CGT and income tax
The government has announced that from 6 April 2025 the remittance basis regime will be abolished and replaced with a new residence-based regime.
New arrivals that have been non-UK resident for at least 10 consecutive tax years will benefit from full tax relief on foreign income and gains (FIG) arising during their first 4 tax years of residence period. These funds can be brought into the UK without a UK tax charge.
Individuals who are currently UK resident but who, on 6 April 2025, have been tax resident for fewer than 4 years (following 10 consecutive years of non-residence) will be able to utilise the FIG regime for any tax year of UK residence which falls within the remainder of their first 4 tax years of residence.
After the 4-year period has elapsed, it will no longer be possible to claim tax relief under this regime and the individual will be subject to UK tax on their worldwide income and gains.
If an individual leaves the UK temporarily within the 4-year period in which they are eligible for the FIG regime, they may still be eligible to make a claim if they return to the UK in respect of the years that remain within the four-year period.
An individual’s residence status for the purposes of the FIG regime will be determined using the Statutory Residence Test (SRT). The government has confirmed that:
- A tax year in which split year under the SRT applies will be regarded as a full year for the purposes of this test, and
- Treaty residence in another jurisdiction under a Double Taxation Agreement will still be treated as a year of UK residence if the individual was UK tax resident under the SRT.
To benefit from the new 4-year FIG regime, qualifying individuals will need to make a claim on their tax return before 31 January in the second tax year following the tax year to which the claim relates. To make the claim, individuals will need to quantify the income/gains for which relief is being claimed. This will mean that the reporting required under the new regime will be significantly more detailed than the reporting currently required under the remittance basis. Individuals making a claim under the 4-year FIG regime will also lose their personal income tax allowances and capital gain annual exemption, as well as not being able to claim foreign losses. This is in line with the current remittance basis rules.
Read more about CGT and income tax under the new regime
Transitional provisions
There will be a Temporary Repatriation Facility (TRF) which will allow UK resident individuals who have previously claimed the remittance basis and have untaxed FIG to make an election to designate amounts derived from previously untaxed and unremitted FIG that arose prior to 6 April 2025. The TRF will be available for 3 years, from 6 April 2025 to 5 April 2028. Designated amounts will be subject to tax at 12% between 6 April 2025 and 5 April 2027 and 15% between 6 April 2027 and 5 April 2028.
The TRF will be available to qualifying UK resident individuals who receive a benefit from an offshore trust during the 3-year period. To qualify the individual must be a former remittance basis used, the benefit must be received during the 3-year period and must be matched to FIG that arose within the settlement before 6 April 2025.
For capital gains tax (CGT) purposes, current and past remittance basis users will be able to rebase their personally held foreign assets to 5 April 2017 (as opposed to 5 April 2019 which had been proposed by the Conservatives earlier in March this year).
The government have confirmed that the 50% reduction of the amount of foreign income subject to tax for remittance basis users, which was originally proposed by the Conservatives in March, will not be available.
Trusts
The new FIG regime will also have the effect of removing protections from non-UK resident trusts on FIG arising from 6 April 2025. FIG that has arisen pre-6 April 2025 in protected non-UK resident trusts will not be taxed unless distributions or benefits are made to UK resident individuals who are not subject to the new 4-year FIG regime.
From 6 April 2025, FIG arising in offshore trust structure which are settlor-interested will be taxed on UK resident settlors on an arising basis unless they qualify for the 4-year FIG regime.
Where a settlor and/or a beneficiary receives a benefit from an offshore trust and makes a claim under the 4-year FIG regime, any income or gains arising in the structure will continue to accumulate in the relevant pools. The benefit received will not be matched against the available pools.
Read more about the reforms to the taxation of offshore trusts
Overseas Workday Relief
Overseas workday relief (OWR) will be retained and will continue to apply to income which relates to overseas duties determined on a just and reasonable basis. From 6 April 2025, eligibility for OWR will be primarily based on whether employees are eligible for the 4-year FIG regime. This should provide relief from income tax on overseas earnings during this period.
Inheritance tax
Residence based test
The Labour government has confirmed the move to a residence-based inheritance tax (IHT) regime. From 6 April 2025, the test to determine whether non-UK assets are within the scope of IHT will be whether an individual has been resident in the UK for at least 10 out of the last 20 tax years immediately preceding the tax year in which the chargeable event (including death) occurs. At this point, a ‘long-term resident’ will be liable to IHT on their worldwide assets.
The government has confirmed that a tax year in which split year under the SRT applies will be regarded as a full year for the purposes of this test. In a deviation from the Conservative announcements in March earlier this year, there are no references to “connecting factors”; rather this new test focuses solely on the number of UK resident years.
