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

The UK’s new tax

The UK’s new tax regime for internationally connected individuals and their structures (as of 25 June 2025)The changes for the trustee and any underlying non-UK resident companiesIn most cases the way in which the structure itself is subject to income tax, capital gains tax or corporationtax should not change materially.The changes for beneficiariesWhilst the taxation of beneficiaries has remained broadly unchanged in principle (the matching rulescontinue in place for example) there are a number of potential changes in practice:• to the extent that income and gains have become taxable on the settlor, those should not go into theincome and gains pools capable of matching to distributions to beneficiaries;• beneficiaries who have previously been subject to the remittance basis (and so are eligible to make useof the Temporary Repatriation Facility described above) may be able to receive capital payments fromtrusts in the 25/26, 26/27 and/or 27/28 tax years and only pay UK tax on those at a rate of 12% or 15%(depending on the tax year) if such payments “match” to income and gains which arose pre 6 April 2025;• beneficiaries who can claim the 4-year FIG regime may be able to receive distributions without payingUK tax on these (although as noted above, the effect of the 4-year FIG regime in this context iscomplicated and can result in income and gains matching to distributions made to others instead forexample);• the close family member and onward gifting rules have been modified;• otherwise, the increase in the rate of capital gains tax on 30 October 2024 means that recipients ofcapital payments which “match” to trust gains may now be subject to capital gains tax at an effective rateof up to 38.4% (being the top rate of 24% plus a maximum “supplemental charge” for older gains of14.4%);• beneficiaries can set personal losses against gains attributed to them from trusts; and• the changes to IHT in relation to trusts (see below) may mean that capital payments are within the scopeof the IHT exit charge (up to 6%) when they would not have been before.CommentExisting structures should be reviewed to determine:• how they are affected by the new rules;• whether steps can be taken to reduce any negative UK tax implications (e.g. changing the beneficialclass and/or the investment approach);• whether any other restructuring options should be considered; and• how the 4-year FIG regime and/or TRF might impact the taxation of distributions.Inheritance tax in relation to trustsThe previous positionAt a high level, trusts established by non-domiciled individuals could previously benefit from a broadexemption from IHT for so long as they only held assets situated outside of the UK. These were known as“excluded property trusts”.UK situated assets held at trust level (and non-UK situated assets which derived their value from interests inUK residential property) were already within the scope of IHT even when held in such trusts.The changesSince 6 April 2025 assets held in a trust with a living settlor are generally only excluded property (i.e. notsubject 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.16

The UK’s new tax regime for internationally connected individuals and their structures (as of 25 June 2025)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” rulesWhilst there was no full grandfathering for existing trusts, there are important differences in the IHT treatmentof trusts established and funded prior to 30 October 2024 as compared to those established or funded on orafter that date:The impact for trusts already in existence as of 30 October 2024As and when the settlor of such a trust becomes Long-Term Resident, the trust fund will be exposed to theUK’s “relevant property regime”.In practice this could mean IHT charges at a rate of up to 6%:• every ten years (counted from the date on which the trust was established);• when assets leave the trust (e.g. on a distribution); and• when the settlor ceases to be Long-Term Resident again such that the trust fund becomes excludedproperty once more.That last point is potentially a nasty surprise for trusts and an important matter to bear in mind if a Long-TermResident settlor may leave the UK. Double tax treaties with some countries (including, for example, the US)can mitigate the issue in some scenarios but the point will need careful analysis.However, such pre-existing trusts do retain some IHT advantages in that the trust fund will not be caught bythe gift with reservation of benefit (“GWROB”) rules which can deem trust assets to be part of the estate ofthe settlor for IHT purposes in addition to being caught by the relevant property regime. This avoids potentialdouble taxation.17