As we are fast approaching the 5 April 2025 fiscal year end, now is a good time to consider your circumstances for general year-end tax planning for UK purposes. Particularly of note are certain changes for the treatment of non-UK domiciled individuals.

There are actions you may want to take before the end of the tax year. Detailed below are the main issues to consider for all taxpayers at this time of year. Note that for US persons there may be further considerations: –

Changes to the UK Non-Dom rules

From 6 April 2025 the non-dom regime will officially come to an end, being replaced with a residency-based system whereby an individual who is resident for 10 of the last 20 years will be considered a “Long Term Resident”.

The remittance basis of taxation will no longer apply and this is being replaced by a 4 year foreign income and gain exemption, where individuals qualify, along with a temporary repatriation facility for individuals that previously benefited from the remittance basis. UK residents that do not qualify for the 4 year income and gains exemption will move to a worldwide basis of UK taxation from 6 April 2025.

Individuals that have been claiming the remittance basis of taxation and will move to worldwide taxation on 6 April 2025 should consider a review of their affairs and foreign investments to ensure this is efficient for UK purposes moving forward.

Offshore trust arrangements should also be reviewed for any required actions before 6 April 2025.

For further details on the upcoming changes, please see our website article Here

Business Investment relief

• This allows the remittance of income taxable on the remittance basis.
• It is possible to invest into EIS or SEIS companies using this relief.
• It is possible to invest into your own business.
• It is possible to make investments into a property rental business.
• We are able to obtain HMRC advance clearance on transactions, thus attaining certainty on the non-taxation of remittances to the UK

Note that Business Investment relief is due to expire for any new investments on 5 April 2028.

Pensions

Many individuals utilise pensions as part of their overall tax planning strategy. At the end of the UK tax year, it is worth reviewing your pension contributions for the year and consider any optimisation as well as ensure you have not overstepped the mark, especially since HMRC have drastically reduced the amounts from historic levels that are relievable for tax for higher earners. Some of the key things to note are as follows:

• You are entitled to pay in up to £60,000 tax free per year, but this is tapered once your income exceeds £260,000 to a minimum of £10,000 allowance when your income exceeds £360,000.
• Unused allowances are carried forward for three years.
• Tax relief for pension contributions is claimed on your tax return where contributions are made net of tax.
• If you or your employer overpays into your pension you could be liable to an additional tax charge.
• From 6 April 2023 the lifetime allowance no longer applies.
• Note that the Government intends to include pensions in a taxpayers estate for UK Inheritance Tax from 6 April 2027.

It is advisable to review your position to avoid any pitfalls and optimise where necessary.

US mutual funds and other non-UK funds

Those individuals that will newly become subject to UK tax on a worldwide basis from 6 April 2025 should review their offshore investments.

• It is important to review your investment portfolio, there may be changes required within your portfolio to ensure that your investments are UK efficient. For example, the sale of a US mutual fund (non-reporting fund for UK purposes) leading to a gain, may be liable to income tax (45%) on such income gains, as well as the fact that other losses from other mutual funds may not be allowable against such gains. It is imperative to review your portfolio in such circumstances.
• There may be other tax mitigation strategies that can be enacted before the assets become liable to UK taxation.

Inheritance Tax and US Estate tax implications

UK Inheritance Tax (IHT) is assessed on the estate of a deceased individual as well as certain gifts you make whilst you are alive.

From 6 April 2025 the non-dom regime will officially come to an end, being replaced with a residency based system whereby an individual who is resident for 10 of the last 20 years will be considered a “Long Term Resident” and liable to UK Inheritance Tax. Note that in some cases tax treaty relief may apply and will need to be reviewed.

The US estate and gift tax system works by providing each US domiciled individual a Lifetime allowance of $13.99m (2025) which can be used at death, although is reduced for taxable lifetime gifts. The annual tax-free gift exclusion per done is $19,000 (2025). Note that the current estate exemption is due to lapse on the 31st of December 2025 and will revert to a lower amount unless the provisions are extended.

Both systems need to be navigated to ensure effective planning, however with the generous US lifetime allowance there may be no tax liability of a gift for US purposes, however there are certain filing requirements if a US person makes a gift of more than $19k or receives a gift from a non-US person.

