Everfair Tax

Specialists in UK, US and Expatriate Tax.

How to Avoid Double Taxation in the UK and US

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Navigating the intricacies of international taxation can be challenging, particularly for individuals earning income in both the United Kingdom and the United States. Without proper planning and understanding, one can easily fall victim to double taxation, where the same income is taxed by both countries. Here’s out guide on how to avoid this pitfall.

1. Understanding Tax Residency

  • UK Tax Residency: In the UK, tax residency is determined by the Statutory Residence Test (SRT). Key factors include the number of days spent in the UK, ties to the country, and employment status.
  • US Tax Residency: The US taxes its citizens and permanent residents (Green Card holders) on worldwide income regardless of where they live. Non-residents are taxed only on US-source income.

2. Utilising the US-UK Tax Treaty

  • The US-UK Tax Treaty is a pivotal document that helps prevent double taxation. It outlines which country has the taxing right over specific types of income.
  • Article 4 (Residence): This article provides tie-breaker rules for determining the residency of an individual if both countries consider the person a resident.
  • Article 24 (Relief from Double Taxation): This ensures that if income is taxed in both countries, one will provide a credit or exemption to mitigate the burden.

3. Foreign Tax Credits

  • US Taxpayers: Americans can claim the Foreign Tax Credit (FTC) on their US tax returns. This credit reduces US taxes owed by the amount of tax paid to the UK on the same income.
  • UK Taxpayers: The UK allows for a credit or deduction for foreign taxes paid. This helps reduce the overall tax liability in the UK.

4. Income Exclusion and Deductions

  • Foreign Earned Income Exclusion (FEIE): US citizens living and working abroad might qualify to exclude a portion of their foreign earned income from US taxation (up to a certain threshold, adjusted annually).
  • Foreign Housing Exclusion/Deduction: In addition to the FEIE, US taxpayers can exclude or deduct certain housing expenses incurred while living abroad.

5. Strategic Income Allocation

  • Source of Income: Properly determining the source of income can influence which country taxes it. For instance, rental income from a UK property is generally considered UK-source and primarily taxed there.
  • Income Timing: Timing the recognition of income and deductions can also be beneficial. For example, ensuring that income falls within a tax year where lower rates apply or when you can maximise foreign tax credits.

6. Professional Tax Planning and Compliance

  • Engaging a tax advisor knowledgeable in both UK and US tax laws is crucial. They can provide tailored advice, ensure compliance with filing requirements, and optimise tax positions.
  • Timely Filings: Adhering to tax filing deadlines in both countries is essential to avoid penalties and interest.

7. Retirement Contributions

  • Contributions to retirement plans can have different tax treatments in each country. The US-UK Tax Treaty provides specific provisions to avoid double taxation on pensions and retirement accounts.

Conclusion

Avoiding double taxation between the UK and US requires a thorough understanding of both tax systems and strategic planning. Utilising tax treaties, credits, exclusions, and professional guidance can help mitigate the risk and ensure compliance. By carefully navigating these complexities, individuals can optimise their tax liabilities and avoid the financial burden of being taxed twice on the same income. If you need any help navigating this, please get in touch.

Retirement Planning: Tax-Efficient Strategies for the US and UK

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Introduction

One of the most crucial aspects of retirement planning is ensuring tax efficiency. Tax-efficient strategies can significantly enhance retirement savings, providing more financial security during retirement years. This article delves into tax-efficient retirement planning strategies for individuals in the United States and the United Kingdom.

Tax-Efficient Strategies in the US

1. Maximizing Contributions to Tax-Advantaged Accounts

401(k) Plans:

  • Employer-Sponsored Plans: Contributing to a 401(k) plan allows for pre-tax contributions, which reduce taxable income. For 2025, the contribution limit is $23,500, with an additional catch-up contribution of $7,500 for those aged 50 and older.
  • Roth 401(k): Post-tax contributions are made, but withdrawals during retirement are tax-free, provided certain conditions are met.

IRAs (Individual Retirement Accounts):

  • Traditional IRA: Contributions may be tax-deductible, and investments grow tax-deferred. The 2025 contribution limit is $7,000, with a $1,000 catch-up contribution for individuals 50 and older.
  • Roth IRA: Contributions are made with after-tax dollars, but qualified distributions are tax-free. There are income limits for contributions, making it crucial to plan accordingly.

