The long awaited 2024 Autumn budget was delivered by Chancellor Rachel Reeves, setting out various changes to the UK tax regime, particularly the abolition of the non-domiciled regime. The impact of these changes is yet to be seen, although a large number of families have already started to leave the UK, with the UAE being the number one destination.
From 6 April 2025, the government have announced that the non-domiciled regime will be replaced by a residence-based regime.
New arrivals who have been non-UK resident for at least ten consecutive tax years will benefit from full tax relief on foreign income and gains (FIG) arising during the first four years of UK tax residence, replacing the remittance basis regime. This will allow an individual to bring their non-UK income and gains to the UK without triggering a UK tax charge.
This will be welcomed by British expats who have spent a significant amount of time outside the UK and may now wish to spend more time in the UK without their FIG being taxed for a short period. It is recommended that advice is obtained before they become UK resident to ensure that the rules are correctly followed.
After the first four years of UK tax residence, it will no longer be possible to claim tax relief under this regime and therefore an individual will be subject to UK tax on their worldwide income and gains.
For non-domiciled individuals who are currently resident in the UK and have previously claimed the remittance basis, the government have announced that they will introduce a “Temporary Repatriation Facility (TRF)”, allowing them to remit foreign income and gains that arose before 6 April 2025 to the UK at a reduced rate.
It will be available for three years from 6 April 2025 to 5 April 2028 and designated amounts will be subject to tax at 12% between 6 April 2025 and 5 April 2027 and 15% between 6 April 2027 and 5 April 2028.
The Chancellor has recently announced that there may be further changes to the TRF and the details of this are yet to be seen.
It will be important to create a strategy to utilise this facility as it is only FIG arising before 6 April 2025 which will be eligible to be remitted under this regime.
For capital gains tax purposes, there will be a limited rebasing opportunity applying to any individuals who have claimed the remittance basis between 6 April 2017 and 5 April 2025 and who were not UK domiciled or deemed domiciled before 6 April 2025.
The acquisition cost for assets acquired before 5 April 2017 and disposed of on or after 6 April 2025 will be able to be rebased to its 5 April 2017 value.
The government have also announced that there will be a consultation to review anti-avoidance provisions which apply to overseas structures, and this will be concluded in due course.
Business Investment Relief (BIR) will still remain available until 6 April 2028 on the basis that any FIG invested arose before 6 April 2025. FIG that has been used to make a qualifying investment can be designated under the TRF.
Currently, chargeability to UK inheritance tax (IHT) on non-UK assets is based on an individual’s domicile. From 6 April 2025, chargeability to UK IHT will be based on residency.
Whether non-UK situated assets are within the scope of IHT will depend on whether an individual has been resident in the UK for at least ten out of the last twenty tax years, immediately preceding the tax year in which a chargeable event occurs such as death, or on a gift to trust. It would be at this point a long-term resident would be liable to UK IHT on their worldwide assets.
Long-term residents will remain within the scope of UK IHT until they have been non-UK tax resident for between three to ten consecutive tax years. The tail will be ten years if they were resident in the UK for twenty tax years or more and is shortened if they were resident for between ten to nineteen years.
The tail for an individual who has been UK resident for ten to thirteen years is three years and is increased by one tax year for each additional year of UK residence up to a maximum of ten years.
After a period of ten consecutive tax years of non-UK residence, an individual’s long-term resident status resets.
Transitional rules have been announced which apply to individuals who are non-UK tax residents in the 2025/26 tax year and who were non-UK domiciled on 30 October 2024. If the individual has already left the UK or ceases to be UK resident by 6 April 2025, they will be subject to a IHT tail of only three years regardless of the number of tax years they had been UK tax resident prior to leaving. They must not, however, return to the UK within six years.
This provision will also apply to those who were deemed domiciled in the UK.
Whether non-UK assets held in a trust are within the scope of UK IHT is dependent on whether the settlor is a long-term resident at the time a relevant event for IHT purposes arises.
The main occasions of charge where a settlor is a long-term resident are when assets leave the trust and on each ten-year anniversary of the trust being created. There may also be a charge where a settlor ceases to be a long-term resident.
This means that a trust can move in and out of the scope of UK IHT depending on the settlor’s residence status.
In the case of a trust where the settlor is deceased the tax treatment will depend on their tax status at the time they settled the trust (if he or she passed before 6 April 2025) or of he or she was long term resident at the time of passing if after that date.
From 6 April 2026, Agricultural Property Relief (APR) and Business Property Relief (BPR) are set to change. Full relief from IHT will be capped to the first £1 million of combined business and agricultural property, with anything above that receiving only 50% relief, resulting in an effective IHT rate of 20%.
This will particularly impact business owners looking to pass on their shares to the next generation as part of their succession plans.
The main capital gains tax rates have increased, with the lower rate increasing from 10% to 18% and the higher rate increasing from 20% to 24% for disposals made on or after 30 October 2024.
Business assets qualifying for Business Asset Disposal Relief (BADR) and Investors Relief will be taxed at 14% for any disposals made from 6 April 2025 and 18% on any disposals made after 6 April 2026.
The lifetime limit for Investors Relief has been reduced from £10 million to £1 million for disposals made on or after 30 October 2024.
Carried interest gains arising from 6 April 2025 will be taxable at a flat rate of 32% and from 6 April 2026, a new carried interest regime will apply whereby carried interest will be taxable as trading profits, subject to income tax up to 45%.
The Government has confirmed that income tax thresholds will be frozen until April 2028. From 6 April 2028, the thresholds will be lifted in line with inflation.
As previously announced, the furnished holiday lettings regime will be abolished from 6 April 2025.
The actions which should be taken now will vary depending on individual circumstances. However, below we have set out some actions you may consider:
• Review existing structures
• Explore alternative jurisdictions
• Look at strategies to cover and prepare for future tax liabilities such as obtaining life insurance
• Contact advisory professionals like Sanctuary to discuss how these changes are likely to affect you
It is important now for individuals affected by the changes to review their affairs and consider how they may restructure in preparation for the new regime.
Our advisory team can provide advice and support to those affected by the changes. To discover what actions and opportunities you should consider, contact us at ask@sanctuary.ae or fill out the contact form on our website.
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