched to distributions or benefits (whether UK or foreign) paid to UK residents who are not sheltered by the 4-year rule- in that event by the way the legislation will purportedly not view the payment/benefit as giving rise to a matching event so the trust income and/or gains pools will not be reduced. The onwards gifts rules will need to be modified.

What about IHT?

The government has also announced an intention to move to a residence-based regime for Inheritance Tax, with plans to publish a policy consultation and draft legislation on these changes (including a possible a 10-year exemption period for new arrivals and a 10-year tail for those who leave the UK- eeeesh!) later in the year. Apparently if you set up an offshore trust before April 2025 then it will be safe from IHT!

The abolition of the non-UK dom regime promises a further £2.7bn per year by 2028/29 into UK PLC (in addition to the £8.5 billion which non-UK doms already pay in UK tax each year). The draftsmen/women have until 6 April 2025 to get it right! The temporary non-resident rules will require some attention! And don’t tear up the mixed fund rules just yet!

Aside from the non dom changes, points to note included….

The Government are still dreaming of a day when National Insurance no longer exists…. but for now the Tories announced a plan to reduce the main rate of primary Class 1 National Insurance contributions by 2 percentage points from 10% to 8% from 6 April 2024. Self-employed individuals will also benefit from a further reduction in the rate of Class 4 from 8% to 6%.

Hidden in the tax related documents are some anticipated Anti-Fisher Provisions- measures to amend the transfer of assets abroad provisions by applying a charge to tax where relevant transfers are carried out by a closely-held company which an individual has a qualifying interest in.

The higher rate of CGT charged on residential property gains is reduced from 28% to 24% for disposals made on or after 6 April 2024. Presumably they are still keeping 28% for carry- they seemed to leave carry alone.

We will have a new UK ISA with its own allowance of £5,000 a year for investment into UK equities.

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”.

HICBC whilst amends to this will be welcome in April 2026 unfortunately it has not been scrapped altogether and we are teetering on the brink of household taxation here. For now the threshold has been increased to £60,000pa.

Contact

Helen McGhee: HMcGhee@jha.com

Lynnette Bober: Lynnette.Bober@jha.com

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