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to appeal this discrete issue which will continue to remain live, regardless of whether the substantive appeal is later withdrawn or settled.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.
We are happy to announce that JHA's Tax Disputes Team has again been ranked as Band 1 by Chambers today, a ranking we have proudly achieved every year since we began in 2013. A special congratulations to our lawyers who also received individual recognition: Graham Aaronson KC (Band 1), Simon Whitehead (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 and Chambers High Net Worth Guide 2024.
There is a great deal of support for abolishing domicile as a fiscal connecting factor for tax purposes and replacing the remittance basis of taxation with a much-simplified residence-based regime. In principle, everyone can agree with Labour that the tax system should be made fairer: “If you make your home and do your business in Britain, then you should pay your taxes here too”.
However, any changes to the system need to strike a balance between “fairness” and maintaining the attractiveness of the UK to the super rich (and their incoming capital) and highly skilled individuals that the UK wants to attract for their contribution to the UK economy.
The importance of non-doms to the UK
UK resident foreign domiciled individuals pay a huge amount of tax in the UK, even if they pay their taxes on a different basis. HMRC recently estimated that at the end of the 2023 tax year there were 74,000 non-doms in the UK paying a total of £8.9 billion in tax, which is likely to be an understatement, since not all deemed domiciled taxpayers have to indicate their deemed domiciled status on their tax return.
Non-doms also contribute to the UK economy (and tax yield) in other ways: they pay VAT on expenditure, invest in UK businesses and property, employ people in the UK (PAYE and NICs), send their children to UK schools, and donate to UK cultural institutions, often through their own charitable foundations. The Rausing family alone is associated with the Arcadia Fund, the Lund Trust, The Julia and Hans Rausing Trust, the Sigrid Rausing Trust and The Alborada Trust. Migrants represent a significant percentage of the super-rich generally and also those in high income, high productivity occupations in financial and professional services in banks/hospitals alike. Research from the University of Warwick and the LSE found that 97% of non-doms were either born abroad or had lived abroad for a substantial period of time and that 23% of non-doms worked in finance. Given the importance of the financial sector to the UK, no one wants these people to leave.
Sensitivity to tax policy
Although some academics believe that tax reforms have minimal impact on migration and preferential regimes can be safely abolished without causing an exodus of HNW individuals, data from Switzerland shows that high net worth (“HNW”) individuals are in fact highly sensitive to changes in tax policy.
Between 2010 and 2014 some Swiss cantons abolished expenditure-based taxation whilst others chose to retain it (referendums were held). In a 8 February 2023 study entitled “Behavioural Responses to Special Tax Regimes for the Super-Rich: Insights from Swiss Rich Lists”, published as EU Tax Observatory Working Papers No 12, Enea Baselgia and
Isabel Z. Martinez conclude that the abolition of expenditure-based taxation resulted in a medium to long-term decline of about 30% in the stock of super-rich in reform cantons while the number of Swiss born super-rich remined the same. In addition, they concluded that their study showed for the first-time evidence of how sensitive super-rich foreigners are to tax policy when it comes to choosing where in Switzerland to reside and that the 30% decline in the cantons that abolished the preferential tax treatment was mainly driven by the new arrivals who chose to move to those cantons still offering them tax privileges.
Other studies show that tax policy drives international migration among top footballers and athletes and acts as a ‘pull’ factor to bring highly skilled expatriates back to their countries of origin. It is therefore concerning that the UK’s current proposed replacement regime offers only very short-term benefits and that the projected yields fail to account for the economic impact of those HNW individuals who will either not now come to the UK or who will leave as a result of these seismic tax changes. UK tax advisers have seen enquiries from clients wanting to come to the UK dry up. The UK will lose not only individuals’ income tax and wealth contribution, but also the indirect taxes and the taxes paid in the UK by related companies.
