Our Firm

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:

1. amends the meaning of “remitted to the UK” with the intention of widening it in accordance with the HMRC arguments propounded in the case of HMRC v Sehgal and Meghan [2024] UKUT 00074; and
2. introduces two transitional provisions that UK residents who prior to 6 April 2025 have accessed the remittance basis will potentially be able to make use of:

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:

1. must not have been domiciled (either under the common law or under the deemed domiciled provisions within the UK tax legislation) in any of the UK jurisdictions at any time in a tax year prior to 2025/26; and
2. for at least one of the tax years between 2017/18 and 2024/25 must have made a remittance basis claim on their tax return (as opposed to being automatically entitled to the remittance basis such that a claim was not necessary).

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:

• who was subject to the remittance basis for at least one tax year prior to 2025/26; and
• who was UK resident in the tax year for which the designation election is made.

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.

_____________________________________________________________________________________________________________________________________________________

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.

_____________________________________________________________________________________________________________________________________________________

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.

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