With the Labour Party winning the 2024 general election in July, the new government is making changes to some key areas of the proposed policies previously announced.
Foreign income and gains (FIG) regime
The main foreign income and gains (FIG) regime rule is expected to stay the same. From 6 April 2025, the remittance basis will be abolished and replaced with a residence-based test. Under the new test, those who have been non-resident continuously for 10 tax years before moving to the UK would be treated as follows:
- they could claim the foreign income and gains (FIG) regime for the first four tax years of UK residency. Under the FIG:
- foreign income and gains would be exempt from UK tax, even if brought to the UK
- they would not be eligible to the personal allowance or annual exemption for capital gains
- FIG would not apply to income related to overseas workdays, which would continue to be subject to OWR
- from the fifth tax year onwards, they would be taxed on worldwide income and gains.
Under the new rules, OWR would only be available if the FIG regime is claimed. It would continue to apply for the first three tax years of UK residence, and income related to overseas workdays could be brought to the UK.
Policy changes
First year of the new rules (2025/26 tax year)
Old policy: The previous government announced that in the 2025/26 tax year, those not eligible for the FIG would be taxed in the UK on 50% of their personal foreign income arising in the year. Foreign capital gains are not eligible for the reduction.
New policy: Individuals not eligible for the FIG will be taxed on 100% of their worldwide income and gains immediately from 6 April 2025.
Disposal of assets previously claimed remittance basis on
Old policy: There would be an option to use the value of foreign assets on 5 April 2019 as the base cost for capital gain purposes, instead of the actual cost, if the remittance basis has been claimed previously.
New policy: The rebasing date will be reviewed and announced at the Budget.
Temporary repatriation facility
Old policy: There would be a ‘temporary repatriation facility’ available for tax years 2025/26 and 2026/27. This means individuals could elect to pay UK tax at a reduced rate of 12% on remittances of pre-6 April 2025 foreign income and gains, including income previously subjected to OWR claims.
New policy: There would be a ‘temporary repatriation facility’ but the rate and the length of time are being reviewed, we can expect that the rate will be higher than the previously announced 12%. The government is also exploring ways to expand the scope of the temporary repatriation facility, including to stockpiled income and gains within overseas structures, and will confirm further details at the Budget.
Inheritance Tax
Under the current rules, for non-domiciled individuals, UK Inheritance Tax (IHT) will only apply if they have been a resident in the UK for 15 out of 20 years before the relevant year. As such, IHT does not apply to most expat individuals.
It is envisaged that the new rules will involve charging IHT on worldwide assets owned (either outright or via a trust) when a person has been resident in the UK for 10 years, with a provision to keep a person in scope for 10 years after leaving the UK. One of the most significant changes announced by the Labour government is ending the use of Excluded Property Trusts to keep assets out of the scope of IHT. This means that IHT will apply to non-UK assets that are settled by a non-UK domiciled settlor prior to 6 April 2025.
What will be the impact of the changes?
With the removal of the first year 50% cap on taxable income, people currently claiming the remittance basis but not eligible for the FIG regime will be taxable in the UK on their worldwide income and gain in full in the 2025/26 tax year. They may see a significant increase in the complexity of the UK tax return and the associated tax payable.
The new government is still keen to attract remittance of prior year savings to the UK via the temporary repatriation facility. We will wait to see if the new policy as we doubt it will be more generous comparing to the previously proposed 2 years/12% rate of tax.
Under the new rules, people who have stayed in the UK for many years or have plans to, will need to consider the IHT implications, even if their assets have been transferred to offshore trusts prior to 6 April 2025. The UK has one of the highest rates of IHT (40%) in the world and it is important to plan in advance.
Details of the new government’s policy will be announced in the Autumn Budget on 30 October 2024.
If you have any questions about issues raised in this article, please get in touch with Stephen Kenny.