• Broadly, each UK individual has a nil rate IHT allowance of £325,000 (this can be increased to £500,000 where the estate includes your primary residence). Assets in the estate in excess of the tax free allowance are generally charged at 40%.
• Effective planning may include setting up a trust, gifting assets, changing the composition of the estate to include exempt assets.
• Additionally certain gifts can be made tax free each year.

UK Inheritance Tax reliefs for Agricultural Property Relief and Business Property Relief (APR/BPR) are set to be restricted from 6 April 2026.

Family Investment Company (FIC)

A family investment company (FIC) is a private limited company which is used as a long-term investment vehicle. It Can provide an effective way to shelter income and assets from higher rates of taxation and Inheritance Tax. Some of the key benefits of an FIC are as follows:

• The FIC can retain profits for investment rather than those profits being drawn out and being subject to higher rates of personal tax in the hands of the shareholders.
• The FIC can be used as an effective tool to manage the passing down of assets to future generations in a controlled and tax efficient manner e.g. gifting non-voting shares to mature offspring in order to retain control of assets, whilst allowing assets to pass down to children.

Before an FIC is implemented, one must carefully consider if it is an appropriate strategy for you and your family’s long-term circumstances. I would advise that before implementing such a strategy you must seek tax and possibly legal advice.

Excess Foreign tax credits (FTCs) – For US Taxpayers

Excess FTCs arise due to the fact UK tax rates are higher that US tax rates, a US person is able to carry these excess credits forward for a period of 10 years. These excess credits can be useful in a number of scenarios, not limited to the opportunities raised in this article.

In conjunction with much of the planning detailed above and below, a review of your excess FTCs must be carried out to understand the impact from both a UK and US tax perspective.

For example, you may generate a UK tax refund by making an EIS investment, however you could be in scenario where you have to pay some or all of the refund back to the IRS, due to a lack of UK tax paid that year or excess FTCs.

Investors Relief

Investors’ Relief reduces the amount of Capital Gains Tax on a disposal of shares in a trading company that is not listed on a stock exchange. It applies to shares that are issued on or after 17 March 2016 that are disposed of on or after 6 April 2019, as long as the shares have been owned for at least 3 years up to the date of disposal. It is not usually available if you or someone connected with you is an employee of the company. Qualifying capital gains for each individual are subject to a lifetime limit of £10 million.

If you’re entitled to Investors’ Relief, qualifying gains up to the lifetime limit applying at the time you make your disposal, will be charged to CGT at the rate of 10%.

The conditions for qualification are broadly:

• They are ordinary shares in the company

• You subscribed for them in cash and they were fully paid up when issued

• The company is a trading company or the holding company of a trading group

• None of the company’s shares are listed on a stock exchange

• Neither you nor any person connected with you is an employee of the company or of a company connected with it

It is essential that a detailed review of the investment is undertaken to confirm qualification for this relief.

Other Opportunities

If you are interested in further tax planning, then the following tax-efficient investments are also available. If you are considering any tax planning opportunities for the future, please get in touch. We have provided an overview below but please note that there are qualifying conditions and limits on these investments. In addition, clients that are US citizens may need further considerations.

Please do not hesitate to contact our team here at Frontier Group and we are happy to arrange a consultation.

Frontier Fiscal Services Limited

The UK government is set to soften some of its planned changes to the non-domicile tax regime following concerns about a potential departure of wealthy individuals, the Treasury has confirmed.
The long-established non-domicile system allows individuals who live in the UK but are domiciled elsewhere for tax purposes to avoid paying UK tax on overseas income and capital gains for up to 15 years.

However, during the October budget, the government announced that the regime would be abolished from April 2025, making long term residents liable for inheritance tax on their global assets, including those held in trusts.
Since then, Chancellor Rachel Reeves revealed that an amendment to the Finance Bill would be introduced to improve the temporary repatriation facility (TRF). This scheme enables non-doms to transfer funds to the UK at a reduced tax rate of 12%,

Double Tax Agreements remain unchanged

Overseas investors were also reassured by Reeves that the UK’s double taxation agreements would remain unchanged. A Treasury spokesperson confirmed that the government aims to encourage non-doms to transfer their funds to the UK to stimulate investment and spending.
The October Budget’s non-dom crackdown was part of a broader set of policies aimed at high net-worth individuals, including increased taxation on private equity executives, private schools, second homes, and private jets. Critics warned at the time that such measures could lead to an exit of wealthy individuals, potentially undermining investment and economic growth.

