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

Budget 2024 – Non-dom

Budget 2024 – Non-dom proposalsWhilst there is no full grandfathering for existingtrusts, there are important differences in the IHTtreatment of trusts established and funded prior to30 October 2024 as compared to thoseestablished or funded on or after the date of theBudget:The impact for trusts already in existence asof 30 October 2024As and when the settlor of such a trust becomesLong-Term Resident, the trust fund will beexposed to the UK’s “relevant property regime”.In practice this could mean IHT charges at a rateof up to 6%:• every ten years (counted from the date onwhich the trust was established);• when assets leave the trust (e.g. on adistribution); and• when the settlor ceases to be Long-TermResident again such that the trust fundbecomes excluded property once more.That last point is potentially a nasty surprise fortrusts and an important matter to bear in mind if aLong-Term Resident settlor may leave the UK.Double tax treaties with some countries (including,for example, the US) can mitigate the issue insome scenarios but the point will need carefulanalysis.However, such pre-existing trusts do retain someIHT advantages in that the trust fund will not becaught by the gift with reservation of benefit(“GWROB”) rules which can deem trust assets tobe part of the estate of the settlor for IHTpurposes in addition to being caught by therelevant property regime. This avoids potentialdouble taxation.The impact for trusts established or funded onor after 30 October 2024The status of new trusts will also be determinedby whether or not the settlor is a Long-TermResident. However, as and when the settlor hasthat status the trust will potentially face two formsof IHT exposure:• the trust fund will be within the scope of the“relevant property regime” (so subject to thevarious 6% charges described above); and• if the settlor can potentially benefit from thetrust then the trust fund will also be deemed tobe part of the settlor’s estate (under theGWROB rules). This could expose the trustfund to IHT at a rate of up to 40% on thesettlor’s death (in addition to the 6% chargesapplied by the relevant property regime).Again, if a settlor ceases to be Long-TermResident, such that the trust becomes anexcluded property trust, there could be an IHT exitcharge.To the extent that pre-existing trusts receiveadditional funding on or after 30 October 2024,such additional funds will be subject to this newregime.Trusts with UK domiciled but non-UK residentsettlorsTrusts established by UK domiciled settlors arecurrently within the relevant property regime. Thisis the case even if the settlor is non-UK resident.That will change under the new rules. Forexample, if a settlor is UK domiciled but is notLong-Term Resident on 6 April 2025 then the trustwill become an excluded property trust (such thatnon-UK assets in the trust will be outside of thescope of IHT) from that date.In many cases this will be welcomed. However,the change in status will trigger an exit charge ofup to 6% of the value of the trust fund at the timeand so thought should be given as to how to fundthis if it is likely to be relevant.Trusts with deceased settlorsIf the settlor of a trust has died then the IHT statusof non-UK assets in the trust will depend on whenthe death occurred:• If the settlor died on or before 5 April 2025then the trust will be an excluded propertytrust provided that it meets the current criteriafor such trusts (i.e. provided the settlor wasneither domiciled nor deemed domiciled whenthe trust was established and funded);whereas• If the settlor dies on or after 6 April 2025 thenthe trust will only be an excluded propertytrust if the settlor was not Long-Term Residentat their death. If the settlor was Long-TermResident on death then the trust will remainwithin the relevant property regime for theremainder of its existence.In other words, if a settlor dies on or after 6 April2025 then whether or not they are Long-TermResident at the time of their death willpermanently impact the IHT exposure of anytrusts they settled.Qualifying Interest In Possession Trusts (asub-category of life-interest trusts)Qualifying Interest In Possession Trusts (knownas “QIIPs”) are a type of life interest trust. Theperson who holds the life interest (i.e. who isentitled to the income of the trust) is known as the“life tenant”.The trust fund of a QIIP is treated for IHTpurposes as being owned by the life tenant and is15

Budget 2024 – Non-dom proposalsnot within the scope of the relevant propertyregime.The application of the new rules to QIIPs iscomplicated (and the Long-Term Resident statusof the life tenant may be a relevant factor) but inpractice if the trust fund benefited from excludedproperty status as of 29 October 2024 then thereis unlikely to be a charge to IHT on the death ofthe current life tenant.Domicile remains relevantWhilst the Chancellor stated that domicile willcease to be a relevant factor for (most of) UK taxlaw, it is important to recognise that it will continueto play a role in other aspects of UK law.For example, a person’s domicile is key todetermining which country’s (or countries’)succession laws will apply to their estate on theirdeath and can also impact matters such asdivorce proceedings.Even in the context of taxation, domicile willcontinue to be important for the application ofcertain double tax treaties.Domicile will therefore continue to play a role inUK law for many years to come even after thechanges described in this article are implemented.Other relevant points from theBudgetThere were plenty of other announcements in theBudget last year which could impact thoseaffected by the non-dom changes. These include:• An increase in the rate of capital gains tax onmost assets from a maximum of 20% to amaximum of 24%, effective for disposalsmade on or after 30 October 2024;• An increase in the rate of stamp duty land tax(SDLT) paid on the purchase of secondhomes (the surcharge for such propertiesincreased from 3% to 5% with effect from 31October 2024);• Business Property Relief and AgriculturalProperty Relief (both of which can reduce IHTby up to 100%) will be reformed from 6 April2026. Rather than applying to an unlimitedvalue of assets, they will (in aggregate) beable to provide 100% IHT relief on up to £1mof assets and then 50% IHT relief on the valueof any qualifying assets in excess of thatthreshold;• Pensions will be brought within the scope ofIHT from April 2027; and• The taxation of carried interest is changing(the tax rate will increase from 28% to 32% inApril 2025 but with further reforms expected in2026).How we can help:We have a vast amount of experience advising non-domiciled individuals and their structures, as well asthose moving to and from the UK.We can advise you as to how the new regime might impact you, help you plan your affairs accordingly andassist you in making the most of the transitional rules.Edward HayesDirectorT +44 (0) 117 939 2244M +44 (0) 7812 001 827E edward.hayes@burges-salmon.comThis document gives general information only and is not intended to be an exhaustive statement of the law. Although we have takencare over the information, you should not rely on it as legal advice. We do not accept any liability to anyone who does rely on its content.16