How to Navigate the UK’s Tax Reforms Smartly?

A High-net-worth individuals (HNWIs) in the UK face unique challenges when it comes to tax planning. With complex financial portfolios, international assets, and evolving tax legislation, ensuring optimal tax efficiency requires a strategic and proactive approach. This guide explores key tax planning strategies tailored to the needs of HNWIs in the UK.

From London to Hong Kong: How to Optimize Your Global Asset Structure. The UK has indeed implemented significant changes to its tax regulations, particularly concerning non-domiciled individuals, offshore holdings, and family trusts, starting in April 2025. These changes are fundamental and aim to create a more residence-based system, impacting international investors and high-net-worth individuals. 

Here’s a breakdown of the key areas and changes:

1. Foreign Income and Gains Regime (FIG Regime): 

  • Abolition of the Remittance Basis: The traditional remittance basis, which allowed non-domiciled individuals to be taxed only on foreign income and gains brought into the UK, has been abolished for new accruals from April 6, 2025.

  • New 4-Year FIG Regime: A new regime offers a four-year window for qualifying new UK residents (those not resident in the UK for the preceding 10 years) to be exempt from UK tax on most foreign income and gains, regardless of remittance.

  • Worldwide Taxation: After the four-year period, these individuals will be taxed on their worldwide income and gains, similar to other UK residents. 

2. Offshore Trusts: 

  • Loss of Trust Protections: The “protected settlement” regime, which provided tax advantages for certain foreign-domiciled individuals settling offshore trusts, has been largely removed.

  • Attribution of Income and Gains: Income and gains within offshore trusts are now generally taxed on UK resident settlors or beneficiaries as they arise, unless the qualifying new resident relief applies.

  • Transitional Provisions and Temporary Repatriation Facility (TRF): A TRF allows former remittance basis users to bring pre-6 April 2025 foreign income and gains into the UK at a reduced tax rate (12% for the first two years, then 15% for the third year). 

3. Inheritance Tax (IHT): 

  • Shift from Domicile to Residence: IHT exposure is now primarily determined by an individual’s long-term residency status in the UK, rather than domicile.

  • Long-Term Resident (LTR): Generally, being UK resident for at least 10 of the previous 20 tax years qualifies someone as an LTR, making them subject to IHT on their worldwide assets.

  • IHT Tail: Even after ceasing UK residency, LTRs may still be subject to UK IHT on their worldwide assets for a certain period. 

These changes mean that strategies previously used for international tax planning, such as the remittance basis and protected settlements, are no longer as effective, according to HaysMac. 

Therefore, it is crucial for international investors and high-net-worth individuals with UK connections to seek professional tax advice to: 

  • Understand the impact of these changes on their financial affairs.

  • Explore options for structuring their UK-related wealth and business affairs in a tax-efficient manner.

  • Navigate the complexities of the new rules and make use of available reliefs and transitional provisions. 

Professional tax consultants can help with concerns such as: 

  • Setting up a UK company with optimal tax efficiency.

  • Reporting overseas income without overpaying tax.

  • Clarifying UK resident vs non-resident tax obligations.

  • Pre-arrival tax planning and inheritance structuring. 

In essence, the UK’s evolving tax landscape necessitates a proactive approach to tax planning and compliance for international individuals and those with offshore structures. 

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