Temporary Repatriation Facility (TRF)

As mentioned above, an amendment to the Finance Bill would be introduced to improve the temporary repatriation facility (TRF) which will enable non-domiciles to transfer funds to the UK at a reduced tax rate of 12%,
Most eligible HNW taxpayers will wish to make full use of the temporary repatriation facility or at least ensure that the correct steps are taken before April 5, 2025 to ensure they are eligible for the TRF post April 5, 2025.

Please contact our team for further information.

Federal Tax

The 2025 cost-of-living adjustments that affect pension plan dollar limitations and other retirement-related provisions have been released by the IRS. The changes have been implemented as the increase in the cost-of-living index, due to inflation, met the statutory thresholds. However, other limitations will remain unchanged.

Highlights of Changes for 2025

1. The contribution limit has increased from $23,000 to $23,500. for employees who take part in:

• -401(k),
• -403(b),
• -most 4 5 7 plans, and
• -the federal government’s Thrift Savings Plan

2. The annual limit on contributions to an IRA remains at $7,000.

Phase-Out Ranges

Taxpayers can deduct contributions to a traditional IRA if they meet certain conditions. The deduction phases out if the taxpayer or their spouse takes part in a retirement plan at work. The phase out depends on the taxpayer’s filing status and income.

• For single taxpayers covered by a workplace retirement plan, the phase-out range is $79,000 to $89,000, up from between $77,000 and $87,000.
• For joint filers, when the spouse making the contribution takes part in a workplace retirement plan, the phase-out range is $126,000 to $146,000, up from between $123,000 and $143,000.
• For an IRA contributor who is not covered by a workplace retirement plan but their spouse is, the phase out is between $236,000 and $246,000, up from between $230,000 and $240,000.
• For a married individual covered by a workplace plan filing a separate return, the phase-out range remains $0 to $10,000.

The phase-out ranges for Roth IRA contributions are:

-$150,000 to $165,000, for singles and heads of household,

-$236,000 to $246,000, for joint filers, and

-$0 to $10,000 for married separate filers.

The income limit for the Saver’ Credit is:

-$79,000 for joint filers,

-$59,250 for heads of household, and

-$39,500 for singles and married separate filers.

The annual federal gift tax exclusion – commonly referred to as the “annual exclusion” – is the amount that a taxpayer may gift to another individual without incurring gift tax or using up the taxpayer’s lifetime gift and estate tax exemption (which is $13,990,000 in 2025). The 2025 annual exclusion amount will be $19,000 (up from $18,000 in 2024). The annual exclusion applies to gifts of $19,000 to each donee or recipient per calendar year. This means that a parent may gift up to $19,000 per child (or any other donee) without being required to report the gifts on a gift tax return (Form 709) and without using up any of their unified credit. Additionally, since each individual may take advantage of this exclusion, a married couple may gift up to $38,000 to each donee per calendar year without using any estate or gift tax exemption.

The unified credit is also known as the lifetime estate and gift tax exemption, applicable exclusion amount, or basic exclusion amount. The unified credit is a combination of the gift tax exemption and estate tax exemption amount and is the amount that an individual may give either during their lifetime or at death before any gift or estate taxes will be assessed against the individual (or their estate). The unified credit in 2025 will be $13,990,000 (up from $13,610,000 in 2024). The unified credit may be shared between spouses. When used correctly, a married couple may transfer up to a combined $27,980,000 without incurring gift or estate tax. This allows a wealthy married couple to gift an additional $760,000 in 2025 compared to 2024 without incurring additional tax liability.

The GSTT exemption is the amount which may be left to a skip generation without incurring GSTT. For tax purposes, a “skip generation” is a generation two or more generations younger than the transferor. Like the unified credit, in 2025 the GSTT exemption will be increased to $13,990,000. While seemingly similar to the unified credit, it is important to note that the GST tax exemption is not “portable” or shareable with your spouse. Therefore, it is important to use any GST tax exemption during life or at death.

