THE TRANSATLANTIC MAGAZINE
THE TRANSATLANTIC MAGAZINE
In a somewhat surprising move, the Chancellor announced the abolition of non-UK domicile tax rules with a new residence-based regime to be introduced from 6 April 2025. The treasury estimates that in 2025/26, this new regime will raise £185m.
The new 4-year Foreign Income and Gains ("FIG") regime will apply to individuals who become UK resident, following a 10 year period of non-UK residence.
By opting into the regime, those individuals will not pay tax on FIG arising in the first 4 years after becoming UK tax resident and can bring these funds into the UK free from any additional charges. During this period, individuals will also not pay tax on non-resident trust distributions but will pay tax on UK income and gains.
The following transitional arrangements for existing non-domiciled individuals claiming the remittance basis have been introduced:
Overseas Workday Relief ("OWR") for the first 3 tax years of UK residence has also been changed so that from 6 April 2025, eligibility for OWR will be based on an employee’s residence and whether they opt to use the new 4-year FIG regime.
Critically, from 6 April 2025, income and gains arising from a non-resident trust structure will be taxed on the settlor or transferor (if they have been resident for more than 4 tax years) on the arising basis.
What this means in practice is that offshore trusts will be taxed on the same basis as UK domiciled settlors or transferors.
FIG that arose within the trust structure before 6 April 2025 will be taxed on settlors or beneficiaries if they are matched to worldwide trust distributions.
Inheritance tax ("IHT") is currently a domicile-based system. The Government intends to move IHT to a residence-based system, subject to consultation, and applying this only from 6 April 2025.
Current IHT treatment will continue for any non-UK property that is settled by a non-UK domiciled settlor and becomes comprised in a trust prior to 6 April 2025. New trusts and additions to existing trusts made by a non-UK domiciled settlor on or after 6 April 2025 will be subject to new residence-based rules.
It is therefore important to seek advice on how and when to settle a trust as the changes set out in today’s Spring Budget could have a significant impact on the tax implications of setting up a trust structure.
James Ward is head of Private Client at Kingsley Napley LLP, a legal firm with departments handling all apects including Immingration and Tax Law.