Impending Taxation Changes for Non-Domiciled UK Residents
In a significant policy shift, the UK Chancellor of the Exchequer, Jeremy Hunt, has outlined proposals that could alter the financial landscape for non-domiciled individuals residing in the UK. The current system, which taxes non-domiciled residents only on their UK-sourced income and capital gains, is set to transform following four years of residency.
From April 6, 2025, the taxation regime will pivot towards a residence-based system, obligating all UK residents to pay taxes on foreign income and gains. This move aligns with ideas historically proposed by the Labour party, marking a departure from the Conservative government’s previous approach to non-domiciled residents’ status.
The protected trust regime is also slated for change. Post-April 2025, income and gains within certain trust structures may become taxable on the settlor(s). Additionally, inheritance tax laws are under review, with a potential shift from domicile to residence as the determining factor for tax exposure. Details on these changes remain forthcoming and will be subject to consultation.
Given these developments, non-domiciled individuals and those contemplating a move to the UK should proactively consider restructuring their financial affairs. Engaging with a qualified tax advisor is recommended to navigate the potential implications of these proposals.
Possible strategies might include:
- Exploring insurance wrappers or similar insurance-based products.
- Considering the establishment of a Family Investment Company.
- Creating an excluded property trust now and deferring funding until there is more clarity on the inheritance tax regime.
- Accelerating foreign income and gains realization to crystallize Foreign Income Gains (FIG) as outlined in the Budget.
- Securing trust distributions before April 5, 2025, to generate foreign income and gains, assuming new rules do not prohibit this.
- Amending existing trust terms to minimize the impact of losing trust protections.
While taxes are inevitable, their form and timing can be influenced by strategic planning. The adage “If not now, when?” resonates strongly in this context. Individuals are encouraged to review available literature on the Budget’s terminology and proposed changes to better understand their potential impact.
This article serves as a general guide and underscores the importance of seeking specialized advice tailored to individual circumstances.