Please note that the current exemptions originated with the Tax Cuts and Jobs Act of 2017 and are currently scheduled to expire at the end of 2025. On January 1, 2026, the higher exemption amounts will revert back to the $5 million exemption allowed in 2017, adjusted for inflation, unless Congress decides to act before then.

The UK’s Autumn Budget, announced on 30 October 2024, confirmed significant changes to the Inheritance Tax (IHT) rules, set to take effect from 6 April 2025. These reforms will see the UK tax system shift from domicile-based taxation to a residence-based regime. Below, we outline the key changes and their implications for individuals and trustees.

Key Changes to IHT Rules

1. Worldwide Asset Exposure for Long-Term ResidentsFrom 6 April 2025, individuals classified as “Long-Term Residents” (LTRs) will be subject to IHT on their worldwide assets. LTR status applies to those who have been UK tax residents for at least ten out of the previous twenty tax years. Importantly:

• Non-UK Situs Assets: These will now fall within the scope of IHT if the individual is an LTR at the time of the chargeable event (e.g., death or a lifetime transfer).
• Tail Period: After ceasing UK residency, LTRs remain exposed to IHT for a tail period, lasting between three and ten years, depending on the duration of prior UK residence. For example:
  • 10-13 years of residence: Tail period of 3 years.
  • 14-19 years of residence: Tail period increases by one year per additional year of UK residence.
  • 20 years of residence: Maximum tail period of 10 years.

2. Changes to Trust RulesTrusts established by non-UK domiciled individuals (known as excluded property trusts) will see their IHT treatment revised:

• LTR Settlors: From 6 April 2025, if the settlor becomes an LTR, the trust’s assets will be subject to the IHT “relevant property regime,” including ten-year anniversary charges and exit charges (up to 6%).
• Grandfathering Provisions: For trusts created before 30 October 2024, assets will not be within the settlor’s estate for IHT purposes if the settlor can benefit from the trust. However, any additions to these trusts after 30 October 2024 may be subject to different rules.
• Exit Charges: If the settlor ceases to be an LTR, non-UK situs assets could revert to excluded property status, triggering an IHT exit charge.

Implications for Individuals and Trustees

For Individuals:

• Those considering leaving the UK before April 2025 to shield non-UK situs assets from IHT must carefully manage their UK tax residency using the statutory residence test.
• For those planning long-term stays, understanding the tail period’s implications will be essential for estate planning.

For Trustees:

• Trustees of excluded property trusts must assess the trust’s exposure to IHT if the settlor becomes an LTR.
• Planning for potential liquidity requirements to meet IHT charges is critical, especially as raising funds could trigger other tax liabilities.
• Trustees should also prepare for the possibility of an IHT exit charge if the settlor’s LTR status ends.

Next Steps

The changes outlined in the Finance Bill 2025 are subject to minor amendments before becoming law. However, the core principles are expected to remain unchanged. As a result, these reforms will have far-reaching consequences for estate and trust planning.

We strongly recommend seeking professional advice to navigate these complex changes. Our team is here to assist individuals and trustees in understanding their new obligations and developing strategies to mitigate IHT exposure. Contact us today to discuss your specific circumstances.

One of the key opportunities to come out of autumn budget is the Temporary repatriation facility. The TRF will be available for individuals who were non-UK domiciled and used the remittance basis prior to 6 April 2025.

Under this facility, taxpayers will be able to remit foreign income and gains previously protected by the remittance basis prior to 5 April 2025 to the UK at a lower tax rate as follows:

2025/26 and 2026/27 – 12% Rate

2027/28 – 15% rate

From 2028/29, remittances of pre 6 April 2025 foreign income and gains will be taxed at normal rates.

With review of the relevant structure and circumstances, it is also possible for settlors or beneficiaries of offshore trusts to benefit from this facility. Business investment relief (which provides a mechanism of remitting foreign income and gains for qualifying investments without a charge to UK tax) will also be abolished for new investments when the TRF period ends on 5 April 2028.