2. Health Savings Accounts (HSAs)

HSAs are triple tax-advantaged accounts that can be used for medical expenses. Contributions are tax-deductible, growth is tax-free, and withdrawals for qualified medical expenses are also tax-free. The 2025 limits for HSAs are $4,300 for individuals and $8,550 for families. Post-65, HSAs can be used for non-medical expenses without penalty, but they will be taxed as income.

3. Tax-Efficient Withdrawal Strategies

Roth Conversion:

  • Gradually converting a traditional IRA to a Roth IRA can spread the tax burden over several years, potentially lowering the overall tax rate during retirement.

Required Minimum Distributions (RMDs):

  • Starting at age 73, retirees must take RMDs from their traditional IRAs and 401(k)s. Planning withdrawals in a tax-efficient manner can help manage tax liabilities.

Tax-Efficient Strategies in the UK

1. Maximizing Contributions to Tax-Advantaged Accounts

Pension Contributions:

  • Personal Pensions: Contributions are tax-deductible, and investments grow tax-free. In the fiscal years for 2024/25 and 2025/26, the annual allowance is £60,000, with potential carry forward of unused allowances from the previous three years.
  • Workplace Pensions: Employer contributions are often matched, providing a significant boost to retirement savings.

Individual Savings Accounts (ISAs):

  • Contributions to ISAs are made with after-tax income, but all growth and withdrawals are tax-free. The annual ISA limit for the fiscal year 2024/25 and 2025/26 is £20,000.

2. National Insurance and State Pension

Understanding how National Insurance contributions affect State Pension entitlements is vital. Ensuring sufficient qualifying years can maximise the State Pension amount, providing a foundational income during retirement.

3. Tax-Efficient Withdrawal Strategies

Drawdown Strategy:

  • Tax-Free Lump Sum: Up to 25% of the pension pot can be taken as a tax-free lump sum.
  • Flexi-Access Drawdown: Allows for flexible withdrawals from the remaining pension pot. Managing the drawdown amounts can help stay within lower tax brackets.

Annuities:

  • Annuities can provide a guaranteed income for life, and their taxation depends on the type of annuity purchased. They can be a tax-efficient way to manage longevity risk.

Cross-Border Considerations

For individuals with ties to both the US and the UK, cross-border retirement planning is complex. Double taxation treaties and understanding the interaction between US and UK tax laws are crucial. Seeking advice from a tax advisor familiar with both jurisdictions can optimise tax efficiency and ensure compliance with both tax systems.

Conclusion

By leveraging the specific tax benefits in the US and UK, individuals can enhance their retirement savings and reduce their tax liabilities, ensuring a more secure financial future. Effective retirement planning requires a deep understanding of available tax-advantaged accounts, strategic contributions, and withdrawals. If you need any assistance with this, do get in touch.

2024 Autumn Budget – Inheritance Tax

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Summary of Changes for IHT; Individuals and Offshore trusts

The current non-domicile tax regime, including the remittance basis of taxation, will be abolished from 6 April 2025.  It will be replaced by a new “residence based” approach.  This note focuses on how the changes affect inheritance tax (“IHT”).  Separate notes consider the impact on income tax and capital gains tax for individuals and offshore trusts.

Inheritance tax – Individuals

It has been confirmed that the basis for IHT on non-UK assets will change from domicile-based to residence-based from 6 April 2025.  The impact for individuals is summarised below:

  • The term domicile will be replaced by long-term residence.
  • The basic premise will be that an individual will be a long-term resident for a tax year if they have been UK resident for 10 out of the previous 20 UK tax years.
  • Long-term residence will end after a run of consecutive tax years of non-UK residence varying from three to 10 tax years depending on the number of years of prior UK residence.
  • The test resets after 10 consecutive years of non-UK residence.
  • There is transitional protection for non-domiciles who would otherwise be long-term resident but left the UK before 30 October 2024 and who remain non-UK resident.
  • Residence for a tax year is based on being resident for all or part of the year under the Statutory Residence Test.
  • Lifetime gifts of non-UK assets by long-tern non-residents remain outside the scope of IHT even if long-term resident on death within seven years.

