Much remains unclear and the full extent of the changes will not be announced until the Autumn Budget on 30 October 2024 although it appears that many of the measures announced by the Conservative Government in March 2024 will be adopted.
There are, however, some material differences between the Conservative and Labour plans and critically, whilst the Conservatives proposed to retain the IHT advantages offered by excluded property trusts, these will be abolished under the Labour Government (see para 10 below).
The timetable for the implementation of the changes is highly ambitious with the Government looking at having the new rules take effect from 6 April 2025.
The exact scope of the new regime remains to be seen and importantly, in terms of IHT, it looks as though we will need to wait until 30 October to see whether the new rules will catch those who are already non-UK resident but who would fail the “10 year test” under the new IHT regime (see para 9 below) on 6 April 2025.
Our top ten points to note are as follows.
The new regime for arrivers and the removal of trust protections for income tax and CGT
1. The remittance basis will be abolished and replaced by a new regime which will provide 100% relief on all foreign income and gains (“FIG”) arising to new arrivers in their first four years of UK tax residence (even if remitted to the UK), provided they have not been UK tax resident in any of the 10 consecutive tax years prior to their arrival. UK residents who are unable to benefit from the FIG regime will be subject to income tax and CGT on their worldwide income and gains (arising to them individually or through offshore trusts they have settled).
2. Domicile as a connecting factor for UK tax purposes will cease to have any relevance from 6 April 2025. From that point onwards exposure to UK tax will be determined solely by reference to residence (applying the Statutory Residence Test).
3. From 6 April 2025, the income tax and CGT protections introduced in 2017 under the protected settlement regime for settlor-interested offshore trusts will be abolished with UK resident settlors being charged to income tax and CGT on income and gains arising in their offshore trusts from that date, to the extent they fall outside the FIG regime.
4. A form of Overseas Workday Relief will be retained under the new regime.
Transitional provisions for income tax and CGT
5. From 6 April 2025, current and past remittance basis users will be able to rebase foreign capital assets when they dispose of them. A rebasing date will be announced in the Autumn Budget.
6. FIG that arose before 6 April 2025 but which was protected by the remittance basis will continue to be taxed if remitted. A new “Temporary Repatriation Facility” will be available for individuals who have been taxed on the remittance basis, under which it will be possible to remit untaxed pre-April 2025 FIG at a reduced tax rate. The Temporary Repatriation Facility may be expanded to included stock-piled income and gains which have arisen in offshore structures.
7. The policy announced by the Conservative Government, providing a 50% reduction in foreign income subject to tax for individuals who lose access to the remittance basis in the first year of the new regime, will not be introduced.
IHT for individuals and trusts
8. IHT is currently charged by reference to domicile. This will be replaced by a new residence-based system from 6 April 2025. The new rules will affect individuals and trusts.
9. Detail on how the new IHT rules will work is very limited but it appears that, from 6 April 2025, an individual’s worldwide assets will fall within the scope of IHT if the individual has been resident in the UK for 10 or more years and that worldwide assets will remain within the scope of UK IHT for 10 years after such an individual has left the UK.
10. In a material and key departure from the policy announced by the Conservative Government, from 6 April 2025, IHT protections enjoyed by excluded property trusts will be abolished. This is very significant and will bring value held under a huge number of trusts within the scope of the IHT rules for the first time. Transitional provisions to allow individuals to make appropriate adjustments to their existing trust arrangements may be introduced.
For further information, please contact Basil Dixon, Partner in the Private Client team or, alternatively, telephone on 020 7465 4302
