Major Changes to the UK Tax System: Ensuring Fairness and International Competitiveness

In an effort to modernise the tax system and promote fairness, the UK government has announced significant changes aimed at removing the outdated concept of domicile status. These changes, effective from 6 April 2025, will ensure that long-term UK residents pay their fair share of taxes in the UK, while also making the system more attractive to top talent and investors globally.

The New Residence-Based Regime for Foreign Income and?Gains

The cornerstone of these changes is the introduction of a new residence-based regime for foreign income and gains (FIG). This regime will replace the preferential tax treatment based on domicile status, fundamentally altering the tax landscape for many individuals.

Key Aspects of the New?Regime:

1. Effective Date: From 6 April 2025, the preferential tax treatment based on domicile status will be removed.
2. Relief for New Arrivals: New UK residents will benefit from 100% tax relief on FIG for their first four years of UK tax residence, provided they have not been UK tax residents in the 10 years prior to their arrival.
3. Trust Structures: Protection from tax on income and gains within settlor-interested trusts will no longer be available for non-domiciled individuals who do not qualify for the 4-year FIG regime.

Proactive Steps for?Expats:

• Plan Your Arrival: If you are considering moving to the UK, plan your arrival to maximise the benefit of the 4-year FIG relief. To qualify, you must not have been a UK tax resident in the previous 10 years.
• Review Trust Structures: If you currently utilise trust structures, consult with a financial advisor to understand the implications of the new rules and explore alternative planning strategies.
• Evaluate Investment Portfolios: Assess your foreign income and gains and consider repatriation strategies to optimise your tax position under the new regime.

Offshore Anti-Avoidance Legislation Review

The government is also committed to reviewing and modernising offshore anti-avoidance rules. This includes updating the Transfer of Assets Abroad and Settlements legislation to simplify and clarify these rules. The changes from this review are expected to be effective from the 2026/27 tax year.

Overseas Workday Relief?(OWR):

A form of OWR will be retained, with design principles to be discussed with stakeholders and confirmed at the Budget.

The UK’s new Overseas Workday Relief (OWR) is a tax measure designed for UK tax residents who perform part of their employment duties overseas. It applies for the first three tax years of becoming a UK resident, provided the individual was not a UK resident in any of the three previous tax years.?

To qualify, the overseas income must be paid into a non-UK bank account and the individual must maintain detailed records of their overseas workdays. The relief ensures that income earned from overseas workdays is not taxed in the UK unless it is remitted to the UK, offering significant tax planning benefits for globally mobile employees.

Proactive Steps for?Expats:

• Stay Informed: Keep abreast of developments regarding offshore anti-avoidance rules and OWR.
• Seek Professional Advice: Engage with a financial advisor to understand how these changes may affect your offshore income and assets, and to ensure compliance with new regulations.

Transitional Arrangements

To ensure a smooth transition to the new system, several transitional measures will be implemented:

1. 50% Reduction Not Introduced: The previously proposed 50% reduction in foreign income tax for those losing access to the remittance basis will not be implemented.
2. Capital Gains Tax (CGT): UK residents not eligible for the 4-year FIG regime will be subject to CGT on foreign gains as usual. There will be a transitional rule allowing past and current remittance basis users to revalue their foreign capital assets for CGT purposes. The revaluation date will be announced at the Budget.
3. Temporary Repatriation Facility (TRF): A new TRF will allow individuals who were taxed under the remittance basis to bring FIG into the UK at a reduced tax rate for a limited period after 6 April 2025. The exact rate and duration will be announced at the Budget. The government is also considering expanding the TRF to include income and gains held in overseas structures.

Proactive Steps for?Expats:

• Utilise Revaluation Opportunities: If you have been using the remittance basis, take advantage of the transitional rule to revalue your foreign capital assets for CGT purposes.
• Prepare for TRF: Plan to use the TRF to repatriate foreign income and gains at a reduced tax rate. Keep an eye on announcements regarding the exact rate and duration.
• Consult with Advisors: Regularly consult with a financial advisor to stay updated on transitional arrangements and optimise your tax planning.

New Residence-Based Regime for Inheritance Tax?(IHT)

In addition to changes in income tax, the UK government is shifting IHT from a domicile-based to a residence-based system. This change aims to ensure that non-UK assets are subject to IHT if the individual has been a UK resident for 10 years before the taxable event (e.g., death) and for 10 years after leaving the UK.

Key Changes to?IHT:

1. Effective Date: From 6 April 2025, IHT will shift to a residence-based system.
2. Scope: Non-UK assets will be subject to IHT if the person has been a UK resident for 10 years before the taxable event and for 10 years after leaving the UK.
3. Excluded Property Trusts: The use of these trusts to avoid IHT will be ended. The government will adjust the rules for non-UK assets in such trusts to ensure fair taxation for all long-term UK residents. Details and transitional arrangements will be confirmed at the Budget.

Proactive Steps for?Expats:

• Review Estate Plans: Reassess your estate planning strategies, especially if you utilise excluded property trusts, to ensure compliance with the new IHT rules.
• Update Financial Plans: Adjust your financial plans to account for the new residence-based IHT system, particularly if you have significant non-UK assets.
• Engage with Advisors: Work closely with estate planning and tax advisors to navigate the new IHT landscape and optimise your estate plans.

Engagement with Stakeholders

The government is committed to refining these policies through engagement with stakeholders. Further details and finalised policies will be announced at the Budget. This collaborative approach ensures that the new tax system will be both fair and competitive, attracting top talent and investment while ensuring long-term UK residents contribute their fair share.

For more detailed information, please refer to the official government policy summary on changes to the taxation of non-UK domiciled individuals here.

Ready to Understand How These Changes Affect You?

Book a discovery call with us today to explore how these changes impact your tax planning and to ensure you remain compliant while maximising your financial potential in the UK.

Ready to Understand How These Changes Affect You?

Book a discovery call with us today to explore how these changes impact your tax planning and to ensure you remain compliant while maximising your financial potential in the UK.