Non-dom telecoms entrepreneur Bassim Haidar, a Lebanese citizen, told The Guardian in May, “I am moving – that is it” and said that ‘he had formed a working group of 29 non-doms, who mostly planned to leave the UK before September so that they could secure places for their children in private schools in their new countries before the start of the academic year’. He has also cancelled his plan to list financial services company Optasia on the London Stock Exchange and pointed out he would have to make his household staff redundant on his departure. Another loss would be businessman Wafic Saïd, who we understand plans to leave for Abu Dhabi if the changes go through as proposed. His position is that it would be reasonable to charge a large forfait along Italian lines, but that the current proposals are absurd.
Approach to reform
When it comes to reforming the tax system, the government must bear in mind:
a. There is a finite tolerance level for paying more tax, but perhaps more importantly the lack of certainty and the frequent rule-changes have given rise to distrust and suspicion. According to Jon Elphick, international tax adviser at Mark Davies & Associates, “The mood among clients is disillusionment. We’ve experienced a significant uplift in clients asking about relocations – and what their tax positions would look like if they were to move.” Jon Shankland, private wealth partner and tax lawyer from national law firm Weightmans, said, “This is putting the financial best interests of our country at risk needlessly. Wealth is already leaving the country. Part of that is genuine fear that Labour’s approach will be very hard line, but for many it’s not knowing where they stand that’s causing nervousness.”
b. Extrapolations cannot be drawn safely from previous changes to the non-dom regime in the UK, because the changes now proposed are so radical. The 2017 UK changes were deliberately designed not to cause an exodus. This was why an individual could benefit from the remittance basis for 15 years, there were trust protections for income tax and CGT and the excluded property regime for trusts was retained.
c. Inheritance tax exposure is crucial to the super-rich. In the US, academic research has shown a positive correlation between a state imposing federal estate duties and a taxpayer leaving that state. One European non-dom businessman recently told the Financial Times: “The UK’s inheritance tax of 40 per cent on your global assets is a real problem. It’s the overall instability that has been the nail in the coffin for me. If there was a more balanced, less punitive inheritance tax I might have considered staying.” Instead, he is moving his family from London to Switzerland after more than a decade in the UK. Subjecting an individual with no other links to the UK to worldwide inheritance tax after being resident in the UK for just 10 years is both unfair and unworkable. The lack of grandfathering for existing excluded property trusts has caused extreme disappointment.
The UK government, before introducing changes to reform an ineffective system, needs to understand all sectors of society that the changes will impact. These changes are too important to the UK’s global economic prosperity to be used for political point scoring, especially since a new government elected with a large majority should be in a strong position to take its time to get this right.
Against a backdrop of Brexit and increasingly less favourable immigration rules, the UK tax system is fast earning a global reputation for being uncertain and unwieldy and too easily and often used as a political weapon.
A new tax regime that an individual can only benefit from for four years (at best) is not going to be attractive to the super-rich and the high-level decision makers within multinationals. For those looking for an attractive tax regime who want to stay for a reasonable period of time (to not disrupt their children’s schooling for example) the UK is no longer attractive. Other jurisdictions will be more attractive, meaning that their capital and that of the businesses they are connected with will go elsewhere too.
Given that it is UK government policy to welcome and encourage foreign direct investment, proposing a new tax regime that discourages wealthy foreigners from coming to the UK suggests a lack of joined-up government. Can the UK really be ‘the best place in the world for international investors’ (the stated ambition of the government’s Office for Investment) when international investors are “petrified” and “jumping on planes right now and leaving”? Similarly Christopher Groves, a partner at Withers, quotes a non-dom client who describes the proposals as “Arrogant and short-termist and very damaging to the UK’s image as a good place for international wealth creators” and who is now questioning their decision to expand their international business in the UK.
Global competitiveness
We need to remember that UK tax policy does not exist in a vacuum. There is active global competition to attract the wealthy, skilled and highly mobile individuals.
In Italy, super-rich migrants need only pay a flat tax of €100,000 per annum (expected to rise to €200,000 from next year – indicative of how popular the scheme has proven) to shelter foreign income, gains and assets from all Italian taxes, provided a simple one-page compliance form is filed on time and the tax paid for each year (a qualifying individual can benefit for a maximum of 15 years).
