Find out more about the UK Autumn Budget Statement 2024 HERE.
End of Remittance Basis
It has been confirmed that effective from April 5, 2025, the traditional remittance basis, which allowed nondomiciled residents to avoid UK tax on foreign income and gains unless remitted to the UK, will be abolished. Instead, new and recent arrivals will be eligible for a four-year exemption period during which foreign income and gains will not be taxed. At the end of the four years, all foreign income and gains will be taxed on an arising basis, bringing the tax treatment with that of UK residents.
Transitional Provisions
Non-domiciled individuals in the UK before April 6, 2025, can benefit from transitional measures. This includes the option to rebase foreign assets to their market value as of April 2017, potentially reducing tax on gains realized after the change. Additionally, a three-year period will allow pre-April 2025 foreign income and gains to be remitted at a reduced tax rate of 12% or 15% (2027-28) for encouraging foreign asset repatriation to the UK.
Inheritance Tax (IHT)
From April 2025, IHT will shift to a residence-based model. UK residents who have lived there for over ten years will face IHT on worldwide assets, potentially expanding their tax liability. Upon departure, there will be a three-to-ten-year “IHT tail,” based on years of residence, during which former residents will still be liable for IHT on certain assets.
Starting post-2027, pensions held abroad will also be taxable upon inheritance.
Capital Gains on Foreign Assets
Gains from the sale of foreign assets are subject to UK CGT if the individual is a UK resident and domiciled, with current rates set at 18% for basic-rate taxpayers and 24% for higher-rate taxpayers (plus an additional 6% for carried interest gains).
Like foreign income, any foreign tax paid on gains may qualify for relief, however, the recent reduction in the CGT annual exemption to £3,000 can lead to more frequent and substantial CGT obligations.
Double Tax Treaties and Planning
For individuals with significant foreign assets, utilizing double tax treaties can help mitigate the impact of overlapping IHT and CGT on foreign assets.
To conclude, for those with foreign income and assets, these budget updates make estate planning essential to reduce potential liabilities, especially if UK residency status continues.
