Welcome to the Autumn 2024 issue of our international e-bulletin for private client, family office and trustee clients and contacts.
Understandably, the focus of the private client offshore industry remains on the proposed reforms to the taxation of non-UK domiciled individuals (“non-doms“) announced by the previous, Conservative, government in March 2024 and expected to come into effect on 6 April 2025. We comment below on the latest position.
Focus is also shifting to the Labour government’s first Budget on 30 October 2024 (“Autumn Budget“), not only for further detail in respect of the non-dom reforms but also wider tax policy announcements that will affect UK entrepreneurs with business exits on the horizon and international private clients with links to the UK. Very little has been confirmed at this stage but we provide our thoughts below on what the Autumn Budget may include in terms of UK personal taxation.
Away from these two topics, this issue of Globally Speaking includes an article in which we provide guidance for trustees and executors in respect of works of art that are the subject of a restitution claim, whether those fiduciaries be making the claim or defending one. We also introduce a topic that will be featuring as a rolling theme across the next few full issues of Globally Speaking: sustainable investing and responsible stewardship of wealth and its place and role in modern family wealth structures.
Non-dom reforms
In our August 2024 “stop press” issue, we provided an update on the summary policy paper that the government published on 29 July 2024 entitled “Changes to the taxation of non-UK domiciled individuals“. This paper confirmed the core policy framework behind the non-dom proposals but reserved much of the underlying details to the Autumn Budget and the publication of draft legislation. You can read the update from our “stop press” issue here and access our online hub of information and analysis on the non-dom reforms here.
There have been no further announcements from the government since the above policy paper; however, momentum is gathering behind the view that, as a result of non-doms’ behavioural response (both from an emigration and immigration perspective), the proposed reforms could cost the Exchequer more than they would bring in through tax revenue. A report published by Oxford Economics in September 2024, which is based on empirical data gathered over the summer from non-doms and their advisers, illustrated that the non-dom population could decrease by as much as 32% as a result of the changes, potentially reducing tax revenue from this segment by £0.9 billion by 2029/30. Inheritance tax (“IHT“) changes perhaps even more so than the loss of the remittance basis and protected settlement rules for offshore trusts could account for this.
In what would appear to be a reaction to this report and other similar views voiced by the offshore private client industry, there have been recent press reports that the government might water down their existing proposals to encourage more non-doms to stay in the UK. The rumours have not been confirmed to stem from the Treasury; however a Treasury spokesperson is reported to have said that the government would be “pragmatic” and “won’t press on regardless”, as well as that the Office for Budget Responsibility would certify the costings of all measures announced in the usual way. The rumoured changes are that:
- offshore trusts set up before 6 April 2025 will retain their excluded property status for IHT purposes (as originally proposed in the Spring Budget in March);
- the 50% reduction on taxable foreign income in 2025/26 for UK resident non-doms not eligible for the proposed four-year exemption regime for foreign income and gains (“four-year FIG regime“), as originally proposed by the Conservative government, will also potentially be taken forward; and
- the proposed ten year IHT “tail” will be reduced to three years.
Until we have official confirmation of any revised proposals and, vitally, sight of draft legislation, affected non-doms unfortunately remain in an uncertain position as to the status of their UK tax affairs from 6 April 2025, along with those of their offshore wealth structures. We include commentary on the impact of the non-dom reforms on offshore trusts in the article, “The new “non-dom” rules: impact on existing trusts“.
Notwithstanding any possible, late-in-the-day changes, in the absence of an entirely different approach conceptually (perhaps one that sits alongside the four-year FIG regime), UK resident non-doms who will not benefit from the (full) four-year FIG regime, will understandably be considering their options, including the possibility of accelerating their departure from the UK. This is particularly relevant to individuals the duration of whose UK residence is approaching, or has passed, ten tax years, meaning their worldwide estate could potentially come within the scope of IHT from 6 April 2025. Various jurisdictions offer “golden visa” immigration schemes for high-net-worth non-doms in return for investment, along with a preferential tax regime for their foreign income and assets, and affected non-doms may want to undertake an analysis of favourable locations. Our briefing “Relocation planning for non-UK domiciled individuals“ sets out the outbound tax and legal issues to be considered on relocation from the UK, along with a non-exhaustive summary table of five key jurisdictions that are currently offering “golden visas”, whilst also comparing the tax and immigration features for each and the planning points that need to be considered in advance of a relocation.