JHA clients have expressed interest in moving to jurisdictions including Monaco, the UAE and the Bahamas where they will not be subject to income tax, wealth tax, capital gains tax or inheritance tax.
Some Swiss cantons still offer an expenditure-based regime explicitly aimed to attract the super-rich). Our nearest neighbour Ireland has a remittance basis regime (applying to foreign income and gains) very similar to what the UK had prior to the April 2008 changes. Israel, Malta, Greece (where non-doms are required to invest a minimum of €500,000 into Greek real estate, bonds or stock) and Thailand also have special regimes designed to attract the wealthy.
The regimes available in other jurisdictions are more competitive – and these countries are perceived to be more politically predictable, financially appealing and above all welcoming.
Recommendations
Our firm recommendation is therefore that the proposed legislative changes should not be effective until at least 2028/29 to allow time for extensive consultations on: (i) policy, with far more consideration of the wider economic impact than has so far taken place; and (ii) the technical details of the legislation. Swiftly drafted legislation by a draftsman operating in a vacuum is not desirable.
In our opinion a system like the Italian system would be desirable. However, we feel that the UK could look to charge: £200,000 per annum in the first 5 years, £300,000 per annum in the second five years and then £500,000 per annum for the last 5 years.
We also think that to avoid the cliff edge in the Italian system where the super-rich leave after 15 years, for a charge of £1 million per annum individuals should be able to benefit indefinitely from the current trust protections with respect to income tax and CGT and for IHT excluded property status on trusts.
These individuals would therefore be paying significant UK tax but, from the research to date, not so much that they would leave. There would be a significant tax increase and the UK’s economic competitiveness would be maintained.
Joseph Hage Aaronson LLP
September 2024
To discuss this report further please contact:
Helen McGhee: HMcGhee@jha.com
Lynnette Bober: Lynnette.Bober@jha.com
We are happy to announce that JHA's Tax Disputes Team has again been ranked as Tier 1 by Legal 500 today, a ranking we have proudly achieved every year since we began in 2013. A special congratulations to Graham Aaronson KC who has again been recognised in the Hall of Fame category, Iain MacWhannell (ranked as a Leading Partner) and Mei Wong (ranked as a Leading Associate).
This is the latest successful ranking, following previous top-tier rankings in Chambers UK Legal Guide 2024 and Chambers High Net Worth Guide 2024.
Graham Aaronson, Michael Anderson and Steve Bousher provide answers to common questions on transfer pricing methods.
Pricing methods
Accepted methods
What transfer pricing methods are acceptable? What are the pros and cons of each method?
All five traditional transaction and transactional profit methods recognised by the OECD (see paragraph 2.1 of the Organisation for Economic Co-operation and Development Transfer Pricing Guidelines (OECD TPG)) are acceptable, and the use of ‘other methods’ not described in the OECD TPG is permitted if they satisfy the arm’s-length principle and provide a better transfer pricing solution (see paragraph 2.9 of the OECD TPG). The guidance in the OECD TPG concerning the pros and cons of each method is adopted and supplemented by His Majesty’s Revenue & Customs (HMRC)’s own guidance, set out in the International Manual at INTM421000. Where a traditional transaction method and a transactional profit method can be applied in an equally reliable manner, the first type is preferable and should be applied. In broad terms, traditional transaction methods are likely to be appropriate for establishing the arm’s-length price of commodity transactions, marketing operations or transactions concerning semi-finished goods, services or long-term buy-and-supply arrangements. Transactional profit methods, on the other hand, are likely to be preferable where each of the related parties to a transaction makes unique and valuable contributions, where the parties engage in highly integrated activities or in transactions involving the transfer of intangibles or rights in intangibles.
Cost-sharing
Are cost-sharing arrangements permitted? Describe the acceptable cost-sharing pricing methods.