Inheritance tax – Offshore trusts

It is with regard to IHT and offshore trusts, particularly so-called excluded property trusts, where there was thought to be the biggest divergence between Labour and the Conservatives and the budget confirmed this was the case.

Under current rules an excluded property trust is a trust set up by a non-UK domiciliary which only holds non-UK assets so that it is outside the scope of IHT.  This treatment generally continues regardless of changes in the settlor’s domicile so can be used as a long term IHT mitigation tool.

The position for offshore trusts from 6 April 2025 builds on the changes for individuals:

  • Rather than being fixed at creation, the scope of a trust’s exposure to IHT on non-UK assets will change with the settlor’s personal IHT status before being finally fixed based on their status at death.
  • Broadly speaking, a trust’s non-UK assets will be within the scope of IHT for periods where the settlor is a long-term resident with charges arising when relevant events occur.

2024 Autumn Budget – Offshore Trusts

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Summary of Changes for Offshore Trusts

The current non-domicile tax regime, including the remittance basis of taxation, will be abolished from 6 April 2025.  It will be replaced by a new “residence based” approach.  This note focuses on how the changes affect offshore trusts.  Separate notes consider the impact on income tax and capital gains tax (“CGT”) for individuals and inheritance tax.

Income tax and capital gains tax for offshore trusts

The main income tax and CGT changes that affect offshore trusts from 6 April 2025 are:

  1. the abolishment of the remittance basis and replacement with a new system based around a four year exemption for foreign income and gains (“FIG regime”) if tax residency conditions are met;
  • a three-year temporary repatriation facility (“TRF”) allowing previously unremitted income and gains to be remitted at a tax rate as low as 12%; and
  • the abolishment of settlor-interested offshore trust protections.

FIG regime

The FIG regime will be able to be used to exempt foreign income and gains in the following offshore trust situations:

  1. Those assessed on the settlor under settlor-interested rules.
  • Those matched to discretionary distributions received by settlors and beneficiaries.
  • The foreign income element assessed on an interest in possession beneficiary.

Foreign income and gains received by the trust during years covered by the FIG regime may still be taxed in later years if matched to a distribution.

TRF

The TRF will be able to be used to reduce the tax on foreign income and gains in the following offshore trust situations:

  1. Those matched to settlors and beneficiaries pre-6 April 2025 but not taxed as a result of the remittance basis.
  • Pre-6 April 2025 foreign income and gains matched to distributions received during the TRF window.

Settlor-interested offshore trust protections

Settlor-interested offshore trust protections currently mean that, where certain conditions are met, settlors are only assessable on foreign income and gains when distributions are received.  The abolishment of these protections will mean that the settlor of such a trust will become liable to all income and gains of such trusts as they arise.  The settlor will, however, be able to recover the tax from the trust.

  • For settlor-interested trusts, gift with reservation of benefit rules will also apply meaning that the non-UK assets are also included in the settlor’s estate while they are a long-term resident (though there are exceptions to this for trusts which were excluded property trusts on 30 October 2024).
  • There will be an additional test for certain interest in possession trusts based on the beneficiary’s long-term residence position such that the trust will be exposed to IHT on non-UK assets whenever either the settlor or beneficiary are a long-term resident.

2024 Autumn Budget – Income Tax and Capital Gains Tax

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Summary of Changes for Income Tax and Capital Gains Tax Affecting Individuals

The current non-domicile tax regime, including the remittance basis of taxation, will be abolished from 6 April 2025.  It will be replaced by a new “residence based” approach.  This note focuses on how the changes affect income tax and capital gains tax (“CGT”) for individuals.  Separate notes consider the impact on inheritance tax and offshore trusts.

New Residence Regime

From 6 April 2025 all UK residents will be taxed on the arising basis (worldwide income and gains), however, for individuals who have previously been non-resident for 10 years, a new regime will be available for the first 4 years of residence as determined by the statutory residence test).

In those 4 years, a taxpayer can claim to exempt from tax the foreign income and gains (“FIG”) arising.  A claim will need to be made each year and can include either or both foreign income and/or gains.  Unlike under the remittance basis regime currently in place, there will be no requirement to retain the exempted FIG outside of the UK, and the FIG can be brought into the UK in the same or future tax years.

