For hundreds of years, the UK has operated a ‘remittance basis’ tax system, which has enabled individuals who are regarded as ‘domiciled’ outside the UK to reside in the UK and protect their non-UK wealth from UK taxation. This favorable tax system is widely believed to have benefited the UK economy, by attracting both intellectual and economic capital.
However, back in March 2024, the previous government announced that they would be ending this remittance basis tax system with effect from 6 April 2025 and introducing a shorter, 4 year exempt foreign income and gains (‘FIG’) regime. Although there has been a change of government since that first announcement, the new government merely confirmed the initial proposals, albeit with some minor amendments.
As such, the changes will go ahead, but if we delve into the detail, what does the UK look like from the 2025/26 tax year?
- Individuals who have not been UK resident for at least 10 consecutive tax years will be eligible to elect to exempt their non-UK income and gains from tax in the UK
- They will also be able to remit this exempt non-UK income/gains to the UK without taxation in the UK
- Individuals who have not been resident in the UK for 10 out of the previous 20 tax years will not be subject to inheritance tax on their non-UK wealth
- The taxation of non-UK income and gains arising in non-UK trusts settled by a UK resident will broadly follow the UK tax status of the settlor
- Trust property will be brought with the “relevant property regime” from 6 April 2025 where the settlor is regarded as a “long-term resident” (UK resident for more than 10 out of the previous 20 tax years)
- Inheritance tax will continue to apply for between 3 -10 tax years after a ‘long-term resident’ has left the UK
- Temporary Repatriation Facility – Pre-6 April 2025 remittance basis income/gains may be ‘designated’ such that they can then be brought to the UK for 12% tax (where designated between 6 April 2025 – 5 April 2027) or 15% (where designated between 6 April 2027 – 5 April 2028)
- Rebasing relief which will effectively extinguish any gain which had accrued up to 5 April 2017, will be available for non-UK assets held on 5 April 2017 and sold post-5 April 2025
- Gift with reservation provisions will not apply to non-UK situs property held within settlor-interested trusts, provided settled prior to 30 October 2024
Source: Click here
The 6th of April is drawing ever closer, so all current remittance basis taxpayers are running out of time to undertake any restructuring ahead of the changes. However, much can still be done.
The ending of the old regime and beginning of the new, might present challenges for those unprepared, but opportunities for the well-advised. At Vontobel, we are well-positioned to help in that we have a wealth of experience assisting UK resident clients with their affairs and have a suite of products and investment solutions specifically tailored to assist them under the new regime. We invite you to have a look through the rest of our website and we invite you to get in contact to discuss how we might be able to assist you and your family.