Cost contribution arrangements (CCAs) are permitted. There is no difference in the analytical framework for analysing transfer prices for CCAs compared to analysing other contractual arrangements (see paragraph 8.9 of the OECD TPG). Accordingly, the guidance in Chapter II (Transfer Pricing Methods) of the OECD TPG is relevant to determining the value of each participant’s contribution to the CCA, including the amount of any balancing payment required to align the value of their contributions with the value of their expected benefits, and the value of any buy-in payment or buy-out payment triggered by changes in the membership to the CCA.
Best method
What are the rules for selecting a transfer pricing method?
Given the requirement to read the legislation in a way that best secures consistency with article 9 of the OECD Model Tax Convention (OECD MC) and the OECD TPG, the United Kingdom currently follows the ‘most appropriate’ method approach set out in paragraph 2.2 of the OECD TPG (see the International Manual at INTM421010). Accordingly, the selection process should take into account:
Under paragraph 2.3 of the OECD TPG there is effectively a hierarchy of methods where one or more methods are equally reliable for the transaction in question: in such cases, a traditional transaction method is preferable to a transactional profit method, and a comparable uncontrolled price method is preferable to other traditional transaction methods.
Taxpayer-initiated adjustments
Can a taxpayer make transfer pricing adjustments?
The United Kingdom has a self-assessment system for income tax and corporation tax. The responsibility for making the assessment rests on the taxpayer and the amounts in the return are conclusive unless amended by the taxpayer or HMRC within the statutory time limits. A transfer pricing adjustment can only be made where there is a potential tax advantage for the UK taxpayer in the form of an increase to chargeable profits or a reduction of losses. Part 4 of the Taxation (International and Other Provisions) Act 2010 (TIOPA 2010) permits corresponding adjustments by claim in relation to UK–UK transactions only (see the International Manual at INTM412130). The mutual agreement procedure must be invoked in cross-border cases.
Safe harbours
Are special ‘safe harbour’ methods available for certain types of related-party transactions? What are these methods and what types of transactions do they apply to?
The United Kingdom’s transfer pricing rules do not usually apply to small or medium-sized enterprises (SME) (see section 166 of TIOPA 2010) although SMEs may elect to be subject to the rules and HMRC may direct that an SME apply them. The meaning of ‘small enterprise’ and ‘medium-size enterprise’ are based on the definition in the European recommendation 2003/361/EC (see HMRC’s International Manual at INTM412080). Transfer pricing rules will also apply to SMEs if the other affected person or a party to the transaction is a resident of a non-qualifying territory. Broadly, a territory qualifies (see section 173 of TIOPA 2010) if it is one with which the United Kingdom has a double tax treaty containing a non-discrimination provision and has been designated as such in regulations made by the Treasury.
Original article can be found here: https://www.lexology.com/r/UMhKVX4/0ac581cb62/VwcN
With much uncertainty surrounding the end to the non-domicile regime, Helen McGhee and Lynnette Bober provide a helpful summary of the (currently) anticipated changes.
Current Regime
Budget March 2024 (Conservatives)
April 2024 Labour
Policy Paper 29 July 2024 (Labour)
Who can benefit from the special regime –for income tax and CGT.
UK residents with a common law foreign domicile who are not deemed UK domiciled.
New arrivers - those who have been non-UK resident for a continuous 10-year period - in their first 4 tax years of residence.
Labour supported the changes announced at Spring Budget.
No change.
Special regime for foreign income and gains (FIG).
The remittance basis (“RB”). Foreign domiciled UK residents can claim the RB such that they are only taxable on foreign income and gains when remittances are made.
Where a claim is made the individual cannot benefit from the personal allowance or CGT annual exemption.
After specified periods of UK residence a Remittance Basis Charge – the amount determined by years of prior residence – will be payable.
The 4-year FIG regime.
Where a claim is made foreign income, and gains are exempt from UK tax regardless of whether they are remitted to the UK or not.
No charge payable to benefit from the regime. However, an individual benefitting from the regime cannot also benefit from the personal allowance and CGT annual exemption.
