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

Budget 2024 – Non-dom

Budget 2024 – Non-dom proposalsTwo visual examples of how the tail could operate in practice are shown below:= tax year of UK residence= tax year of non-residenceSatisfies the 10/20 testto become“Long-Term Resident”Ceases to beUK tax residentCeases to be“Long-Term Resident”Taxyears10/20 years of UK tax residence 11 12 1 2 34 onwardsIHTexposureIHT only on UK situated assetsIHT on worldwide assetsIHT only on UKassetsSatisfies the 10/20 testto become“Long-Term Resident”Ceases to beUK tax residentCeases to be“Long-Term Resident”Taxyears10/20 years of UKtax residence11 1213 14 14 15 1 2 3 4 56 onwardsIHTexposureIHT only on UKsituated assetsIHT on worldwide assetsIHT onlyon UKassets11

Budget 2024 – Non-dom proposalsA different rule for those aged 20 and underThe government clearly realised that if the 10/20test applied to everyone then many children whohave only ever lived in the UK would not satisfy it.E.g. a 9 year old would not yet have accrued 10years of UK tax residence.To address this issue, those aged 20 or youngerwill be Long-Term Resident if they have been UKresident for at least 50% of the tax years sincetheir birth.A child under the age of 1 will not be Long-TermResident in the tax year of their birth even if bornin the UK.Transitional rules for some non-domsWhen the IHT changes were first announcedthere was a concern that individuals who hadceased to be exposed to IHT on their worldwideestates under the domicile based tests would bepulled back into the IHT net by the new regime.There is a transitional rule for those who wouldotherwise be in this position and this is why theflow chart above begins by asking whether theindividual was domiciled outside of the UK on 30October 2024.The practical impact of the transitional tail rule isthat those who:• were non-UK domiciled for common lawpurposes (deemed domicile is irrelevant) on30 October 2024; and• became/become non-UK tax resident by2025/26,will either not become Long-Term Resident at allor will have a maximum “tail” of three tax years.The impact on giftingFrom 6 April 2025, whether a gift of a non-UKasset is potentially within the scope of the sevenyear rule for IHT (such that there could be an IHTcharge if the donor dies within seven years ofmaking it) will depend on whether donor is Long-Term Resident at the time they make the gift.In other words:• If a person gifts a non-UK asset whilst theyare not a Long-Term Resident then the gift willbe outside of the scope of IHT regardless ofwhether that person becomes Long-TermResident at a later date; but conversely• If a person gifts a non-UK asset whilst theyare a Long-Term Resident then the gift will bewithin the scope of IHT (i.e. exposed to the 7year rule) even if they cease to be Long-TermResident before death.The spouse exemptionThe full spouse exemption (i.e. 100% relief fromIHT) will be available between spouses who areboth Long-Term Resident or who are both notLong-Term Resident.If a gift (on lifetime or death) is made from aspouse who is Long-Term Resident to one who isnot then the spouse exemption will be cappedunless the recipient spouse elects to be treated asa Long-Term Resident.If the recipient spouse makes such an electionthen they will be treated as Long-Term Residentuntil they have been non-UK resident for 10consecutive tax years.There are also transitional rules for electionswhich have already been made under the currentregime and elections which span the two regimes.Double tax treatiesThe UK has a limited number of double taxtreaties which relate to IHT.Broadly speaking, where those treaties refer tocommon law domicile (including for example theUK/India treaty) then the references to domicileare unaffected.Where those treaties refer to a person beingdomiciled in the UK for IHT purposes, i.e. deemeddomicile (such as in the UK/US treaty), thosereferences will now be read as though theyreferred to a person being Long-Term Resident.The changes for trustsThe tax treatment of trusts established by nondomiciledsettlors will change considerably.Income tax and capital gains tax inrelation to trustsThe current positionCurrently, certain trusts established by individualswho are neither domiciled nor deemed domiciledat the relevant time benefit from “protected trust”status. This generally means that gains andforeign income arising within the trust are nottaxable on the settlor(s) and are only subject toUK tax if and when distributions are made to UKresident beneficiaries.The changes for settlorsFrom 6 April 2025 the protected trust regime willeffectively cease to apply, meaning that incomeand gains in affected trust structures couldbecome taxable on any UK resident settlor(s) fromthat date.In practice, this appears unlikely to impact trustswhich:12