A long-term resident will remain fully within the scope of IHT until they have been non-UK tax resident for 10 consecutive years if they were resident in the UK for 20 years or more. This tail will be shortened where an individual was resident in the UK for between 10-19 years. Broadly speaking the tail is 3 years where the period of UK residence is between 10-13 years. This is increased by one tax year for each additional year of residence.
For an individual 20 years old or younger, the long-term residence test will be adapted to consider whether they have been UK resident for at least 50% of the tax years since their birth.
IHT and trusts
At present, non-UK property comprised in a settlement settled by a non-UK domiciled individual is not subject to UK IHT (with the exception of an indirect holding in UK residential property).
Rachel Reeves has confirmed that from 6 April 2025, the IHT status of a trust will no longer be based on the settlor’s domicile status at the time of settlement. Instead, a trust will be within the scope of IHT during the time the settlor is long-term resident. This will have the effect that a trust could move in and out of the IHT scope depending on the settlor’s movements.
The assets of certain interest in possession trusts are treated as being within the life tenant’s estate for IHT purposes. Where this is the case, the assets of the trust will only be excluded property if neither the settlor nor the life tenant are a long-term resident.
Where the settlor dies before 6 April 2025, the current domicile test will continue to apply, ie the IHT status of the trust will be determined by the settlor’s domicile at the time of settlement.
Where the settlor dies after 5 April 2025, the IHT status of the trust going forwards will depend on the settlor’s long-term residence status at the time of their death.
These changes will have far-reaching implications on trusts, including a potential exit charge when a settlor ceases to be a long-term resident.
Lifetime gifts
Where an individual makes a lifetime gift to another individual, they should only be within the scope of IHT if they die within 7 years of the gift. From 6 April 2025, where an individual is not a long-term resident at the date of the gift, the gift will remain outside the scope of IHT, even if they die within 7 years at a time which they are a long-term resident. Similarly, gifts made by long-term residents will be within the scope of IHT, even if they cease to meet the criteria by the date of their death.
Moreover, if a donor is long-term resident at the time of their death and they have reserved a benefit in a gift of non-UK property, the donor will be subject to IHT under the gift with reservation of benefit (GWR) provisions. This will apply regardless of whether the gift was made when they were long-term resident or not.
Similarly, if a settlor of a trust can also benefit from said trust, the property comprised in the settlement will be subject to IHT under the GWR provisions if the settlor is a long-term resident at the time of their death.
Spousal exemption
Under the current rules, transfers between UK domiciled spouses or civil partners are exempt from IHT. Where an individual is UK domiciled and their spouse/civil partner is non-UK domiciled, transfers over £325,000 are subject to IHT unless the spouse/civil partner elects to be treated as deemed UK domiciled for IHT purposes. Once an election has been made, the individual will be UK deemed domiciled until they are non-UK resident for 4 consecutive tax years.
From 6 April 2025, the election rules will be amended such that a spouse that is not long-term resident can elect to be treated as long-term resident. This election will last until they have been non-UK resident for 10 consecutive tax years.
Elections made pre-30 October 2024 will remain in place, with the spouse making the election being treated as deemed domiciled until 5 April 2025 then treated a long-term resident from 6 April 2025 until 4 consecutive tax years of non-UK residence have elapsed. Election made post-30 October 2024 will be subject to the new rules from 5 April 2025.
Transitional rules
There will be transitional rules that will apply to individuals who are either non-UK domiciled or deemed UK domiciled individuals and are non-UK residents in the 2025-26 tax year. The IHT status of these individuals will be determined by the existing test (ie whether they have been UK resident for 15 out of the previous 20 tax years immediately preceding the tax year of charge and for at least one of the 4 tax years ending with the relevant tax year). The new rules, that being 10 years of UK resident in the last 20 tax years, will apply if they subsequently return to the UK.
This means that individuals who have already left the UK, or who cease to be UK resident by 6 April 2025, will be subject to the current 3-year IHT tail, rather than the new extended IHT tail of up to 10 years.
These provisions will not apply to individuals who are UK domiciled under common law on 30 October 2024. Instead, the new long-term residence test will apply to them from 6 April 2025.
Where excluded property was comprised in a settlement immediately before 30 October 2024, this will not be subject to charges under the GWR provisions; however, such settlements could still be within the scope of the relevant property regime from 6 April 2025. Additions into settlements made on or after 30 October 2024 will not benefit from these transitional rules.
Where non-UK assets were comprised in a qualifying interest in possession trust and were excluded property immediately before 30 October 2024, they will not be subject to charge when the trust comes to an end or on the death of the life tenant.
UK double tax treaties
The government has confirmed that the UK’s 10 IHT Double Tax Conventions will remain intact with no changes to the treaties nor to how they operate.
