Changes to the taxation of non-UK domiciled individuals and their trusts from 6 April 2025

Following the General Election, we now, at least, have certainty over which political party will be setting the new tax rules. Unfortunately, we still have a great deal of uncertainty about the rules already proposed by the Conservatives on the changes to the taxation of non-UK domiciled individuals and their trusts.
 
The proposals represented a wide-reaching change of policy affecting significant numbers of individuals and offshore trusts. What was clearly a plan to scupper one of Labour’s main tax pledges, means a dramatic change in the way individuals who come to the UK from another country, or who leave to live elsewhere permanently, will be treated for tax purposes. Those attractive tax breaks that often allowed such individuals to only be taxed on income and gains that they brought into the UK, and to exclude foreign assets from the charge to UK inheritance tax, will be no more.
 
The new rules are supposed to come into force from 6 April 2025 and this still appears to be the case, despite the change in government and the lack of any draft legislation to date. We do not expect that Labour will tinker too much with the core strategy, although they have indicated that they would remove one of the transitional reliefs and extend other reliefs to encourage wealth to be brought into the UK.  This uncertainty makes it very difficult to plan, ahead of the 5 April 2025 deadline, yet it is important to understand the implications of not doing anything by this date.
 
Action required
 
The main planning opportunities will be different depending upon the current circumstances of the individual; whether they are deemed domiciled, not yet deemed domiciled, a short-term resident (less than 4 years now) or thinking of coming to the UK. Some of these opportunities may involve:

  1. Rebasing assets to a date later than the 5 April 2019 date offered in the transitional rules
  2. Bringing forward foreign income and gains to arise before 5 April 2025 so that they fall within the remittance basis
  3. Delaying foreign income and gains to after 5 April 2025 (if individual will be a ‘new’ UK resident)
  4. Extracting income from an offshore trust before the new rules kick in.
  5. Delaying coming to the UK until after 5 April 2025
  6. Staying out of the UK for further years to fall within the favourable regime upon return

For trustees of offshore trusts created by non-UK domiciliaries, the protected status for foreign income and gains will be removed from 6 April 2025. For trusts where the settlor or spouse can benefit, this means that the worldwide income arising to the trustees will be assessable on the settlor. In addition, if any member of the family (settlor, spouse, children, and grandchildren) can benefit from the trust, the worldwide foreign gains will be assessable on the settlor on an arising basis. Therefore, planning for offshore trusts may include:

  1. Bringing forward foreign income and capital gains to before 5 April 2025
  2. Rebasing assets to before 5 April 2025
  3. Excluding the settlor and spouse to avoid the arising basis of tax on foreign income
  4. Inserting a UK corporation tax resident company within the structure to ‘block’ the income assessable on the settlor
  5. Distributing income/capital to non-domiciled beneficiaries offshore before 5 April 2025
  6. Closing offshore trusts/bringing them onshore
  7. Considering the ‘motive defence’ more carefully to see if it applies
  8. Changing investment strategy before 5 April 2025, to roll-up funds or tax wrappers
  9. Setting up excluded property trusts in case Labour do not introduce further proposals on this

Bespoke advice
 
Laura Hutchinson and Adam Sedgwick would be very happy to provide bespoke advice to you personally and to any offshore trustees affected by these changes.
 
In the meantime, to assist you in navigating the complex proposed changes affecting non-UK domiciled individuals, we attach two flow charts outlining the way we understand the new rules are intended to work from 6 April 2025. The first flow chart sets out the original Conservative proposal and the second highlights where Labour have indicated they will make further changes. As we comment above, unfortunately none of this is certain and we have no understanding of the finer detail of the proposals (nobody does!). We had expected to see draft legislation by now, but this has not been forthcoming. As some of the planning points may take time to implement, it is essential that these matters are considered as soon as possible.

 

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