Tag: non-doms

Labour’s 2024 Manifesto: Key changes to non-dom taxation and offshore trusts

Posted on by Alicia Sprott

There’s no surprise – it makes clear that the UK’s tax regime for non-doms will change, replaced by a “modern scheme for people genuinely in the country for a short period”. Most commentators expected the majority of the 2024 Spring Budget proposals put forward by the current Government to be adopted by the Labour Party, with perhaps some tweaks.

However, there are some firm commitments made in the Labour Manifesto, which were previously announced, but are now written down as commitments:

  • Labour will not introduce the proposed 50% discount for ‘foreign income’ in 2025/26; and
  • Most significantly, Labour will be bringing offshore trusts within the scope of Inheritance Tax (IHT) against current practice and the 2024 Spring Budget proposals.

It was the second of these that had caused most concern to many of the country’s wealthiest non-doms, who immediately began to seriously consider bringing forward their departure from the UK. However, depending on how the new rules are drafted, even leaving now may not prevent exposure to IHT for non-doms and their trusts, regardless of how closely linked to the UK they are.

For those who may be affected, our two articles for individuals and for those with offshore trust structures are now even more important than before (if that’s possible), especially for the trustees of potentially affected trust structures.

For further advice, please contact James Walker, Private Client Partner.

Offshore trustees and non-doms: Key UK tax strategies for summer 2024

Posted on by Alicia Sprott

Our main concern is that the nine-month window is very tight, especially for non-UK resident trustees. Restructuring potentially affected trusts to mitigate the full effects of the changes could carry significant risks that must be managed carefully and fully understood. This is particularly true for settlors who are UK resident but not UK domiciled (even if they are ‘deemed UK domiciled’ for UK tax purposes), and who have not decided to leave the UK before 6 April 2025, as they will face the consequences of the changes.

We recommend that trustees, the settlor and beneficiaries focus on the following aspects as soon as possible:

  • The settlor should review their common law ‘domicile’ status to ensure there remains a strong argument that they have retained a non-UK domicile status. This is going to be essential before any restructuring work can be carried out.
  • The trustees should also confirm the structure has not been ‘tainted’;
  • Subject to (1) and (2), the trustees should consider triggering unrealised capital gains to rebase assets and, where possible, bring forward non-UK source income before 6 April 2025 while the trust still qualifies for Protected Trust status; and
  • Look at the options of investing through tax wrappers that may defer UK tax (e.g., offshore investment bonds).

In some cases, there will also be the need to consider the ‘motive defences’ under both the Income Tax and Capital Gains Tax provisions, but one step at a time…

If trustees and settlors wait until the legislation is drafted, likely in autumn 2024, it will leave very little time to carry out the required review and implement any proposed plans. There may also be new legislation that prevents any restructuring.

Our Private Client & Trusts team have a wealth of experience and knowledge on the UK tax regimes for non-doms and offshore trust structures and will stay on top of important updates. For further advice, please get in touch.

Non-doms: Key UK tax strategies for summer 2024

Posted on by Alicia Sprott

For offshore trustees, please see our article here for our suggested strategy.

This is a good opportunity to reflect on the actions we feel that non-doms should take over the summer, given, at the time of this post, we have less than nine months until the proposed regime may come into effect.

For those without an offshore trust structure as part of their personal wealth – or where there is material personal wealth outside the structure – there are still some very important decisions to make over the coming months.

We have explained the potential new regime here, so we won’t repeat them in this post. Instead, we want to simply reflect on the actions we feel that non-doms should consider taking over the summer.

There are likely to be opportunities for those who are still able to claim the remittance basis in 2024/25 to restructure their investments before 6 April 2025 to mitigate the full effects of the changes and perhaps even significantly reduce their UK tax exposure from 2025. However, since restructuring is reliant on having retained your non-UK domicile status, we recommend a formal review of your domicile position, collating evidence to support your claim to being domiciled outside of the UK. We expect HMRC to be quite aggressive with its enquiries into domicile status for those claiming the remittance basis in 2024/25. Therefore, having a formal report supported by contemporary evidence demonstrating your non-UK domicile status will be your best defence against a challenge from HMRC. A successful challenge by HMRC to a non-UK domicile in 2024/25 could cause them to revisit earlier years.

Once this review is successfully completed, we recommend evaluating your investments/assets for restructuring opportunities, such as realising unrealised capital gains and/or bring forward income where possible. We also recommend exploring future investment options that may permit a deferral on your UK tax liability once the changes come into effect, such as life insurance investment bonds.

You should also consider how to use the proposed Temporary Repatriation Facility (TRF) to make the most of what is likely to be a 12% tax rate (versus the current maximum of 45%).

Perhaps the single biggest concern of most non-doms will be the potential Inheritance Tax (IHT) implications, should you decide to stay in the UK. Although the proposals are very vague at present, at 40% of your personal wealth, this is not an aspect to brush over.

If you wait until the legislation is drafted, likely in autumn 2024, it will leave very little time to review both your domicile status and the options available.

