Upcoming Changes to UK Taxation for High-Net-Worth Individuals: Should you stay or should you go?

Starting April 6, 2025, significant changes to the UK's taxation system will affect high-net-worth individuals (HNWIs), particularly those with assets or income exceeding ￡10 million. These reforms aim to overhaul the existing non-domiciled (non-dom) status and introduce a residence-based tax framework (this impacts all assets and income world-wide). It's important to note that this information is for general understanding we are not tax advisors; for personalised advice, consulting a tax advisor is recommended.

Key Legislative Changes:

1. Abolition of Non-Dom Status: The longstanding non-dom status, which allowed individuals to live in the UK without paying taxes on overseas income, will be abolished. This change is expected to impact many HNWIs who have utilized this status to mitigate tax liabilities.?Read more here
2. Introduction of the Foreign Income and Gains (FIG) Regime: Replacing the previous remittance basis, the new FIG regime offers less favorable terms. Under this system, individuals who become UK residents after at least 10 consecutive years of non-UK residence will qualify for exemptions from UK tax on foreign income and gains for a maximum of four fiscal years.? So those that are relocatng to Dubai now , for example, need to consider implications if you seek to later return to the UK. This will essentailly eliminate domicile as a consideration for income tax, capital gains tax and inheritance tax purposes.
3. Inheritance Tax (IHT) Reforms: A new residence-based test for IHT will be implemented. From April 2025, overseas assets will be subject to IHT if an individual has been a UK resident for at least 10 of the previous 20 tax years before the chargeable event. Once this residency threshold is met, the individual remains within the UK IHT framework for the next 10 years, regardless of their residency status.?

3. Changes Affecting Offshore Trusts: The use of Excluded Property Trusts, which previously exempted overseas assets from IHT, will be discontinued from April 2025. This change may impact estate planning strategies for many HNWIs.?Off-shore countries and trust holders will need to plan how they now hold their funds and where - this could have wide consequences for off-shore jurisdictions aswell as the UK

Implications for High-Net-Worth Individuals:

• Increased Tax Liabilities:?The removal of non-dom status and the introduction of residence-based taxation may lead to higher tax obligations, especially for those with significant overseas income and assets.
• Estate Planning Adjustments:?With the new IHT rules, individuals may need to reassess their estate planning strategies to mitigate potential tax liabilities on worldwide assets.
• Potential Relocation Considerations:?Some HNWIs might contemplate relocating to jurisdictions with more favorable tax regimes to preserve wealth. However, it's essential to weigh the benefits against the complexities and costs associated with such a move.?Those overseas that planned to return to the UK likewise will need to have a stratgey in place.

Potential Benefits of the New System:

• Simplified Tax Framework:?The shift to a residence-based system aims to create a more straightforward and transparent tax environment, potentially reducing administrative burdens for taxpayers and authorities alike. UK will benefit from higher levels of contribution from those residing in the jurisdiction, which is of course reasonable , but applying such extensive change could instead lead to an exodus.
• Enhanced Investment Climate:?By adjusting tax policies, the UK government seeks to attract investment and stimulate economic growth, which could benefit businesses and investors.?The concept can seem a bit counterintuitive at first, especially since these changes could increase tax liabilities for high-net-worth individuals (HNWIs) who may leave. However, there are a few ways the reforms might lead to benefits for the broader economy and investment climate
• By making the tax system more transparent and equitable, the government might improve public perception of the tax system, leading to more confidence from investors.
• Businesses, particularly startups and small companies, may benefit from increased investments from HNWIs and institutional investors who are now less concerned about complex tax avoidance structures or uncertain tax obligations and retain investment in the UK.

Rationale Behind the Reforms:

The UK government has indicated that these changes are designed to create a fairer tax system, ensuring that individuals who benefit from UK public services and infrastructure contribute appropriately. Additionally, aligning taxation with residency is intended to simplify the system and address concerns about tax avoidance.?

The tax reforms are part of a larger strategy to simplify the tax system, which could lead to a more predictable and transparent framework for investment. A clear and consistent tax environment can make long-term planning easier for businesses and investors.

As a side benefit, the increased tax receipts from high-net-worth individuals who can no longer avoid taxes through the non-dom status or other loopholes may help stabilize UK public finances. This could lead to more government spending in infrastructure, social programs, or business incentives, which could, in turn, boost business and consumer confidence

Conclusion:

While some high-net-worth individuals may decide to leave due to these changes, the government may anticipate that the reforms will attract wealthier individuals who are focused on contributing to the UK economy in a fairer and more transparent way.? Some may say they are idealistic and naive and in fact people are going to leave and it may destroy the economy but only time will tell

The upcoming tax reforms represent a significant shift in the UK's approach to taxing high-net-worth individuals. It's crucial for those affected to stay informed and consult with tax advisors to navigate these changes effectively. While the new system aims to create a more equitable and straightforward tax landscape, understanding its nuances will be essential for strategic financial planning.

What do you think 'whould you stay and contribute to our country plans to develop a compliant and thriving infrastructure or leave and preserve your tax liabilities ? Is the grass though really greener on the other side? UK offers certainity , stability as laws do take time to pass, highly regulated , stable currency and trade , good education and other countries will change and adpat too , you move their tax regimes will surely change too? What is the answer ? What is right for you ? We imagine this is topic that dvides many as our conversations , with clients. are about staying and contributing and fighting to support the UK, whilst others do want to preserve what they have from the government both valid positions !!

#UKTAX #hightnetworth #taxchanges #investors

Karen Holden MPhil (Cantab) Jacqueline Watts - emerging technologies lawyer - ?? ?? ?? Marilyn Rachel Ambrose Harry Pollock Janette Johnston Trevor Holden Joel Solon Katarina Ciric Paul Flude Brian Baker Lisa Fox John McKeown Susanna Toth Lee Lesley Batchelor CBE Emma Heley Elaine Gold BA(Hons) MBA, FRSA

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