Tax planning for non-doms before 4 July 2024

In the Spring Budget, the government announced plans to reform the non-dom regime from April 2025, effectively abolishing the remittance basis and replacing this with a new 4-year regime for ‘new’ residents. The proposed reforms also extend to IHT and moving the scope of liability away from domicile being the determinative factor, in favour of a residence-based system.

As part of their announcements, the government confirmed that EPTs created prior to 6 April 2025 would retain their EPT status after this date and continue to remain outside the scope of UK IHT. The Labour Party’s reaction to the proposed measures, however, was mixed, suggesting that they would retain some of the measures in some form or another if elected into power, with arguably the most radical modification being that EPTs would lose their status, bringing any Trusts created before 6 April 2025 within the full scope of UK IHT after this date.

Under current law, non-UK situs assets of a non-UK domiciled or deemed domiciled individual are outside the scope of UK Inheritance Tax (IHT). This is referred to as ‘excluded property’. Subject to certain exceptions (most notably in relation to UK residential property), the assets remain excluded property if transferred to a Trust, even if the settlor subsequently becomes domiciled or deemed domiciled in the UK. Excluded Property Trusts (EPTs) therefore play a key role in IHT planning for non-doms.

Following the Prime Minister’s announcement that the General Election will take place on 4 July 2024, it is now considered very unlikely that any legislation or additional guidance will be released prior to September. HM Revenue & Customs have also paused their planned consultations with tax professionals and stakeholders in the run up to the election.

While all of this uncertainty makes it difficult to plan, non-doms who currently have excluded property may wish to consider whether to transfer their foreign assets to an existing or new EPT prior to 4 July 2024 – the rationale being that, although EPTs may prove to be ineffective in a worst case scenario if they are ultimately treated as transparent or disregarded for UK tax purposes on a change of government/law, the best case scenario is that they may benefit from grandfathering rules which may potentially provide some protection against future IHT charges. Any such planning must be approached with caution and the various Income Tax/Capital Gains Tax implications and associated reporting requirements will need to be considered carefully on a case by case basis.

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