Some UK non-domiciled individuals (non-doms) will now be subject to exit charges on trusts if they leave the country, following changes outlined in Chancellor Rachel Reeves’ first Budget. These measures aim to target wealthy foreigners while offering several concessions to reduce the outflow of affluent residents.

Under the new rules, non-doms who have lived in the UK for more than 10 years out of the previous 20 may face charges of up to 6% on trusts they hold upon departure. However, Reeves opted not to apply the 40% inheritance tax on trusts established before October 30 upon the settlor’s death, and she also reduced the period non-doms remain liable to UK inheritance tax, cutting the “tail” from 10 years to a minimum of three.

The government also introduced a “temporary repatriation facility,” offering foreign-owned income and gains held by non-doms or in trusts a flat tax rate of 12% to 15%, compared with the maximum 45% tax on gains.

While some experts view the softer stance on inheritance tax as a way to reduce the number of non-doms leaving, the new exit charges on trusts are seen as a potential deterrent. These trusts, often holding substantial sums, previously avoided such charges, but now, under the relevant property regime, they will incur inheritance tax exit charges when a non-dom leaves the UK.

Despite the measures, some experts believe that the government’s efforts may not fully prevent wealthy individuals from relocating. While the new rules may result in £12.7 billion in revenue over the next five years, this forecast is highly uncertain, with the outcome depending on a relatively small number of high-net-worth individuals.

Post Budget update for Non-Dom, IHT and Trusts
Following the UK Budget at the end of October, please see below a summary of the changes that have been announced and released in over 100 pages of draft legislation by the government in relation to Non-Dom, IHT and Trusts. It should be noted that there may be changes to the draft legislation before this is finalised. In addition, the various rules are very complex – we have provided an overview of the key points, however a detailed review should be conducted before taking action.
The implications of these new rules will vary depending on your specific circumstances, please reach out to your usual Frontier contact if you would like a consultation to review your affairs.

Non Dom Regime
From 6 April 2025 the non-dom regime will officially come to an end, being replaced with a residency based system whereby an individual who is resident for 10 of the last 20 years will be considered a “Long Term Resident”.
The remittance basis of taxation will no longer apply and this is being replaced by a 4 year foreign income and gain exemption along with a temporary repatriation facility for individuals that previously benefited from the remittance basis.

4 Year foreign income and gains (FIG) exemption
Where an individual becomes resident in the UK, provided they have been non-resident for the previous 10 years they will be eligible for this relief in the first four years of UK residency. This relief will be available for UK citizens along with foreign nationals.
This exemption from foreign income and gains allows individuals to remit these amounts earned from the qualifying years to the UK without tax charge. For individuals that have previously benefited from the remittance basis pre 6 April 2025, care must be taken to avoid remitting income and gains prior to this date unless utilising the temporary repatriation facility noted below.
It is important to note that years of residency for this relief will be calculated in accordance with the UK Statutory Residence Test only and therefore years of treaty non-residence will not be allowable.
The relief period begins 6 April 2025 – As a practical example, if an individual becomes resident in the UK for the tax year ending 5 April 2025, they would be eligible for this relief for the following 3 tax years. Where individuals have already been resident in the UK for 4 tax years prior to 6 April 2025 this relief will not be available.

Temporary Repatriation Facility (TRF)
The TRF will be available for individuals who were non-UK domiciled and used the remittance basis prior to 6 April 2025.
Under this facility, taxpayers will be able to remit foreign income and gains previously protected by the remittance basis prior to 5 April 2025 to the UK at a lower tax rate as follows:
2025/26 and 2026/27 – 12% Rate
2027/28 – 15% rate
From 2028/29, remittances of pre 6 April 2025 foreign income and gains will be taxed at normal rates.
With review of the relevant structure and circumstances, it is also possible for settlors or beneficiaries of offshore trusts to benefit from this facility.
Business investment relief (which provides a mechanism of remitting foreign income and gains for qualifying investments without a charge to UK tax) will also be abolished for new investments when the TRF period ends on 5 April 2028.

Capital Gains Tax Rebasing
Where individuals that have never been UK domiciled or UK deemed domiciled before 5 April 2025 and have claimed the remittance basis dispose of foreign assets that they held at 5 April 2017, an election is available to rebase these assets at their 5 April 2017 value for capital gains tax purposes.

