Introduction of New Residence-Based Tax Treatment
The government will remove preferential tax treatment based on domicile status for all new foreign income and gains (FIG) starting 6 April 2025. This change will replace the current remittance basis of tax with an internationally competitive residence-based regime. This new regime will provide 100% tax treatment on FIG for new arrivals to the UK in their first four years of tax residence. However, this applies only if they have not been UK tax residents in any of the 10 consecutive years prior to their arrival.
Changes to Trust Structures
From 6 April 2025, non-domiciled and deemed domiciled individuals will lose protection from tax on income and gains within settlor-interested trust structures. This change affects those who do not qualify for the 4-year FIG regime.
Review of Offshore Anti-Avoidance Rules and Tax Treatment
The government plans to review offshore anti-avoidance legislation, including the Transfer of Assets Abroad and Settlements legislation. This review aims to modernise the rules, remove ambiguity, and ensure they are effective. The government intends to make the rules simpler to apply in practice. Further details on the review will be provided in due course. However, changes are not expected before the start of the 2026-27 tax year.
Retention of Overseas Workday Tax Treatment
The government will retain a form of Overseas Workday Relief (OWR). Officials will engage with stakeholders to design the principles for this tax treatment. Further details are expected to be confirmed in the Budget later this month.
Conclusion
In summary, the government is making significant changes to the tax treatment of foreign income and gains. These changes aim to create a more competitive and clear tax environment. The removal of preferential tax treatment and the introduction of a residence-based regime will impact many individuals. The review of offshore anti-avoidance legislation and the retention of OWR show the government’s commitment to modernising tax rules. Stakeholders should stay informed about these changes and prepare for their implementation.
