With the new Government in place, it’s likely that there’ll be significant changes to the non-domicile rules which, depending on the timing of the Autumn Budget and any consultation, could take effect from April 2025.
If implemented, these changes will not only mark the end of domicile as a tax concept, but they’ll also bring into effect a residence regime that could allow for a four-year window for importation of income and capital gains into the UK.
As part of these changes, it was previously proposed to reform some of the rules which apply to offshore trusts settled by UK Non-Domiciled residents as follows.
- Excluded property settlor-interested trusts (offshore trusts) that have been set up prior to April 2025, should retain tax benefit for earlier years (assuming they have not been tainted) – however, from 6 April 2025 any income and gains arising within them will be taxable on the settlor where they have been UK tax resident for at least 4 years
- Offshore trusts should retain their existing UK inheritance tax protections and the excluded property should not fall within the settlor’s personal estate for inheritance tax on death
Subsequently, the new Government has suggested some further changes to the currently proposed regime with the most noticeable proposal being that all foreign assets held in an offshore trust should fall within the scope of UK inheritance tax, whenever they were settled.
Other changes include the limited ability to import historic income and capital gains at a reduced rate of tax, and a liability to income tax and capital gains tax on a worldwide basis from the fifth year of residence, including those held within non-UK structures.
The good news is that it will be April 2025 at least before any changes come into effect, with some commentators predicting that changes might not come into effect before April 2026. But, in the meantime it’s prudent to start planning so that anyone impacted can consider and minimise any potential impacts of the changes on their personal and offshore trust position.
What steps should you take?
Over the coming months it’s important to make some simple but considered steps to ascertain if the new rules may apply to your situation.
Here are some suggestions from us to begin with.
1. Keep in touch with your trustees – ensure you have a regular dialog with the trustee of your offshore trust about the current position, assets held in the trust, your wider assets in the UK and worldwide, and other relevant considerations
2. Make sure your family is onboard with any proposed major changes and do scenarios planning – consider matters that are important to you and your family as a unit; education, business interests, generational planning, any major events in your life
3. If you decide to move out of the UK, research the best jurisdiction for you and your family – also keeping in mind that, depending on which country of residence you choose to move to, your current offshore structure can remain in place and continue to serve its purpose
4. Ensure you understand the totality and current value of your UK and outside assets – this consideration is important should you decide to stay in the UK and avail yourself of the possibility of bringing in your non-UK income and gains, or simply invest in the UK
5. Ensure that the factual context of your latest tax advice is current and correct – often tax advice is not updated regularly, and we recommend that your tax advisor confirms that, pending the new legislative changes, the tax planning still stands
Contact us today
Globally, we’re in a time of great economic and political uncertainty. The impact of these changes will depend on your unique situation, but rest assured we understand the challenge – and we can help you to find the right solution for your individual circumstances. Please get in touch if you’d like to discuss this in more detail.
