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5 months ago

The UK’s proposals for non-doms and their structures (as of 10 March 2025)

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  • Proposals
  • Structures

The UK’s new tax

The UK’s new tax regime for internationally connected individuals and their structures (as of 25 June 2025)The Finance Act 2025 made a number of changes to the definition of a remittance including:• Adding a new category of remittance which applies if foreign income and gains are used outside of theUK in a manner which confers a benefit on a relevant person in the UK; and• New rules for when intangible property is deemed to have been brought into the UK.HMRC have also now stated that foreign income and gains can be remitted more than once. AlthoughHMRC’s position is that this has always been the rule, in practice it had previously been understood by mostadvisers that foreign income and gains could only be remitted once (even if that remittance did not triggerany tax).This is particularly problematic for those who have previously remitted funds whilst non-UK tax resident andhave since assumed that such funds should constitute clean capital.The exact scope of some of these changes is still unclear. In practice, anyone who does not intend to usethe TRF in relation to all of their existing foreign income and gains should take advice as to the potentialimpact of the broadened definition of a remittance.Inheritance tax (“IHT”)A person’s exposure to IHT was previously tested by reference to domicile and “deemed domicile”. From 6April 2025 the UK moved to a residence-based system instead.The term “Long-Term Resident” is used to describe someone who satisfies the new residence-based test.It is worth flagging that the changes to IHT are in principle relevant to everyone, not just those who have - atone time or another - been domiciled outside of the UK.Comparing the old and new regimesFor the purposes of this article the term “non-UK assets” is used to refer to both non-UK situated assets andsome UK situated assets which benefit from special IHT treatment (such as holdings in authorised unittrusts) whilst “UK assets” includes both assets which are actually situated in the UK and other assets whichderive their value from interests in UK residential property (to the extent of such derivation).The IHT treatment of some other assets (such as UK gilts) was already tested by reference to tax residence(rather than Long-Term Residence) and continue to be tested in that way.The previous, domicile based, regimeStatusUK domiciled or deemed domiciledOtherwiseIHT exposureIHT on UK assets and non-UK assetsIHT on UK assets onlyThe new, residency based, regimeStatus“Long-Term Resident”OtherwiseIHT exposureIHT on UK assets and non-UK assetsIHT on UK assets onlyThe concept of “Long-Term Resident”The core of the new test is that a person will be “Long-Term Resident” in a given tax year (and so exposed toIHT on their worldwide assets) if they have been UK tax resident in 10 or more of the preceding 20 tax years.So, subject to the points made below, the starting point is that a person will be Long-Term Resident witheffect from 6 April 2025 if they have been UK tax resident in 10 or more of the tax years between 2005/06and 2024/25 inclusive.10

The UK’s new tax regime for internationally connected individuals and their structures (as of 25 June 2025)The most obvious example of this will be at the beginning of the 11th year after 10 consecutive tax years ofbeing UK tax resident:Years ofUK taxresidency1 2 3 4 5 6 7 8 9 10 11IHTexposureIHT only on UK assetsIHT onworldwideassetsHowever, an individual with gaps between years of UK tax residence can also become Long-Term Resident,as is shown in the diagram below:Became a UKtax resident2 years ofNon-UK residenceSatisfies the 10/20 testto become“Long-Term Resident”Taxyears1 2 3 4 5 6 - - 7 8 9 10Future years ofUK tax residenceplus any “tail”(see below)IHTexposureIHT only on UK assetsIHT onworldwideassets= tax year of UK residence= tax year of non-residenceIf a person ceases to be UK tax resident after 9/20 tax years, then they will not become Long-Term Resident.However, once a person satisfies the 10/20 test and becomes Long-Term Resident, they will retain thatstatus for:• as long as they remain UK tax resident; and• for a “tail period” of between 3 and 10 tax years after ceasing to be UK tax resident.11