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UK Chancellor Rachel Reeves's recent budget introduces significant tax reforms that will notably affect expatriates with UK financial interests. Key changes include the abolition of the non-domiciled ("non-dom") tax status, adjustments to capital gains tax (CGT), and modifications to inheritance tax (IHT). Understanding these changes and implementing strategic planning can help expatriates mitigate potential tax liabilities.

Abolition of Non-Dom Tax Status

Effective from April 6, 2025, the UK will abolish the non-dom tax regime, transitioning to a residence-based taxation system. Under the new rules, individuals who have been UK residents for at least ten of the previous twenty tax years will be subject to UK tax on their worldwide income and gains. This change aims to modernise and simplify the tax system, ensuring that those who choose to make the UK their home contribute fairly to its economy.

Impact on Expatriates

Expatriates who previously benefited from the non-dom status will now face taxation on their global income and gains, potentially increasing their UK tax liabilities. Additionally, the new rules may affect inheritance tax planning, as non-UK assets could become subject to UK IHT after the individual has been UK resident for ten years.

Strategies to Mitigate Tax Liabilities

1. Review Residency Status

Assess your UK residency status under the Statutory Residence Test (SRT) to determine your tax obligations. If you are approaching the ten-year residency threshold, consider the tax implications of becoming a long-term UK resident.

2. Utilise the Four-Year Foreign Income and Gains Exemption

The new regime offers a four-year exemption from UK tax on foreign income and gains for individuals who have been non-UK resident for at least ten consecutive tax years before becoming UK resident. Planning the timing of your return to the UK can help maximise this benefit.

3. Establish Trusts Before April 2025

Setting up trusts with non-UK assets before the new rules take effect can help protect these assets from UK taxation, as existing trusts may retain their excluded property status for IHT purposes.

4. Rebase Foreign Assets

The government has announced a rebasing relief, allowing individuals to rebase the value of their foreign assets to their market value as of April 5, 2017, for CGT purposes. This can reduce the taxable gain on future disposals of these assets.

5. Seek Professional Advice

Given the complexity of the new tax rules, consulting with a tax advisor experienced in expatriate taxation is essential to develop a personalised strategy that aligns with your financial goals and minimises tax exposure.

The upcoming tax reforms introduced in Chancellor Rachel Reeves's budget represent a significant shift in the UK's approach to taxing expatriates and non-domiciled individuals. Proactive planning and informed decision-making are crucial to navigate these changes effectively and mitigate potential tax liabilities.

ProACT have solutions and guidance to help to protect your wealth from the tax creep across borders and down generations. For help and guidance, contact us.

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