After the 4 years the individual is subject to worldwide tax on income and gains.
Again Labour supported the changes announced at Spring Budget.
Said they would consider a specific incentive for UK investment within the 4- year period.
Broadly, no change with respect to support for 4- year FIG regime.
Nothing further said about the incentive for investment in the UK within the 4-year period.
Did say that the government would review some other key areas of the previously announced reforms to ensure that “the new regime is both fair and as competitive as possible”.
Overseas Workday Relief (OWR)
Special regime for the first three years of residence such that an individual carrying out employment duties in the UK and overseas can claim the RB on the overseas portion of the income.
Complex rules that are poorly understood in general.
Further consultation promised. Broadly, from 2025/26 to benefit the individual would have to also be eligible for the new 4-year FIG regime.
OWR will only be available for the first three tax years. For that period OWR will provide a complete exemption from UK tax for the portion of the employment income that can be attributed to overseas duties.
Silent.
States that a form of OWR will be retained and that officials will engage with stakeholders on the design principles for this tax relief. Engagement to happen in August with an announcement in the 30 October 2024 Budget.
Budget March 2024 (Conservatives)
April 2024 Labour
Policy Paper 29 July 2024 (Labour)
Transitionalprovision1: Income tax reduction
Specific relief announced for UK resident foreign domiciled individuals who had been eligible for the RB and would be subject to tax on the worldwide basis from 2025/26.
For tax year 2025/26 only the amount of foreign income taxable was to be reduced by 50%.
Labour does not support this proposal and will not introduce it.
No change to the earlier decision to not introduce this transitional provision.
Transitionalprovision2: CGT rebasing
Available to individuals who have claimed the RB and are neither UK domiciled, nor UK deemed domiciled by 5 April 2025.
Rebasing to the 5 April 2019 value announced for assets held personally by such individuals.
Silent.
Support for rebasing for current and past RB users.
The rebasing date may not be 5 April 2019. What date would be appropriate is being considered and will be announced at the 30 October 2024 Budget.
Transitionalprovision3: Temporary Repatriation Facility (TRF)
Available to individuals where the foreign income or gains arose/accrued in a tax year when the individual was taxed on the RB and the individual was UK resident in the relevant year.
A fixed 12% rate would apply to all sums brought to the UK under this facility in tax years 2025/26 and 2026/27.
It was understood that:
a. there would be no regard paid to what the amounts traced to;
b. no credit given for any foreign tax credit; and
c. the TRF would not apply to pre-6 April 2025 FIG generated within trusts and trust structures.
Concern expressed that the two tax year period will not be long enough and that there will remain sizable, stockpiled FIG overseas and a huge disincentive to bring it to the UK.
Commitment to explore ways to encourage people to remit stockpiled FIG to the UK, so that the legacy of the RB rules can be ended.
Commitment to the TRF again made clear.
Stated that the reduced rate and length of time that the TRF will be available for will be set to make use as attractive as possible.
Commitment to consider ways to expand the scope of the TRF, such as including stockpiled income and gains within overseas structures within the remit. Details to be confirmed in the 30 October 2024 Budget.
Current Regime
Budget March 2024 (Conservatives)
April 2024 Labour
Policy Paper 29 July 2024 (Labour)
Non-UK resident trusts – the trust protections.
Provided additions are not made to the trusts, UK resident foreign domiciled settlors who could benefit from non-resident trusts are only subject to tax if they receive distributions or benefits from the trust. As such, they are not subject to the UK anti-avoidance provisions in the same way they UK resident and UK domiciled individuals are. These favourable provisions are referred to as the “trust protections”.
For income and gains arising/accruing after 5 April 2025 the trust protections will not apply.
Anyone who comes within the 4-year FIG regime will not be taxed under the anti- avoidance provisions on foreign income or any gains arising within the trust structure whilst the 4-year FIG regime applies. Equally they will not be taxed on income or capital distributions received from the non-UK resident trust in that period.
