Stephen Woodward provided this piece for Practical Law’s update on the Autumn 2024 budget.  You can read the full update from Practical Law here.  Access is not limited to subscribers.

The Chancellor has seen fit to make good on the Labour Party’s manifesto promise to remove the concept of domicile and the remittance basis of taxation from the UK tax code with effect from 6 April 2025.  Residence, as decided from 2013/14 by the Statutory Residence test, will become from 2025/26 the key criterion of an individual’s UK tax position.

From 6 April 2025 if you have not been UK tax resident in the 10 tax years prior to your arrival then you will qualify for the four-year Foreign Income and Gains (‘FIG’) regime.  During your first four years of UK residence all your FIG can be enjoyed in the UK with 100% relief from Income tax and CGT.  This largesse from the Chancellor is short lived as after 4 tax years of UK residence you will be taxed like everyone else: on a worldwide arising basis.  Furthermore, if you are tempted to bring FIG to the UK tax free while under the FIG regime to start a UK business, please note that the Chancellor will be limiting the amount of Business Property Relief for IHT to an IHT free allowance of £1m with IHT on the excess at 20%; this does not appear to be an attractive proposition to an internationally mobile entrepreneur.

One slight ray of hope is that the Temporary Repatriation Facility (‘TRF’) for individuals who have previously been taxed on the remittance basis has been extended for a period of three tax years from 6 April 2025.  This allows persons who don’t qualify for the FIG regime to remit previously untaxed foreign income and gains to the UK paying a rate of 12% in 2025/26 and 2026/27 and 15% in 2027/28.  The combination of the use of the TRF to fund a UK Family Investment Company may be attractive to those who do not emigrate.  The TRF regime will also apply to UK resident settlors of offshore trusts and beneficiaries who receive trust distributions.

Unfortunately, there the good(ish) news ends.  The protected trusts regime for settlor-interested offshore trusts will end on 6 April 2025 (unless the settlor qualifies for the FIG regime).  Also, as expected you will now be subject to IHT on a worldwide basis if you have been UK resident in at least 10 out of the last 20 tax years (practitioners please note that the sub-optimal case law-based system for determining residence for 2012/13 and previous years will still be with us).  This treatment will also apply to former excluded property settlements and so for offshore trusts settled while outside the IHT net will be caught in their entirety on and from the settlor passing the above test.  The UK settlors of protected trusts therefore have the unedifying spectacle of being taxed on an arising basis on the income and gains of their offshore trust, while the Trust Fund being subject to IHT on their deaths.  Faced with this many settlors will either emigrate or be forced to exclude themselves from benefit before 6 April 2025.

The Non-dom regime and the remittance basis will shortly rest in peace.  The new residence-based regime is unlikely to rise in glory in terms of attracting the internationally wealthy and mobile to the UK.

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