James Walker, Private Client Partner, shares his thoughts on the proposed and expected changes to the UK’s tax regime for non-UK domiciled individuals and non-UK resident trusts, following the Spring Budget 2024.

As a UK non-UK domiciled (non-dom) and offshore trust structure tax specialist of almost 30 years, having heard on countless occasions that the non-dom regime would be abolished, I was sceptical of the rumours, but the Spring Budget 2024 proved exciting.

My main health warning is that the UK has a General Election that must be held no later than January 2025 and the proposed changes are scheduled to take effect from 6 April 2025. Therefore, if we have a new government, there is a significant risk that these proposals won’t be introduced in this form, which makes planning difficult. However, if it is not these rules, it’ll be a replacement because the path has now been set.

That aside, we can only work with what’s been announced, so it is first worth saying that these proposed changes look exceptionally attractive to any high net worth (HNW)/ultra-high net worth (UHNW) individuals or families looking for a friendly tax jurisdiction in which to realise significant value (for example, a business sale, substantial dividends or trust appointments). This is because, for up to four years, these could all be entirely free of UK tax. Thereafter, all future income and gains will be fully taxable, but there remain options to manage that exposure.

There are two immediate factors. Firstly, the UK recently removed its investor visa programme, making it far more difficult to move to the UK and take advantage of this, so early advice needs to be sought because this can be a slow process. Secondly, the alluded to Inheritance Tax (IHT) changes may mean that any individuals who do manage to make use of these rules, may be ‘forced’ to leave within 10 years of arriving.

Putting aside any trust interests for a moment (see below), a non-dom who is already UK resident may benefit from some limited transitional rules to help soften the impact as well as the potentially very exciting two-year window in which to bring historic income and gains to the UK at a much-reduced tax rate of 12%. However, very often the main concern is the UK’s 40% IHT rate so ‘watch this space’ (because the rules are yet to be ‘consulted’ on) but depending on how long someone has been in the UK, there may be options to prevent this being a reason to leave the UK earlier than otherwise planned.

Finally, but closest to my heart (because I owe my career to the Channel Islands trust industry) is the potential impact for offshore trustees and their non-dom ‘settlors’ and/or beneficiaries.

For UK resident ‘settlor interested’ trusts, all of the structure’s income and gains may suddenly become taxable on the settlor as if it were their own, unless within the four ‘bonanza’ years. The settlor may have a legal right under the UK’s tax legislation to have the sums reimbursed, but will the trustees be able to? I remember discussions about this from the 1990s, so I’m looking forward to opening those dusty books (remember them?) again. It’s going to be critical to understand what the scale of the potential impact may be, the options, and whether there are any protections available, such as the ‘motive defences’ within the various anti-avoidance rules, because this could mean the difference between no UK tax and up to 45% UK tax having to be planned for. Excluding the settlor and spouse may also achieve nothing for Capital Gains Tax (CGT) purposes, so be careful when considering irrevocable exclusions. The suggested IHT benefits will more than likely keep many structures very appealing. For anyone who does consider terminating any structure, this could come with some surprises.

For any other type of trust where a beneficiary may move to the UK to enjoy the four years of bliss, there could be a splendid opportunity to make tax free distributions to them.

To my friends and colleagues in the ‘offshore’ fiduciary services industry, this could be a very exciting time with a frenzy of new trusts before 6 April 2025 and a need to understand existing ones under the possible new regime.

Please beware that a lot of detail is still unknown, so if you are a non-dom individual who has ever used the remittance basis or who may be considering coming to the UK, I would suggest speaking to a specialist as soon as possible (if that’s us, then even better!). If you are a trustee of a non-UK trust structure who has a UK resident settlor or beneficiary, then now is the time for a fresh ‘health check’ to take stock and consider your options.

For more on our non-UK domiciled personal tax and offshore trust services, contact James for more information.