Non-Dom Reforms: Activity over the summer and next steps

With the school summer holidays now well and truly behind us, what have you missed in the world of non-doms whilst enjoying the sunshine? What do you need to factor into your planning for the rest of the year as we hurtle towards 6 April 2025? With Autumn Budget day (30 October 2024) likely to herald the start of Season Two of the non-dom changes, do take a few minutes to recap on Season One by reading our articles ‘The new Government push ahead with Non-Dom Reform’ and ‘Inheritance Tax changes from 6 April 2025 – an update’.

On 29 July 2024, despite saying that there would not be any tax announcements, the Chancellor certainly set the scene for the months ahead, filled in some of the blanks and left a number of points to be confirmed on Budget day with the publication of a new policy announcement ‘Changes to the taxation of non-UK domiciled individuals’.

Over the summer, we, along with professional bodies, accounting and legal firms and other affected parties, made HMRC aware of our questions and concerns with regard to the details and implementation plans for the policy (as far as these have been made available). Some of these points are summarised below:

Timetable for implementation

The announcement confirmed (not unexpectedly) that the new Government intends to press ahead with changes to the taxation of non-UK domiciled individuals and offshore trusts, but there were some key points to flag. Given the delay caused by the July General Election, we have voiced our concern that the timetable for implementing these changes is now very short and that this may not allow time for the level of scrutiny and input needed for such complex legislation.

Conservative Government’s proposed transitional arrangements

The Labour Government has dropped the proposed transitional arrangements whereby previous remittance basis users would only be subject to tax on 50 percent of their foreign income for 2025/26. Again, not unexpected, but this is at least now confirmed and thus one less point of uncertainty.

Rebasing

Rebasing for personally owned assets has been retained as a proposal, although the new policy announcement suggests that the rebasing date (originally proposed as 5 April 2019) is under review and an announcement of the ‘appropriate date’ will be made on 30 October 2024. We have highlighted to HMRC that many non-domiciled individuals have interests in trusts and companies which would result in them being taxed personally on gains within those structures and asked that this be considered as part of plans for rebasing.

Temporary Repatriation Facility

The proposed Temporary Repatriation Facility (TRF) will be going ahead to allow previous remittance basis taxpayers to remit Foreign Income and Gains (FIG) that arose prior to 6 April 2025 and pay a reduced tax rate on the remittance for a limited time period after the remittance basis has ended. The new policy announcement states that “the rate and the length of time that the TRF will be available will be set to make use as attractive as possible”. The Government is also exploring ways to expand the TRF to include stockpiled income and gains within offshore structures, which is welcome news – further details are expected again on Budget Day. We have passed on our views to HMRC that any facility would need to be simple to understand and allow for amounts of FIG to benefit from this treatment without necessarily needing to be remitted in the timescale. As with rebasing, we highlighted the fact that many non-domiciled individuals may be personally taxable on the income of trusts and companies and asked that this be considered.

Overseas Workday Relief

The future design of Overseas Workday Relief has been another focus for discussion over the summer. Whilst we understand that the Government intends to retain this facility for internationally mobile employees under the FIG regime, its precise form will only become clear on Budget day. In the meantime we have shared our views with HMRC, underlining the need for a competitive relief which is simple and easy to apply for all interested parties, with clear supporting guidance for employers and employees.

Review of offshore anti-avoidance rules

Interestingly, the Government also set out an intention to review offshore anti-avoidance legislation (which commonly attributes income/gains to participators and beneficiaries of non-UK structures) “to modernise the rules and ensure they are fit for purpose. The intention for this review will be to remove ambiguity and uncertainty in the legislation, make the rules simpler to apply in practice and ensure these anti-avoidance provisions are effective.” The new policy announcement states that they do not expect any changes to start before the 2026/27 tax year. We have also highlighted the need for the Government and HMRC to engage with key stakeholders on this legislation in view of its complexity, since understanding the day-to-day practicalities is key. We have raised with HMRC the need to increase the certainty and simplicity, particularly in respect of the ‘motive defence’ (which has the ability to disengage the anti-avoidance rules where, amongst various tests, there was no tax avoidance motive) given that many more structures are likely to become reliant on this given the proposed end to the remittance basis.

Broadening scope of Inheritance tax

Perhaps the most significant announcement concerned the intention to move from a domicile based inheritance tax basis to a residency based one from 6 April 2025, and without the originally proposed consultation.

Anyone who passes away between now and 6 April 2025 will be taxed under existing rules according to the policy announcement, but new settlements of excluded property, 10 year or exit charges from trusts are not mentioned. This does leave scope for these rules to be changed prior to 5 April 2025 – perhaps on Budget day, maybe in the form of some kind of anti-forestalling provisions. The 10 year ‘IHT tail’ appears to be unchanged. We have communicated to HMRC our apprehension around the speed of these changes, given their scale and complexity and urged them to delay to ensure that any resulting legislation does not have unforeseen impacts. We have also noted in our representations to them that no other country has such a long IHT tail and that there is a risk of accidental non-compliance where the descendants of those who left the UK some years ago are unaware of the need to seek UK tax advice.

Offshore assets in excluded property trusts

Not unexpectedly, the July announcement confirmed the intention to bring offshore assets in all excluded property trusts (not just those established after 6 April 2025) within the scope of UK IHT.

There is, however, some suggestion that there may be some transitional provisions, perhaps allowing for the unwinding of structures without or with reduced UK tax consequences. We now expect confirmation of the rules and their detailed application on Budget day, including any transitional provisions. We have highlighted to HMRC some of the difficulties with unwinding trusts which are not limited to UK tax, for example, family wealth planning arrangements such as Wills and overseas tax considerations. We have also raised the question of the extent to which trust assets will come within UK IHT in circumstances where the settlor has died, and how this will be determined.

Other points

As well as our comments on the changes included in the July announcement, we have also raised a number of other points with HMRC with regard to the wider changes. For example, we have noted that the proposed four-year FIG regime may be too short to attract long term residence in the UK, particularly in view of the fact that both split years and years of non-residence within the four year period will be counted.

Looking forward, it seems likely Budget day on 30 October 2024 is going to be a bumper day for personal tax. Look out for further articles on the announcements we’ve been told to expect as well as others we might anticipate which may impact non-UK domiciled individuals.

With Budget day falling into half term and so close to Halloween, the amount of analysis that is going to be required means it has potential to be a ‘frightful’ few days for tax advisers as we get to grips with the quantity of new legislation in order to advise our clients. Even if the rules are not enacted until 6 April 2025, there is not a lot of time for us to digest these new rules and to help clients consider how they may be impacted.

So, is there anything that taxpayers should be doing before Budget day? Given that everything is so fact specific and there are so many unknowns, the best advice would be to speak to your tax and legal advisers as soon as possible. If the current timetable for the proposals proceeds as planned, the pace of change is going to be fast with changes being implemented on 6 April 2025, or even before (perhaps as soon as Autumn Budget day). Understanding your current position and structures, the existing benefits – both tax and non-tax – and the impact of potential changes is key as it is going to be a hectic few months ahead.

For further information please contact:

• Gavin Shaw
  
• Mike Lavan