Temporary Repatriation Facility

From 6 April 2025, a new temporary repatriation facility (“TRF”) will be introduced to encourage taxpayers to bring funds into the UK in respect of FIG that were not taxed in the UK in previous years as a result of a claim for the remittance basis.

Whereas before 6 April 2025, a remittance of such funds to the UK would attract an income tax charge of up to 45%, the TRF will allow taxpayers to designate FIG and be subject to a tax rate of 15% in the 2025/26 and 2026/27 tax years, and 15% in the 2027/28 year.  Once designated and the charge paid, the funds can be brought into the UK at any time, including after the TRF period of 3 years has finished.

Overseas Workday Relief

Currently, overseas workday relief (“OWR”) is available in the first 3 years of tax residence to resident but non-domiciled employees on overseas earnings (i.e. days worked outside of the UK as part of their employment) paid and kept outside of the UK. 

From 6 April 2025, with the ending of the non-domicile regime, the relief will be available for the first 4 years of residence.  As a key development, there will no longer be a requirement to retain the earnings offshore and so the relief will also be available for those who are paid into a UK bank account, or just want to use the earnings in the UK.

For the first time, OWR will have a limit on the amount to be claimed in each tax year.  The limit will be the lower of 30% of the employment income or £300,000, although the limit will not apply to those who are already claiming OWR by 5 April 2025 and are able to continue to claim in 2025/26 or a later tax year.

Capital Gains Tax Rebasing

UK resident taxpayers who are unable to use the new 4 year FIG regime outlined above, will be subject to CGT on foreign gains.

However, as a transition measure, and subject to conditions, those who have claimed the remittance basis by 5 April 2025, will be entitled to rebase foreign assets for CGT purposes to their market value at 5 April 2017.

The transitional measure is not available for those who have been UK domiciled or deemed domiciled in the UK prior to 6 April 2025.

CGT Rates

The CGT rates on all disposals (aligning with those previously in place for residential property) are now 18% for basic rate taxpayers and 24% for higher and additional rate taxpayers, with the new rates coming into effect on Budget Day.

Where a claim for business asset disposal relief (“BADR”) is possible on a disposal after 6 April 2026, the rate is increasing from 10% to 14%.  The lifetime allowance will remain at £1m. 

The same rates of tax applicable where a claim for investors relief is available (on certain unquoted trading companies), although for investors relief there is a reduction in the lifetime allowance to £1m (previously £10m).

For those subject to CGT in respect of carried interest, the CGT rates are increasing to 32% from 6 April 2025.

Reflections from 10 Years in Business

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A Reflection by Gillian Everall, Managing Director

Looking back over the past decade, the journey of growing Everfair Tax has been an experience filled with lessons, challenges, and significant achievements. If I could speak to myself 10 years ago, here’s what I would tell my younger self and the key insights I’ve gained since then.

What I Would Tell Myself 10 Years Ago?

The first lesson I would tell myself is simply; just go for it! I remember the fear of uncertainty, but now I see how much time was spent considering the risks when in reality, there was so much more to gain.

When I first started, one of my biggest worries was whether the work would come in consistently, in hindsight now know, the work will come in and that wasn’t something to worry about. Business growth is never linear, and challenges will arise, but the key is to have confidence in your abilities and your business vision.

Another important realisation; you can cope with more than you think. Whether it’s tight deadlines, dealing with clients, or navigating tough economic conditions, you are stronger than you believe, and sometimes, you might even find it fun despite the stress.

The flexibility that comes with running your own business is a valuable asset. It’s a privilege I’ve come to appreciate more and more over the years.

One of the biggest fears I faced was hiring staff. It can feel intimidating to take on the responsibility of others’ livelihoods. But I would tell myself not to be scared of it. Hire when it feels right.

In business, there’s no such thing as having all the answers, and I’ve learned to get used to that. Success comes not from knowing everything, but from being adaptable and finding solutions when challenges arise. It’s critical to acknowledge that mistakes will happen, but the key is to learn from them. Don’t be afraid to face them head-on and grow through the experience.

Most importantly, I would remind myself to enjoy what I’m doing. Life is too short to be consumed by stress or worry.

What I Am Proud Of

Despite the challenges, there are many things I am incredibly proud of. The team we have today is a huge source of pride. We’ve grown into a strong, cohesive unit, and we continue to expand by taking on new trainees and investing in formal training sessions internally.