Our Private Client & Trusts team have a wealth of experience and knowledge on the UK tax regime for non-doms and offshore trust structures, and will stay on top of important updates. For further advice, please get in touch.

The future of the non-domicile tax regime – Taxation

Posted on by Alicia Sprott

Katharine and Duncan outline the complexities and uncertainties surrounding current proposals by both the Conservative and Labour parties regarding the taxation of non-domiciled residents in the UK.

The upcoming General Election and subsequent legislation will likely redefine the landscape for non-UK domiciled individuals, with significant changes planned to start by 6 April 2025. The current debate suggests a shift from a domicile-based system to a residence-based regime, potentially ending the remittance basis of taxation. The proposals include transitional arrangements for existing non-doms and plans for a new tax treatment for foreign income and gains.

Katharine and Duncan advocate for a simplified, more efficient tax system that can handle these changes without increasing the administrative burden on taxpayers and  HMRC. Katharine says: “The complexity currently witnessed in our tax system is unmanageable. It’s crucial that the next government prioritises simplifying these rules,” says Arthur.

To read the analysis in full, you can read the full article on Taxation here (free subscription needed).

Non-domicile tax advice

We’re advising all those with a non-domicile status to be prepared – don’t wait until the changes are implemented as it may be too late to protect your non-dom status and assets at that point. For further advice, contact Katharine Arthur or Duncan Cleary directly.

haysmacintyre reacts: All change for non-doms and offshore trustees?

Posted on by Alicia Sprott

As a UK non-UK domiciled (non-dom) and offshore trust structure tax specialist of almost 30 years, having heard on countless occasions that the non-dom regime would be abolished, I was sceptical of the rumours, but the Spring Budget 2024 proved exciting.

My main health warning is that the UK has a General Election that must be held no later than January 2025 and the proposed changes are scheduled to take effect from 6 April 2025. Therefore, if we have a new government, there is a significant risk that these proposals won’t be introduced in this form, which makes planning difficult. However, if it is not these rules, it’ll be a replacement because the path has now been set.

That aside, we can only work with what’s been announced, so it is first worth saying that these proposed changes look exceptionally attractive to any high net worth (HNW)/ultra-high net worth (UHNW) individuals or families looking for a friendly tax jurisdiction in which to realise significant value (for example, a business sale, substantial dividends or trust appointments). This is because, for up to four years, these could all be entirely free of UK tax. Thereafter, all future income and gains will be fully taxable, but there remain options to manage that exposure.

There are two immediate factors. Firstly, the UK recently removed its investor visa programme, making it far more difficult to move to the UK and take advantage of this, so early advice needs to be sought because this can be a slow process. Secondly, the alluded to Inheritance Tax (IHT) changes may mean that any individuals who do manage to make use of these rules, may be ‘forced’ to leave within 10 years of arriving.

Putting aside any trust interests for a moment (see below), a non-dom who is already UK resident may benefit from some limited transitional rules to help soften the impact as well as the potentially very exciting two-year window in which to bring historic income and gains to the UK at a much-reduced tax rate of 12%. However, very often the main concern is the UK’s 40% IHT rate so ‘watch this space’ (because the rules are yet to be ‘consulted’ on) but depending on how long someone has been in the UK, there may be options to prevent this being a reason to leave the UK earlier than otherwise planned.

Finally, but closest to my heart (because I owe my career to the Channel Islands trust industry) is the potential impact for offshore trustees and their non-dom ‘settlors’ and/or beneficiaries.

For UK resident ‘settlor interested’ trusts, all of the structure’s income and gains may suddenly become taxable on the settlor as if it were their own, unless within the four ‘bonanza’ years. The settlor may have a legal right under the UK’s tax legislation to have the sums reimbursed, but will the trustees be able to? I remember discussions about this from the 1990s, so I’m looking forward to opening those dusty books (remember them?) again. It’s going to be critical to understand what the scale of the potential impact may be, the options, and whether there are any protections available, such as the ‘motive defences’ within the various anti-avoidance rules, because this could mean the difference between no UK tax and up to 45% UK tax having to be planned for. Excluding the settlor and spouse may also achieve nothing for Capital Gains Tax (CGT) purposes, so be careful when considering irrevocable exclusions. The suggested IHT benefits will more than likely keep many structures very appealing. For anyone who does consider terminating any structure, this could come with some surprises.

For any other type of trust where a beneficiary may move to the UK to enjoy the four years of bliss, there could be a splendid opportunity to make tax free distributions to them.

To my friends and colleagues in the ‘offshore’ fiduciary services industry, this could be a very exciting time with a frenzy of new trusts before 6 April 2025 and a need to understand existing ones under the possible new regime.

Please beware that a lot of detail is still unknown, so if you are a non-dom individual who has ever used the remittance basis or who may be considering coming to the UK, I would suggest speaking to a specialist as soon as possible (if that’s us, then even better!). If you are a trustee of a non-UK trust structure who has a UK resident settlor or beneficiary, then now is the time for a fresh ‘health check’ to take stock and consider your options.

For more on our non-UK domiciled personal tax and offshore trust services, contact James for more information.

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