Overview
On March 6, 2024 UK Chancellor Jeremy Hunt announced in his Spring Budget an intention to rewrite the UK taxation of internationally mobile people from April 2025. As outlined it would appear to be a zero tax regime on non-UK assets/income in the first four years of residence, after which everyone is moved to the same UK tax basis as ordinary UK residents. This signals the closing of the system which had permitted prolonged residence in the United Kingdom on the basis that non-UK income/gains were not taxed if not brought to or otherwise used in the UK.
Such treatment is now only to be available for those who are comparatively short-term residents. For those currently using the remittance basis of taxation, potentially good news is the intention is to legislate so as to encourage the onshoring of wealth to the United Kingdom with a reduced rate of tax on funds remitted in 2025/26 and 2026/27. Future capital gains can also be calculated with a rebased value to April 2019.
Further, for those currently using the non-domiciled basis of taxation the devil will be in the detail of the transition provisions and, in particular, whether structures currently regularly established by deemed domiciled individuals under the 2016/17 changes will remain taxed as they currently are. The initial documentation suggests the intention is that this will not be the case and that such existing structures’ income and gains will become taxable on the arising basis.
Two further observations. Firstly, this change will not only be relevant to income and capital gains tax. The UK he government has proposed that inheritance tax will be updated to remove the long term relevance of domicile as well, albeit it is suggested that excluded property trust treatment will remain for existing trusts. Secondly, and perhaps more importantly, will any of this survive the general election due within the year?
Given the seismic changes envisaged by this proposal, but the impact of which on individual clients being dependent on the details of the regime becoming clearer, we advise that you get in touch with your McDermott contact as soon as possible for specific advice and an update on these proposed changes.