Our ability to offer a wide range of opportunities to the team and support their professional development has been rewarding. Seeing others grow, learn, and achieve their goals is one of the best parts of leadership. We’ve also been able to expand the services we offer, which has allowed us to serve a broader range of clients and provide them with more value.

Final Thoughts

Of course, hindsight is always 20/20, and there are definitely things I would change. For starters, I would have started sooner. I spent too long thinking about it before jumping in.

Looking back, these 10 years have been an incredible learning experience, filled with growth, challenges, and successes. I’m proud of where we are today, and I look forward to what the future holds. If there’s one thing I’ve learned, it’s that you don’t have to have it all figured out—you just need to keep moving forward, learning from each experience, and staying true to your vision.

Autumn Statement – Labour’s first budget

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On October 30, 2024, Chancellor Rachel Reeves delivered Labour’s first Budget since 2010. This long-awaited statement introduced significant changes to taxes on income, capital gains, pensions, and inheritance tax, targeting wealthier individuals and specific sectors to fund public spending and address economic inequalities. Here’s an overview of the main policies announced:

Tax Treatment for Non-Domiciled Taxpayers

  • Four-Year Foreign Income and Gains Exemption (FIG): UK residents who were non-resident in the past 10 years can claim an exemption on foreign income and gains for the first 4 years of their residency, effective April 2025. Qualifying individuals will need to claim this on their tax returns, though they will forego certain personal allowances.
  • Temporary Repatriation Facility (TRF): Previously non-domiciled individuals who used the remittance basis can remit untaxed foreign income gains under a new TRF. Available from April 2025, this facility offers a tax rate of 12% for the first two years, increasing to 15% for 2027/28
  • Residence-Based IHT System: Set to replace the domicile-based system, the new residence-based IHT policy will tax non-UK assets based on UK residency, with a “tail” period of between 3 and 10 years depending on the length of residence, for those leaving the UK. This approach aims to simplify the rules, but long-term UK residents with overseas assets should expect greater scrutiny.
  • Settled Property and Excluded Assets in Trusts: From April 2025, assets held in non-UK trusts will only qualify as excluded property if the settlor hasn’t been a UK resident for over 10 of the past 20 years.
  • OWD Relief for Overseas Workdays: Available for the first four years of residence, Overseas Workday Relief (OWD) will no longer require that employment income is kept outside of the UK. However, a financial limit will apply: the lesser of 30% of employment income or £300,000 per year.

Inheritance Tax (IHT) Adjustments

  • Pension Funds within IHT Scope: From April 2027, pension funds will fall within the scope of IHT, impacting those with substantial pension wealth.
  • Revised Business and Agricultural Property Reliefs: Business and Agricultural Property Reliefs will be reduced from 100% to 50% for assets exceeding a combined value of £1 million, starting in April 2026. The rate on AIM (Alternative Investment Market) shares will also be reduced to 50%.

Capital Gains Tax (CGT)

  • Aligned CGT Rates: Starting immediately, capital gains tax rates on all chargeable disposals have been aligned with those for residential property sales, set at 18% for basic rate taxpayers and 24% for higher rate taxpayers and trusts.
  • Business Asset Disposal Relief (BADR): Changes are set to come into effect in April 2025, with the BADR rate initially increasing to 14% and then rising to 18% by April 2026. Despite these changes, the lifetime allowance of £1 million for relief remains intact, though new anti-forestalling rules are being introduced to prevent tax avoidance strategies.
  • Investors Relief: The lifetime limit for the relief will reduce from £10 million to £1 million for disposals made on or after 30 October 2024.
  • Carried Interest Increase: From April 2025, the rate on carried interest (a common form of compensation for private equity fund managers) will increase from its current 18% to a flat 32%.

Other Notable Changes

  • Employer NIC Increase: From April 2025, employer National Insurance Contribution rates will rise from 13.8% to 15%, with the threshold for contributions dropping to £5,000.
  • Stamp Duty Land Tax (SDLT) Surcharge Increase: Effective October 31, 2024, the SDLT surcharge on second homes will rise from 3% to 5%, aiming to address property market dynamics by deterring multiple property ownership.
  • Freeze on Personal Allowance and Tax Thresholds Ending in 2028: After several years of frozen tax allowances, the government has announced these limits will begin to adjust in line with inflation from April 2028.

