The Budget and the changes to the remittance basis of taxation rules

We now know that the Budget will be on 30 October 2024. We also know that the basis of the changes to the remittance basis of taxation will be the proposals announced by the previous Government but with some significant differences.

The policy paper entitled "Changes to the taxation of non-UK domiciled individuals" published on 29 July 2024 explains that:

"The government will implement the 4-year foreign income and gains (FIG) regime announced by the previous government at the Spring Budget. However, this approach left several advantages for existing non-doms, which the government is committed to ending. The government will also review some other key areas of the previously announced reforms to ensure the new regime is both fair and as competitive as possible."

The requirement to be non resident for ten years to qualify for the FIG regime will remain. Overseas Workday relief will also remain in some form. The policy paper explains that:

"A form of Overseas Workday Relief (OWR) will be retained. Officials will engage with stakeholders on the design principles for this tax relief and further details will be confirmed at the Budget."

Possibly one area for review will be the requirement to have overseas workdays to qualify for any relief. This doesn't help with recruiting for the NHS, for example.

Another change from the earlier proposals is that:

"The policy announced by the previous government, providing a 50% reduction in foreign income subject to tax for individuals who lose access to the remittance basis in the first year of the new regime, will not be introduced" (Emphasis added).

Another area that is under review is the Temporary Repatriation Facility (TRF). Under the previous proposals:

"individuals who have been taxed on the remittance basis will be able to elect to pay tax at a reduced rate of 12% on remittances of pre-6 April 2025 FIG under a new Temporary Repatriation Facility (TRF) that will be available for tax years 2025-26 and 2026-27. TRF will not apply to pre-6 April 2025 FIG generated within trusts and trust structures"

The latest policy document states that:

"Individuals that have previously claimed the remittance basis will be able to remit FIG that arose prior to 6 April 2025 and pay a reduced tax rate on the remittance for a limited time period after the remittance basis has ended. The rate and the length of time that the TRF will be available will be set to make use as attractive as possible

The government is also exploring ways to expand the scope of the TRF, including to stockpiled income and gains within overseas structures, and will confirm further details at the Budget" (Emphasis added).

Disappointingly, the new FIG regime appears to be set at 4 years. I believe a comparison with overseas regimes should be undertaken to see whether this period is competitive. The implementation date is still 6 April 2025. That is a very tight deadline for consultation and enactment of workable legislation. Due to the complexity of the current legislation I foresee amendment of legislation and smoothing of rough edges by guidance up to and after the implementation date.

The deadline for the new residence-based regime for inheritance tax is particularly ambitious. The policy paper stating that:

"Inheritance tax (IHT) is currently a domicile-based system. The government intends to replace this with a new residence-based system from 6 April 2025.This will affect the scope of property brought into UK IHT for individuals and trusts.

The government envisages that the basic test for whether non-UK assets are in scope for IHT from 6 April 2025 will be whether a person has been resident in the UK for 10 years prior to the tax year in which the chargeable event (including death) arises, with provision to keep a person in scope for 10 years after leaving the UK. The government will engage further with stakeholders on the operation of the new test, so that any refinements can be considered fully. IHT charges arising on deaths occurring before 6 April 2025 will be unaffected by these changes and will be charged according to the existing rules."

The use of Excluded Property Trusts to keep assets out of the scope of IHT will be ended. The policy document explains that:

"The government intends to change the way IHT is charged on non-UK assets which are held in such trusts, so that everyone who is in scope of UK IHT pays their taxes here. The government recognises that trusts will already have been established and structured to reflect the current rules, so is considering how these changes can be introduced in a manner that allows for appropriate adjustment of existing trust arrangements, while ensuring that the treatment of all long-term residents of the UK is the same for IHT purposes. Confirmation of these new rules and their detailed application, including transitional arrangements for affected settlors, will be published at Budget, following external engagement.?

The government will not carry out a formal policy consultation on moving to a residence-based system for IHT. Instead, it will review stakeholder feedback provided following the Spring Budget and officials will carry out further external engagement over the summer on IHT policy design" (Emphasis added).

A busy time ahead for everyone who works in this area of taxation!