Temporary Repatriation Facility (TRF)

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.

Inheritance Tax Updates: Major Changes to IHT Rules from April 2025

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.

Updated Inflation Adjustments for Gift Tax Annual Exclusion, Unified Credit Amount, and GST Tax Exemption for 2025

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.

2025 Inflation Adjustments for Pension Plans, Retirement Accounts Released

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.

Please contact our team if you require further information.