WINNERS
✔ For existing non-dom residents wishing to spend foreign income or gains in the UK, they should look to take advantage of the time-limited opportunity to bring these in at the 12% tax rate (which would otherwise be potentially taxed at 45%).
✔ Individuals able to control the timing of their income may wish to consider realising foreign assets in the 2025/26 tax year. Those that are eligible for rebasing will likely want to obtain valuation of assets as at 5 April 2019 in order to compare to the original base cost.
✔ Planning opportunities to settle trusts into an Excluded Property trust for non-domiciled individuals with a life insurance wrapper as the investment vehicle inside the trust. With the reform of the non-domicile regime, any “Excluded Property Trusts” that were set up before 6 April 2025 will remain valid and the treatment of these trusts for IHT purposes will not change.
✔ British expatriates overseas may not need to be reliant on subjective judgements by HMRC on whether or not their domicile claim is successful. UK tax planning for long term non-resident British expatriates is likely to change significantly without needing complex structures for UK inheritance tax efficiency.
LOSERS
✘ An overhaul of the Inheritance Tax regime has garnered great uncertainty. The Government will publish a policy consultation on the IHT and non-domicile changes, followed by draft legislation for consultation so we will update again as and when it happens.
✘ For long-term residents who have been in the UK for more than 10 years, the new IHT regime suggests that there will be a 10-year tail of non-residence before they are excluded from UK inheritance tax on overseas assets. It remains to be seen whether or not there will be a tapering system. Previous rules required deemed domiciled individuals to leave the UK and be non-resident for four (4) tax years before they fall outside the scope of UK inheritance tax on worldwide assets.
✘ Protected Settlements will no longer be tax-efficient. The new rules suggest that the chargeability of assets comprised in a settlement will depend upon whether a settlor meets the residence criteria or is within the tail provision at the time the assets are settled and/or when charges such as 10-year anniversary charges or exit charges arise. It would appear that pre-6 April 2025 foreign income and gains within protected trusts will continue to be protected and this is to be reviewed in due course.
✘ What was previously a '15 out of the previous 20 year' rule for long term residents becoming deemed UK domiciled for UK IHT purposes, it will now be reduced to 10 years, and only four (4) years of UK residency for worldwide income and gains to be taxable in the UK.
If you have any questions or would like to discuss your circumstances in further detail, please contact us below:
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