Implications for Individuals and Businesses

This budget marks a clear focus on closing tax loopholes, increasing tax liabilities on wealthier individuals, and incentivizing domestic investment. The changes could significantly impact high-net-worth individuals, businesses with substantial workforces, and investors. For non-domiciled residents, the move to a residence-based IHT framework and more stringent rules on trusts signal a major shift, demanding careful planning for those with international financial interests.

With these policies, the government aims to generate additional revenue, support essential services, and encourage fairer economic participation across sectors. For individuals and businesses alike, early financial planning and consultation will be essential to adjust to these changes in the coming years.

If you are unsure about how any of these changes impact your affairs, please get in touch with your usual advisor, or reach out to us via the contact form.

Changes to UK Taxation – Inheritance tax

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Our last post on the changes for non-UK domiciles focused on income tax and capital gains tax.  This post focuses on inheritance tax on non-UK assets but still under the theme of the only clarity being there is no clarity!

There are two strands to the inheritance tax changes – those impacting:

  • Individuals; and
  • The beneficial inheritance tax treatment of excluded property trusts (broadly trusts set up by non-domiciles under current rules to hold non-UK assets to keep them outside the scope of inheritance tax).

For individuals, the proposals would change the basis of inheritance tax to residence based rather than domicile based.  They would also reduce the time before people coming to the UK come within scope of inheritance tax on non-UK assets and increase the time before people leaving fall outside its scope. 

Labour have confirmed in their policy paper that they will change the basis of inheritance tax from domicile to residence based and that the commencement date will be 6 April 2025.  However, there will not be a formal consultation.  Instead there will be external engagement, including a review of feedback following the announcement in the Spring Budget and further external engagement.

It is with regard to inheritance tax and excluded property trusts where there is the biggest divergence between Labour and the Conservatives, particularly for existing trusts.  Under current rules the beneficial inheritance tax treatment generally continues regardless of changes in the settlor’s domicile.  This makes them a long term inheritance tax mitigation tool especially when someone is about to become deemed domiciled.

It was widely understood that existing trusts would continue this beneficial treatment under the Conservative proposals.  Labour have, though, stated that this would not be the case under them and that all trusts would be caught within the new rules regardless of when they were set up.  The mantra very much being that those staying in UK long term should not be able to avoid inheritance tax through the use of trusts.  What is not clear is how this will be achieved, despite there being a policy paper, so a lot of information we have at the moment remains speculation.

As mentioned in our previous posts, the earliest we are expecting any real detail is the Autmn Budget.  Broadly speaking, it is expected that individuals and trusts coming within the scope of inheritance tax on non-UK assets under the new rules will remain within its scope for a minimum of 10 years.

Since there is even less detail than there is for income tax and capital gains tax, we would expect there to be more speculation on what the changes will look like before we get more specific details.  Until then, we will follow up with further thoughts as soon as there is news that looks remotely like it will provide a bit more clarity.

Key takeaways:

  • From 6 April 2025, individuals coming to the UK are expected to come within the scope of inheritance tax on non-UK assets sooner than currently
  • It is expected that it will no longer be possible for long-term UK residents to use trusts to shelter non-UK assets from inheritance tax
  • The expectation is that individuals and trusts coming within the scope of inheritance tax on non-UK assets will remain within its scope for a minimum of 10 years

Changes to UK Taxation – Income tax and capital gains tax

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Our previous post set the post-General Election scene for the state of play regarding changes to the UK taxation of non-UK domiciles following confirmation of a Labour Government.  In a nutshell, the theme is that the only clarity we have is that there is no clarity.

The outgoing Conservative Government initially announced changes, but with no associated legislation.  Labour have confirmed they similarly intend to make changes but again with no real detail.  The changes will impact how non-UK domiciles are assessed to income tax, capital gains tax and inheritance tax.  This post will focus on income tax and capital gains tax.

For income tax and capital gains, the changes principally involve abolishing the remittance basis and Labour have confirmed in their policy paper that they will do this.  So, it is a safe presumption that this basis of taxation will soon be consigned to the bin (save for some inevitable hangovers).  Therefore, what is clear is there will be change but what will we be left with?

