On 30 October 2024, the Chancellor announced further details regarding the changes to the taxation of non-doms and offshore trusts (amongst other announcements regarding CGT, IHT and SDLT). Please find a recording of our recent webinar detailing all the announcements here.
In terms of reforms to non-doms and the taxation of offshore trusts, the headlines changes are as follows:
New residence based – 4 year FIG regime
- Non-dom regime will be abolished from April 2025 and the concept of domicile will be removed from taxation from April 2025.
- New residence based regime – the 4 year Foreign Income & Gains regime as previously proposed and available to individuals who are within their first 4 years of UK residence after a period of at least 10 consecutive years of non-residence, including UK nationals and UK domiciled individuals.
- Temporary Repatriation Facility will be extended to 3 years (from 2025/26, 2026/27 and 2027/28) and will allow individuals to designate unremitted foreign income and gains whether liquid or illiquid to be taxed at a reduced rate of 12% in 2025/26 and 2026/27 and 15% in 2027/28. Mixed funds rules have been simplified to enable designated amounts to be remitted in priority.
Inheritance tax
- Long-term residents, being those who have been UK tax resident for 10 out of the previous 20 years immediately preceding the tax year in which a chargeable event (including death) takes place will pay UK IHT on their worldwide assets.
- If the individual becomes non-UK resident and does not return to the UK before the chargeable event, they will remain within the scope of UK IHT on their worldwide assts for between 3-10 years, depending on how long they have been resident in the UK. This means that the IHT tail could be as little as 3 years for an individual who has been resident in the UK for between 10 and 13 years.
- There does not appear to be any further discussion of “connecting factors” so those UK nationals/ex-pats who are not long-term residents for IHT purposes will fall outside the scope of UK IHT on their non-UK assets, subject to the final legislation.
Trusts
- Excluded property within a settlement as at 30 October 2024 will remain outside the gift with reservation of benefit provisions, but will be within the relevant property regime (ten year charges etc) subject to whether the settlor falls within the scope of UK IHT.
- Where the settlor of a trust has died before 6 April 2025, whether non-UK assets are excluded property will be based on the settlor’s domicile at the time the property was settled.
- Any new trusts settled now will fall within the gift with reservation of benefit provisions and relevant property regime, subject to the settlor falling to be a long-term resident for the purposes of UK IHT.
- Non-UK and UK trusts can therefore fall in and out of the relevant property regime based on the settlor’s residence and will be subject to exit charges as a result when relevant property becomes excluded property.
It is important to note that this information is based on our understanding of proposals announced in March 2024 by the previous government and they may be revised by the new government. Please get up-to-date advice before taking any action.
Please do not hesitate to contact us, or your usual KPMG in the UK contact, to discuss the reforms in further detail.