After that, or for those who do not qualify for the 4-year FIG regime, they will be subject to the full rigour of the anti- avoidance provisions. If they can benefit from the trust this means being subject to tax on all trust income on the worldwide basis and on the net trust gains each tax year.
Labour will follow the Conservative government plans.
No changes to the plans announced.
What is the IHT regime for individuals based on?
Domicile based system.
Move to a residence-based system.
Labour will follow the Conservative government plans.
No change.
What is the special IHT regime for foreign assets owned directly by individuals?
Foreign domiciled individuals – provided they are not deemed domiciled – are not subject to UK IHT with respect to their foreign situs assets.
An individual will be subject to UK IHT on foreign situs assets after ten years of UK residence.
In addition, a ten-year tail was announced. This means that any individual caught within the UK IHT net will have to be non-UK resident for ten- years to be free of its clutches.
Labour will follow the Conservative government plans.
No changes to the plans announced.
Stated that there will be further engagement with stakeholders in August.
What is the IHT system for trusts based on?
Domicile based system.
Move to a residence-based system.
Labour will follow the Conservative government plans.
No change.
Current Regime
Budget March 2024 (Conservatives)
April 2024 Labour
Policy Paper 29 July 2024 (Labour)
What is the special IHT regime for trusts?
The excluded property regime. Trust property settled whilst an individual has a foreign common law domicile and is not deemed UK domiciled is outside the scope of UK IHT provided it is foreign situs.
For trusts settled after 6 April 2025 the end of the use of excluded property trusts to keep property outside of the UK IHT net.
The IHT position of trusts under the new regime will mirror the position of the settlor. That is, it seems that when the settlor is outside the scope of IHT so is the trust and when the settlor is within the scope to IHT (including the ten-year tail period) the trust will be too.
This means that the IHT relevant property regime will apply to most trusts.
In addition the Gift with Reservation of Benefit (GROB) IHT anti-avoidance provisions will apply where the settlor is a beneficiary of the trust. This means that, if the situation continues, the value of the trust property will also be subject to tax on the death of the taxpayer.
Labour appeared to support the plans for trusts created after 5 April 2025.
The policy paper says: “The government intends to change the way IHT is charged on non-UK assets which are held in such trusts, so that everyone who is in scope of UK IHT pays their taxes here.
IHT and pre- 6 April 2025 excluded property trusts
Outside the scope of UK IHT provided it is foreign situs.
All trusts set up prior to 6 April 2025 by foreign domiciled individuals who are not UK deemed domiciled will be grandfathered for IHT purposes. That is, they would be outside the scope of UK IHT provided that when a chargeable event takes place the trust only includes excluded property. This also means that GROB will not apply, as well as the trust IHT relevant property regime - when the settlor can benefit from the trust.
Labour will include all foreign assets held in a trust within the scope of UK IHT, whenever they were settled, so that nobody living here for longer than ten years can avoid paying UK inheritance on trust property settled.
Grandfathering still appears to be ruled out. However, there is a recognition that trusts were established and structured to reflect the current rules. Stated that the government “is considering how these changes can be introduced in a manner that allows for appropriate adjustment of existing trust arrangements, while ensuring that the treatment of all long-term residents of the UK is the same for IHT purposes.”
As such, there will be transitional arrangements for affected settlors. Consultation in August and the detail will be published at the 30 October 2024 Budget.
Current Regime
Budget March 2024 (Conservatives)
April 2024 Labour
Policy Paper 29 July 2024 (Labour)
Review of anti-avoidance legislation
Not applicable.
Review of offshore anti- avoidance legislation announced.
Seems to apply to income tax and CGT anti-avoidance legislation. However, specific mention made of the Transfer of Assets Abroad and Settlements legislation.
Said to be to modernise the rules and ensure they are fit for purpose. The following are stated intentions:
a. Remove ambiguity and uncertainty in the legislation.
b. Make the rules simpler to apply in practice.
c. Ensure these anti-avoidance provisions are effective.
Not expected to result in any changes before the 2026/27 tax year.