Labour have also confirmed that they will introduce the Conservatives proposal of a new system to replace the remittance basis.  The proposal was for a new system providing a four year exemption for foreign income and gains where prior long-term non-UK tax residency conditions are met.

The Conservative proposals also included four other key foreign income and gains measures alongside the four year exemption:

  • A 50% transitional relief for remittance basis users falling outside of the four year exemption.  This relief would exempt 50% of foreign income in 2025/26.
  • A temporary repatriation facility to allow previously unremitted income and gains to be remitted at a low tax rate of 12% in 2025/26 and 2026/27.
  • A simplified overseas workday relief.
  • A capital gains rebasing (strangely to 2019).

The only measure Labour have definitively said that they would not introduce is the 50% transitional relief.  They support the temporary repatriation facility but will make a further announcement in the Autumn Budget relating to the tax rate, the length of time it is in place for and possibly an expansion to include overseas structures.  They have said they will introduce a capital gains rebasing but will announce the rebasing date in the Autumn Budget while they will retain a “form of Overseas Workday Relief”.

In addition to the Conservative proposals, Labour have also said they will review “offshore anti-avoidance legislation”.  This is to “remove ambiguity” and “modernise the rules” to “ensure they are fit for purpose”.  No specific details have been given though changes are not anticipated until 2026/27.

As mentioned in our previous post, the earliest we would expect any real detail is the Autumn Budget.  While we would expect there to be a lot of speculation until then we will follow up with further thoughts as soon as there is news that looks remotely like it will provide a bit more clarity.

Key takeaways:

  • As was the case with the outgoing Conservative Government, Labour intend to abolish the remittance basis and replace it with a new four year exemption system
  • The new system is expected to be available to arrivers meeting prior residence conditions but will include transitional arrangements for existing remittance basis users
  • Offshore anti-avoidance legislation is to be reviewed so that they are modern and effective
  • Further detail is not expected until the Autumn Budget

Changes to UK taxation – non-UK domiciles

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In tax sometimes all we crave is a bit of clarity.  This certainly is the case with changes to the UK taxation of non-UK domiciles first proposed by the Conservatives.  When the proposed changes were announced little detail was given, rather that this would follow in draft legislation.  There has, though, been much speculation.

At Everfair our aim is always to consider the facts and give short shrift to speculation but in such an important area it is sometimes necessary to sort the facts from the fiction.  This post will seek to look at where we are after the General Election and the new Chancellor’s first public spending statement which was accompanied by a policy paper for the changes.  It will aim to sort the facts (or what little facts we do have) from the speculation (most commentary since the announcement of the proposals has been speculation).

While we still do not have any concrete details to be able to discuss the changes with any reliability or clarity, the confirmed change in government has meant a delay in when any detail might surface.  We are now expecting the detail in Labour’s first budget which has been confirmed for the Autumn, due to take place on Wednesday 30 October.  So, it is worthwhile considering where things stand with regard to what Labour have said, particularly in their policy paper.

The policy paper confirms that the non-domicile changes will be introduced by Labour following their confirmation as the new Government but the exact form (and to a lesser extent timing of their introduction) are two very significant unknowns.  So, rather than having the clarity we crave, really the only clarity we have is that there really is no clarity.

The lack of clarity in this important area of UK tax presents tax advisers with an unwelcome dilemma.  We would like to be able to advise our clients to allow them to plan with certainty but this is currently not possible.  Sometimes, though, it might be worth considering different options, including perhaps identifying a worst-case scenario, to formulate a potential plan which will at least allow speedy action once more details are known.

What we do know are that the changes are two-fold, impacting:

  • income tax and capital gains tax, principally the removal of the remittance basis; and
  • inheritance tax on non-UK assets, especially the use of excluded property trusts (broadly trusts set up by non-domiciles to hold non-UK assets which keep the assets outside the scope of inheritance tax).

Our next post will focus on the impact for income tax and capital gains tax while a subsequent post will focus inheritance tax.

Key takeaways:

  • There is no clarity on the tax landscape for non-UK domiciles – changes have been announced but as yet little specific detail has been given.
  • The change in Government has delayed when any detail will be given, with this not now expected until the first Labour budget on 30 October.
  • As with the Conservatives before them, Labour will introduce changes impacting income tax, capital gains tax and inheritance tax.