The IBSA Podcasts
IBSA podcasts contain information from a global community of entrepreneurs and professional advisors dealing with international business structuring and regulatory compliance.
Hosted by Roy Saunders, who has over 50 years’ experience within the financial sector, these podcasts delve into enlightening conversations with a wide range of leading professionals aiming to demystify the complex world of business and provide invaluable insights to help listeners deal with various complex technical matters to best support their business and clients.
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The IBSA Podcasts
A Summary of the Spring Budget 2024
Join us for a conversation that is as pivotal as it is timely, offering guidance for professionals and entrepreneurs amidst the UK's tax transformation. Prepare to navigate the tectonic shifts in UK taxation as Joe Johnson of Evelyn Partners joins Roy Saunders for a critical dissection of the altered financial landscape awaiting non-domiciled residents. Unlock the secrets of transitioning smoothly with the spring budget's latest reforms, including the end of the non-dom regime and the advent of a four-year foreign income gains exemption for new UK arrivals. Our discussion cuts through the complexities of these changes, offering a deep-dive into the transitional relief allowing current non-doms an advantageous tax rate on repatriated offshore income—a move with profound implications for individuals and trusts.
As we dissect the spring budget's ripple effects, you'll gain invaluable insights into the tax planning strategies imperative for non-doms. Joe Johnson's expertise illuminates the path ahead, from capital gains tax rebasing to the strategic use of trusts. We also probe the political undercurrents shaping these reforms, considering how the Conservative Party's policies might resonate with voters. Wrapping up, we turn our gaze to the horizon, where the IBSA annual conference looms, promising to cast new light on international business structuring in this evolving fiscal era. Click here for full details of the conference and to book your ticket.
Hello and welcome to this IBSA podcast about this Wednesday's spring budget in the UK. A rabbit may not have actually been pulled out of the bag, but there were some interesting aspects, particularly regarding the infamous non-doms of the UK. My name is Roy Saunders, founder and chairman of the IBSA, the International Business Structuring Association, which is a multidisciplinary global association of entrepreneurs and their professional advisors, dedicated to sharing their expertise with each other within a great networking platform. Today, I'm joined by Joe Dock Johnson, a director of Evelyn Partners, working on international tax issues. So, joe, perhaps you could give me an overview of the changes. