The UK’s proposals for non-doms and their 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 practical impact of the transitional tail rule is that those who:• were non-UK domiciled for common law purposes (deemed domicile is irrelevant) on 30 October 2024;and• became non-UK tax resident by 2025/26,will either not become Long-Term Resident at all or will have a maximum “tail” of three tax years.The impact on giftingFrom 6 April 2025, whether a gift of a non-UK asset is potentially within the scope of the seven year rule forIHT (such that there could be an IHT charge if the donor dies within seven years of making it) depends onwhether the donor is Long-Term Resident at the time they make the gift.In other words:• If a person gifts a non-UK asset whilst they are not a Long-Term Resident then the gift will be outside ofthe scope of IHT regardless of whether that person becomes Long-Term Resident at a later date; butconversely• If a person gifts a non-UK asset whilst they are a Long-Term Resident then the gift will be within thescope of IHT (i.e. exposed to the 7 year rule) even if they cease to be Long-Term Resident before death.The spouse exemptionThe full spouse exemption (i.e. 100% relief from IHT) is available between spouses who are both Long-TermResident or who are both not Long-Term Resident.If a gift (on lifetime or death) is made from a spouse who is Long-Term Resident to one who is not, then thespouse exemption will be capped unless the recipient spouse elects to be treated as a Long-Term Resident.If the recipient spouse makes such an election then they will be treated as Long-Term Resident until theyhave been non-UK resident for 10 consecutive tax years.There are also transitional rules for elections which were made under the previous regime and electionswhich span the two regimes.Double tax treatiesThe UK has a limited number of double tax treaties which relate to IHT.Broadly speaking, where those treaties refer to common law domicile (including for example the UK/Indiatreaty) then the references to domicile are unaffected.Where those treaties refer to a person being domiciled in the UK for IHT purposes, i.e. deemed domicile(such as in the UK/US treaty), those references are now read as though they refer to a person being Long-Term Resident.14

Protected statusThe UK’s new tax regime for internationally connected individuals and their structures (as of 25 June 2025)The changes for trustsThe tax treatment of trusts established by non-domiciled settlors has changed considerably from 6 April2025.Income tax and capital gains tax in relation to trustsThe previous positionPreviously, certain trusts established by individuals who were neither domiciled nor deemed domiciled in theUK at the relevant time benefited from “protected trust” status. This meant that (with some notableexceptions) gains and foreign income which arose within the trust were not taxable on the settlor(s) and wereonly subject to UK tax if and when distributions were made to UK resident beneficiaries.SettlorAttributionof incomeand gainsNon-UKtrustThe changes for settlorsFrom 6 April 2025 the protected trust regime ceased to apply, meaning that income and gains in affectedtrust structures could have become taxable on any UK resident settlor(s) from that date.SettlorAttribution ofincome and gainsNon-UKtrustIn practice, this is unlikely to impact trusts which:(a)(b)have no living settlors; orhave only non-UK resident settlors (assuming the settlor(s) are not planning on moving to the UK).For trusts with UK resident settlors, the implications will depend upon a number of factors, including theterms of the trust (exclusions could be particularly significant in determining which forms of income or gaincan be attributed to the settlor) and the nature of the trust’s investments.Although the loss of protected trust status was a blow, there are some changes which softened it slightly. Forexample, settlors have been given an extended right to recover from the trust any income tax which they payon trust income.Some settlors will also be able to claim the 4-year FIG regime in relation to income or gains attributed tothem from trusts. However, where this is done the impact on others will need to be considered (e.g. itappears that if the 4-year FIG regime is claimed in relation to gains which would otherwise be attributed tothe settlor, those gains might go into the pool which can be taxed on beneficiaries instead).The “EU defence” against income attribution from trusts has been removed but in our experience this wasrarely used in practice.The other motive defences remain in place for now, but a consultation has been promised on these (andother aspects of the relevant attribution regimes) so those relying on these defences should bear in mind thatthey could be changed or removed in the future.15