Overseas Workday Relief (OWR)
Currently, OWR is available to non-domiciled individuals in their first three years of UK residence. The mechanism for the relief is that earnings in respect of non-UK workdays can be exempted from UK tax providing certain conditions are met and that the overseas earnings are not remitted to the UK.
From 6 April 2025, the rules will be simplified in that eligibility will be based on the residency status of an individual and not domicile in the same way as the FIG exemption above (requiring a period of 10 years non UK residence to qualify).
For qualifying individuals, OWR can be claimed for the first 4 years of UK residency and in a relaxation of the previous rules, these earnings can be remitted to the UK.
There is a new limitation on the total amount of OWR claimable and this is capped at the lower of 30% of the qualifying employment income or £300,000.

Inheritance Tax (IHT)
In line with the changes to income and capital gains tax, inheritance tax will also be residency based from 6 April 2025.
Individuals that are resident in the UK for 10 out of the previous 20 years will be considered “Long Term Resident” and subject to UK inheritance tax on their worldwide assets.
Transitional rules apply for individuals that are considered non-domiciled or deemed domiciled in the UK at 5 April 2025 and not resident for the 2025/26 tax year. In this example the old rules will apply – the test being UK resident for 15 of the previous 20 years.
In a significant extension to the current rules, a new “tail” provision will apply to individuals that leave the UK. Where an individual has been resident for 20 years, they will remain subject to UK inheritance tax for 10 years.
There is a scaling down of the tail provisions where an individual has been UK resident between 10 and 19 years.

IHT Tax Treaties
Given the expansion on the scope of UK inheritance tax, international inheritance tax treaties will likely become a more important part of planning. The UK currently has inheritance/estate tax treaties with the following countries: France, Italy, India, Pakistan, Republic of Ireland, South Africa, USA, Netherlands, Sweden and New Zealand.
In the case of the UK/US Estate Tax Treaty – there may be some protections for US citizens that do not have UK nationality provided they have not been UK resident for more than 7 of the past 10 years. Additionally, the treaty tie-breaker provisions may provide relief in some cases.
Most of the UK IHT/Estate tax treaties were originally entered into pre 1982 so it will be interesting to see how these align with the new domestic UK IHT rules. There may be legislative changes or even re-negotiation of treaties to bring more clarity on these issues.

Agricultural Property/Business Property relief and Pensions
Other important updates are the planned inclusion of pensions in a taxpayers estate for IHT from 6 April 2027 and the reduction of Agricultural Property Relief (APR) and Business Property Relief (BPR) being restricted from 6 April 2026 (full exemption for up to £1m and then 50% relief thereafter). It should be noted that there are specific requirements to qualify for BPR/APR reliefs.

Trusts
Income/Capital Gains tax
Common planning for non-domiciled individuals was to create an excluded property trust which consists of non-UK assets before becoming UK deemed domiciled – for the purpose of affording protection against UK inheritance tax on these assets. In conjunction, income and capital gains tax protections were available for these qualifying structures. From 6 April 2025 – these trust protections are being removed and the implications are as follows:
For foreign settlor interested trusts – where the settlor is UK resident, they will be subject to tax on the worldwide income and gains of the trust. The 4 year FIG exemption can apply to this if the settlor qualifies.
For foreign trusts that are not considered settlor interested, beneficiaries will be taxed on distributions in accordance with the current rules.
It is important to note that there is a mismatch in definitions of settlor interested for income tax and capital gains tax.
For income tax, to be a non-settlor interested structure – the settlor and their spouse would need to be excluded from benefit.
For capital gains tax, to be a non-settlor interested structure – the settlor, their spouse, children and grandchildren would need to be excluded.
Given that these structures are typically put in place for future generations wealth planning, where a settlor is UK resident, under the current draft legislation it will likely not be practical to achieve the non settlor status for capital gains tax. Whether this is brought in line with income tax in the final legislation remains to be seen.
The Temporary Repatriation Facility may be used in certain circumstances in relation to stockpiled income and gains within a settlement where this applies to pre 6 April 2025.
The government is currently consulting on the application of anti-avoidance provisions and this is expected to be announced in 2026/27.

