Update for UK resident non-domiciled settlors of existing offshore trust structures and their trustees.
Following our previous articles on the proposed non-domiciled (non-dom) changes, we wanted to make you aware of a couple of interesting points coming out of the Treasury’s Policy Paper (‘the Policy Paper’) on 29 July 2024 that we feel provides some hope for offshore trustees and settlors of existing trust structures.
This is because, although the Policy Paper states: “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.”
It goes on to say: “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.”
HMRC and the Treasury have asked for insight and feedback from representative professional bodies and have been running a series of meetings with tax advisers with expertise in dealing with Inheritance Tax (IHT) on trusts. We therefore think it appears that the new rules, that are due to come into effect from 6 April 2025, may not be as draconical as initially feared for existing trusts structures.
We feel an additional glimmer of hope comes from the Policy Paper’s comments on the Temporary Repatriation Facility (TRF) that: “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.”
This could create potentially welcome opportunities for offshore trust structures.
What does this mean?
It does appear that the Labour Government has listened to some of the feedback from the Professional Bodies and is open to softening the impact of the changes for existing trust structures.
Therefore, although we do not discourage settlors to look at the option of leaving the UK, we strongly recommend that they do not finalise their plans until further details are issued in the Budget, on 30 October 2024. This is because we are now more hopeful that the new rules for existing offshore trusts may make it feasible for settlors to remain in the UK after the changes come into effect on 6 April 2025.
However, given the limited time between 30 October 2024 and 5 April 2025, we recommend that trustees start taking tax advice on ways to restructure to mitigate the overall UK tax exposure, after the changes come into effect.
Our Private Client & Trusts team has a wealth of experience and knowledge on the UK tax regimes for non-doms and offshore trust structures and will stay on top of important updates. For further advice, please contact James Walker, Private Clients and Trusts Partner.
