The UK government has released some details of its plans to replace the resident non-domicile tax regime with a four-year foreign income and gains system.
Step, the body for inheritance advisers, reported that proposals for a four-year FIG regime will be implemented from April 2025.
This mean people who have not been UK-resident for the 10 years before the 2025/26 tax year will be eligible and will be able to remit FIG tax-free to the UK for a maximum of four tax years.
It also reported the protected trust regime will be abolished from April 6 2025 for those who do not qualify for the FIG regime and settlers will be subject to income tax and CGT on the income and gains of the trust.
According to Step, transitional provisions announced by the previous government will apply, except for the one-year 50 per cent reduction in the taxation of foreign income for those who have been in the UK for fewer than 15 years.
The temporary repatriation facility will be retained, but at a rate that will not be revealed until the Budget announcement on October 30 2024.
This comes after the previous government announced in March during the Budget that the remittance basis and concept of domicile would be abolished.
Then in July 2024, current chancellor Rachel Reeves announced IHT protection for existing trusts settled by non-doms would come to an end.
A new residence-based IHT regime will be introduced from April 6 2025 with the basic test for whether non-UK assets are in scope for IHT being whether a person has been resident in the UK for 10 years prior to the tax year in which the chargeable event (including death) arises, with provision to keep a person in scope for ten years after leaving the UK.
According to Step, the government has said it recognises trusts will already have been established and structured to reflect the current rules.
Therefore, it is considering how these changes can be introduced in a manner that allows for appropriate adjustment of existing trust arrangements, at the same time as ensuring that the treatment of all long-term residents of the UK is the same for IHT purposes.
Step also reported anti-avoidance legislation applying to offshore trusts, including the transfer of assets abroad and settlements legislation will be reviewed with no changes being made until April 2026 at the earliest.
It also said: “It appears that an open consultation will not be held on the details of the IHT policy. Instead, interested parties are being invited to submit comments before the Budget in a 'summer engagement'.
"There will also be a series of face-to-face and virtual sessions between August 12 and August 23 2024. Following this exercise, the new rules will be published on October 30 2024, along with transitional arrangements.”
The professional body has warned that retrospective legislation may lead to unfair outcomes on individuals who leave the UK before April 6 2025, especially if they have never been subject to a worldwide IHT.