Potential planning

• Consider crystallising gains within settlor interested structures and/or making distributions before 6 April 2025 if the remittance basis is still available.
• UK Residency planning for the settlor and long-term intentions.
• Whether it is practical for the settlor to be excluded from the settlement
• Restructuring assets within a settlement to favour income or gains depending on the circumstances. For example, in a foreign non-settlor interested trust, where the settlor is still caught by the capital gains tax provisions, it may be favourable to gear the trust investments to income producing assets. For a settlor interested trust it may be more favourable to gear the trust to long term capital gains investments for tax deferral.
• Consider the application of the 4 year FIG exemption if applicable

It is important to note that there is no one size fits all and the individual circumstances of each settlement would need to be reviewed in detail before suitable planning can be implemented.

Inheritance Tax (IHT)
From 6 April 2025 the IHT status of non-UK property within a settlement will not be fixed in relation to the settlors status at the time the property was settled. Instead, the non-UK property will be subject to IHT based on whether the settlor is currently “long term resident” in the UK – meaning they have been resident in the UK for 10 of the previous 20 years.
The taxable events for inheritance tax purposes, if the settlor is long term resident are as follows:

1. When assets are settled into a trust
2. At the 10 year anniversary of the settlement
3. Exit charge when either the assets are distributed from the trust or the long term resident becomes non-UK resident
4. The death of the settlor – if the gift with reservation of benefit rules apply.

Gift with reservation of benefit
Where a settlement is made and the settlor remains a beneficiary of the settlement – the settled assets will remain in the settlors personal estate for IHT purposes. There is an exemption from this rule for previously excluded property trusts settled before 30 October 2024 even if the settlor remains a beneficiary post 6 April 2025.

10 year charge and exit charge
Under the relevant property regime, from 6 April 2025, trusts that had protected status under excluded property will lose those protections and become subject to the 10 year charge and exit charge where the settlor is long term UK resident. These charges are calculated up to 6 % of the value of the trust assets held at the chargeable date. There will be apportionment relief in relation to the number of years in the period that the assets are UK relevant property.
There has been clarification of the rules for when a settlor passes away and these are broadly:
Where the settlor passes away before 6 April 2025 and the trust was an excluded property trust – the trust will remain outside of IHT for the remainder of the trust.
Where the settlor passes away on or after 6 April 2025 and the settlor was long term resident in the UK, the trust will continue to be within the charge to IHT moving forward.

Potential planning

1. Review the current status of the trust and whether the gift with reservation of benefit rules will apply

1. Consider the long term residency intentions for the settlor

1. Review double tax treaties – for example there may be an opportunity to exclude trusts from UK IHT under the UK/US IHT treaty where the settlor is not a UK citizen.

1. There remains a window of opportunity for individuals wishing to set up a non-settlor interested foreign trust before 5 April 2025 provided they are not currently deemed domicile and avoid the initial IHT charge on settling the trust – the 10 year charge and exit charge when long term resident would still apply.

The Chancellor of the Exchequer Rachel Reeves delivered her first Budget yesterday under the new Labour Government. After much speculation the Budget has brought about clarity in various tax issues that may affect you in the coming years. As predicted, there have been a number of significant tax increases and we have  summarised some of the changes below.

• One of the major changes announced is the abolition of the remittance basis of taxation from 6^th April 2025. This will be replaced by the Foreign income and gains (FIG) regime, which will allow new arrivals to the UK (individuals who have not been UK resident in the last 10 tax years) to claim 100% relief on foreign income and gains in the first 4 years of UK residence.
• The protection from tax on foreign income and gains arising within settlor-interested trust structures will no longer be available for non-domiciled and deemed domiciled individuals who do not qualify for the four year foreign income and gains regime.
• A Temporary Repatriation Facility (the Facility) will be available for individuals who have previously claimed the remittance basis. This will be available for a limited period of 3 years to allow taxpayers to remit foreign income and gains that arose prior to the changes at a reduced tax rate.
• Other major changes include the increase of capital gains tax for disposals or assets that are not residential properties. The basic rate of 10% will increase to 18% and the 20% rate will increase to 24%. No changes will be made to the rates applying to the disposal of residential properties of 18% and 24%.
• The rate of capital gains tax that applies to carried interest will increase from 18% and 28% to a flat rate of 32%.
• There are no changes to the Inheritance tax nil rate band, however the Budget confirms that unused pension funds and death benefits will form part of a person’s estate for IHT purposes from 6^th April 2027.
• Agricultural Property Relief and Business Property Relief will be capped at a limit of £1 million.
• Other matters that may also be relevant include the introduction of VAT on private school fees from 1^st January 2025 and the increase of stamp duty on second homes from 3% above the standard rates to 5% above the standard rates which will come into effect today.

