Impending tax changes for both non-UK and UK domiciled individuals

A summary of the new rules to apply from 6 April 2025

• Implement a 4-year foreign income and gains (FIG) regime. On the making of a claim, the FIG regime will provide 100% tax relief on eligible FIG for new arrivals to the UK in their first four years of tax residence, provided they have not been UK tax resident in any of the 10 tax years immediately prior to their arrival. As the FIG regime will be residence-based and no longer domicile-based, this does also open the door to possible tax advantages for UK domiciled individuals who return to the UK after more than 10 years of absence. Residence status will be determined by the existing Statutory Residence Test. A tax year which is split or one in which an individual is UK resident under domestic law but resides elsewhere under the terms of a tax treaty between the UK and another country will be treated as a year of UK residence for this test.
• Replace the domiciled-based system for UK Inheritance Tax (IHT) with a residence-based system. From 6 April 2025, the test for whether non-UK assets are in scope for IHT will be whether an individual has been resident in the UK for at least 10 out of the last 20 tax years immediately preceding the tax year in which the chargeable event arises. This therefore also opens a door to possible tax advantages for UK domiciled individuals who have not been UK resident within same timeframe. Residence status will be determined by the existing Statutory Residence Test for tax years 2013/14 onwards and its predecessor rules for tax years 2012/13 and earlier. There is a ‘tail’ period under which individuals leaving the UK will remain within scope of UK IHT on their non-UK assets for between 3 and 10 years after leaving, depending on how many years they have been UK resident for prior to that.
• Introduce a new Temporary Repatriation Facility (TRF). This will allow individuals previously taxed on the remittance basis to designate amounts derived from pre-6 April 2025 FIG and pay a reduced tax rate on these amounts for a period of three years, starting from 2025/26. The reduced tax rate will be 12% for 2025/26 and 2026/27, increasing to 15% for 2027/28. This is a significant reduction from the current tax rates (of up to 45%) and is designed to encourage inward investment of previously unremitted FIG to the UK. This facility will be extended to beneficiaries and settlors receiving certain distributions from qualifying overseas structures, provided they have previously claimed the remittance basis of taxation. For more details on the trust position, click here [link to trust piece]. The TRF will be subject to conditions and a set mechanism to successfully claim the reduced tax rate. You should contact a member of our team or your usual Azets advisor for further advice before implementation.
• Reform Overseas Workday Relief (OWR) by removing the need to keep the income offshore, extend the period that employees can benefit from OWR to 4 years (currently 3 years) and introduce an annual financial limit on the amount claimed. From 6 April 2025 eligibility for OWR will be based on an employee’s residence and not their domicile and will be available for a maximum of four years. OWR will be subject to an annual financial limit for each qualifying year equal to the lower of 30% of the qualifying employment income or £300,000 per tax year.
• For Capital Gains Tax (CGT) - current and past remittance basis users can rebase their personally held foreign assets to 5 April 2017 on a disposal where certain conditions are met.

Planning considerations

• Non-UK domiciled individuals who are UK tax resident – thought needs to be given to delaying any remittances to the UK of pre 6 April 2025 FIG until after the 6 April 2025, in order to potentially take advantage of the new TRF.
• Long-term UK resident but non-UK domiciled individuals – A general review of how the IHT changes applicable from 6 April 2025 will affect an individual’s overall IHT exposure, particularly on non-UK situs assets, that will now be brought into the scope of IHT.
• Individuals who are planning to return to the UK – UK or non-UK domiciled individuals who are looking to return to the UK following a period of non-residence need to carefully consider the new rules before arrival. It may be better to delay a return to take advantage of the new FIG regime.
• Current and past remittance basis users – For disposals on or after 6 April 2025, it may be possible to claim to rebase the acquisition value of personally held assets to the market value as at 6 April 2017. Individuals to who this may be a possibility should carefully consider their options before making any disposals of assets that are currently showing inherent capital gains.
• Current UK resident and domiciled individuals considering moving abroad may be able to benefit from some of the provisions set out above as the proposed new rules are residence and not domicile based.
• Individuals who are or will be in their first four years of UK residence after a 10 year non-resident period – consider making claims under the FIG regime to exempt FIG from UK tax.

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