Short of a major U-turn (and there has been no rumoured movement on this), it looks as though the connecting factor for non-doms’ liability to UK tax in future years will be UK residence as opposed to taking into account (where relevant) their “domicile”. So far, the indication has been that the UK’s statutory residence test will continue to be used to determine UK residency status for these purposes; it is therefore clear that, from 6 April 2025, non-doms will need to closely monitor the number of days they spend in the UK if they wish to become, or remain, non-UK resident. On that topic, we include in this issue an article on “Medical tourism to the UK” which discusses the importance of managing day-counts in the UK where a non-dom is temporarily visiting for private healthcare reasons.
Autumn Budget
Otherwise, the messaging from Prime Minister Sir Keir Starmer and Chancellor Rachel Reeves in respect of the Autumn Budget has been clear: there will be tax rises and these are likely to target “those with the broadest shoulders”. In the article in this issue “Wealth and politics“, we comment on the UK’s approach to the taxation of wealth currently and how the Labour government is likely to use taxation to address wealth disparities.
Other than the taxation of non-doms and the imposition of VAT on private school fees, both of which the Labour party have been open about for some time, the exact form of the tax measures to be announced in the Autumn Budget (concerning possible rate increases and/or changes to existing reliefs) is unknown and will continue to be the topic of much speculation in the coming weeks.
Capital gains tax (“CGT“)
CGT is one tax that is widely predicted to feature in the Autumn Budget. Sir Keir Starmer has not denied the possibility of increasing CGT rates, as he has done in respect of income tax, and the silence of the Labour party manifesto on the issue gives the government room for manoeuvre. If rates are to be increased, the key question will be by how much, and whether CGT rates will be aligned with those for income tax. This could mean a jump from 20% (being the main rate of CGT) to 45% (being the top rate of income tax) in some cases. History has shown that such a move could be counterproductive and an increased rate of somewhere in the middle may be optimal. Where CGT is an issue, individuals with sizeable investment gains, and trustees managing trusts with the same, may want to consider realising profits at current CGT rates before the Autumn Budget.
In the context of possible increases to the rate of CGT, we include an article on business owners selling their companies, which covers corporate law, personal taxation and estate planning issues. We also discuss CGT and the valuable “PPR” relief for your main residence, and how this applies to internationally mobile individuals with more than one residence.
Carried interest
The Labour party manifesto included a pledge to close the carried interest “loophole” so that performance-related pay within the private equity industry is no longer treated as capital gains and taxed at 28%, but as income and taxed at up to 45%. Rachel Reeves confirmed the government’s commitment in this regard in an announcement on 29 July 2024, and HM Treasury published a “call for evidence” on the same date. The key consideration in this regard is the need for the UK to remain competitive. This policy is, however, very much tied up with the government’s approach to CGT rates (above).
IHT
IHT could be another tax that may be targeted in the Autumn Budget; in particular, the IHT reliefs for business and agricultural property which are generous at present. There is speculation around whether a cap will be introduced on the amount of relief that can be claimed over lifetime. Individuals and trustees who hold assets that currently qualify for either relief may want to consider ahead of the Autumn Budget whether it is appropriate to accelerate plans to transfer ownership to the next generation, if there is sufficient time to do so before 30 October. There have also been suggestions that the government may target how IHT applies to gifts and, specifically, abolishing the “seven-year rule” in favour of a gift tax that applies at the date of the gift. It would be unusual for reforms of this scale to be introduced immediately, however, without prior consultation and time to draft the necessary legislation. An easy (in legislative terms) change to make could be to extend the survivorship period for gifts to ten years, in line with the new 10-year rule for the taxation of non-doms’ worldwide assets and the currently proposed 10-year IHT “tail”.
It is clear that there remains a great deal of uncertainty at present: around the final form of the new non-dom regime, and the tax rises to be announced in the Autumn Budget. We would be pleased to discuss planning options with affected clients.