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

Budget 2024 – Non-dom

Budget 2024 – Non-dom proposals(a)(b)have no living settlors; orhave only non-UK residentsettlors (assuming the settlor(s)are not planning on moving to theUK).For trusts with UK resident settlors, theimplications will depend upon a number of factors,including the terms of the trust (exclusions couldbe particularly significant in determining whichforms of income or gain can be attributed to thesettlor) and the nature of the trust’s investments.Although the loss of protected trust status will be ablow, there are some changes which will soften itslightly. For example settlors are being given anextended right to recover from the trust anyincome tax which they pay on trust income.Some settlors will also be able to claim the 4-yearFIG regime in relation to income or gainsattributed to them from trusts. However, wherethis is done the impact on others will need to beconsidered (e.g. it appears that gains which wouldotherwise be attributed to the settlor might go intothe pool which can be taxed on beneficiaries if the4-year FIG regime is claimed in relation to them).The “EU defence” against income attribution fromtrusts is being removed but in our experience thiswas rarely used in practice.The other motive defences are to remain in placefor now but a consultation has been promised onthese (and other aspects of the relevant attributionregimes) so those relying on these defencesshould bear in mind that they could be changed orremoved in the future.The changes for the trustee and anyunderlying non-UK resident companiesIn most cases the way in which the structure itselfis subject to income tax, capital gains tax orcorporation tax should not change materially.The changes for beneficiariesWhilst the taxation of beneficiaries is remainingbroadly unchanged in principle (the matchingrules continue in place for example) there will be anumber of potential changes in practice:• to the extent that income and gains becometaxable on the settlor, those should not go intothe income and gains pools capable ofmatching to distributions to beneficiaries;payments “match” to income and gains whicharose pre 6 April 2025;• beneficiaries who can claim the 4-year FIGregime may be able to receive distributionswithout paying UK tax on these (although asnoted above, the effect of the 4-year FIGregime in this context is complicated and canresult in income and gains matching todistributions made to others instead forexample);• the close family member and onward giftingrules are being modified slightly to take intoaccount the change from the remittance basisto the 4-year FIG regime;• otherwise, the increase in the rate of capitalgains tax last year means that recipients ofcapital payments which “match” to trust gainsmay now be subject to capital gains tax at aneffective rate of up to 38.4% (being the newtop rate of 24% plus a maximum“supplemental charge” for older gains of14.4%);• beneficiaries will be able to set personallosses against gains attributed to them fromtrusts; and• the changes to IHT in relation to trusts (seebelow) may mean that capital payments arewithin the scope of the IHT exit charge (up to6%).CommentExisting structures should be reviewed now todetermine:• how they might be affected;• whether steps can be taken to reduce anynegative UK tax implications (e.g. changingthe beneficial class and/or the investmentapproach);• whether any other restructuring optionsshould be considered; and• when distributions are considered after 6 April2025 the new rules must be taken intoaccount when determining their likely UK taximplications (both for the beneficiaryconcerned and, potentially, otherbeneficiaries).• beneficiaries who have previously beensubject to the remittance basis (and so areeligible to make use of the TemporaryRepatriation Facility described above) may beable to receive capital payments from trusts inthe 25/26, 26/27 and/or 27/28 tax years andonly pay UK tax on those at a rate of 12% or15% (depending on the tax year) if such13

Budget 2024 – Non-dom proposalsInheritance tax in relation to trustsThe current positionAt a high level, trusts established by non-domiciled individuals can benefit from a broad exemption from IHTfor so long as they only hold assets situated outside of the UK. These are known as “excluded propertytrusts”.UK situated assets held at trust level (and non-UK situated assets which derive their value from UKresidential property) are already within the scope of IHT even when held in such trusts.The changesFrom 6 April 2025 the IHT exposure of most trusts will no longer be determined by their settlor’s domicilestatus when established or funded.Instead, assets held in a trust will only be excluded property (i.e. not subject to IHT charges) if:• they are non-UK assets; and• the settlor is not Long-Term Resident at the time of the potential IHT charge.In other words, the IHT status of a trust will now vary depending on the status of the settlor and a trust maymove in and out of the IHT net as the settlor acquires or loses Long-Term Resident status. By way ofexample, this can be visualised as follows:Settlor satisfies the 10/20 test to become“Long-Term Resident”Trust loses excluded property statusSettlor loses “Long-TermResident” status aIHT exit charge on the Trust fundSettlorIHT statusimpactsNot Long-Term Resident(including period up to 5 April2025)Long-Term Residentfor IHT purposesNot Long-Term Resident(i.e. has ceased to be UK taxresident and out of the “tail”period described above)Trust IHTstatusExcluded Property Trust(no IHT exposure on non-UKassets)Relevant Property TrustExcluded Property Trust(no IHT exposure on non-UKassets)Pre 30 October 2024 trusts:exposed to:- relevant property regimeNew trusts:exposed to:- relevant property regime;and- the “GWROB” rules14