We have addressed these changes in more details in our article below:

Autumn Budget Summary 2024

Should you wish to discuss any of these changes or would like to understand how the changes may impact you, please do get in touch.

Americans who choose to renounce their U.S. citizenship currently face a fee of $2,350. Although categorized as a fee for obtaining a Certificate of Loss of Nationality (CLN), many consider it a form of taxation on expatriation. In response to pressure from the public and organizations representing Americans abroad, the U.S. government has announced plans to reduce this fee to a more manageable $450.

In October 2023, the government issued a Notice of Proposed Rule Change, inviting feedback from interested parties. Following this, a rule was published in Spring 2024 to advance the process.

On August 24, 2024, the Association of Americans Resident Overseas (AARO) shared on Twitter/X that the State Department will implement the proposed fee reduction in September.

Many U.S. citizens contemplating renunciation are motivated by the burdensome tax obligations imposed on Americans living overseas. However, it’s essential to recognize that this decision is significant and irreversible. Renouncing citizenship means losing the right to live in the U.S. without immigration restrictions, the ability to vote in elections, and access to protection from U.S. embassies and consulates abroad.

Please let us know if you would like to discuss any of these issues.

The US/UK estate and gift tax treaty was implemented to avoid double taxation of gifts and estates of US citizens and domiciles and UK domiciles by allowing only one country to impose its tax and the other to allow a credit against the taxes already paid.

However, uncertainty has arisen regarding this tax treaty due to the potential changes our government may soon implement. Below, we have outlined the key points, upcoming changes and potential consequences which may occur in the near future:

Key points:

• Domicile Status:
  • US citizens residing in the US and domiciled in the UK are ‘domiciled’ in both countries for tax purposes. ‘Tie-breaker’ provisions in the Treaty determine primary taxing rights based on residency and nationality.
• US Citizens’ Tax Treatment:
  • If a US citizen is not a UK national and has not been a UK tax resident for 7 of the last 10 years, they are treated as ‘treaty domiciled’ in the US. This status limits exposure to UK Inheritance Tax (IHT) to UK real estate and certain business properties.
• UK Nationals:
  • If a US citizen is also a UK national, the UK retains taxing rights over all UK property, regardless of treaty domicile status.
• Treaty Protected Trusts:
  • US ‘treaty domiciled’ individuals who are not UK nationals can establish ‘treaty protected trusts’ to shield assets from UK IHT. Assets in these trusts are exempt from UK IHT if the settlor was treaty domiciled in the US at the time of settlement.
• Potential for Renunciation:
  • Some individuals may consider renouncing UK nationality to benefit from treaty provisions, but this requires careful consideration of implications.

Upcoming changes to the UK’s IHT Regime:

• New IHT Regime (Effective 6 April 2025):
  • UK IHT liability will shift from domicile status to residence status.
• • Residents in the UK for 10 years will be liable for IHT on worldwide assets, remaining liable for 10 years after leaving the UK.
• Impact on Trusts:
  • The IHT position of trust assets will be determined by the settlor’s residence at the time of the IHT charge, not their domicile at the time of settlement.

Upcoming changes to the UK’s IHT Regime:

• Interaction with Treaty Provisions:
  • Unclear how Treaty domicile-based provisions will align with the new residence-based IHT system.
• Potential Government Actions:
  • The UK government may amend legislation to align treaty concepts with the new residence test, possibly affecting ‘treaty protected trusts.’
• • Amendments to the Treaty may require re-negotiation, potentially preserving the current protections for the medium-long term.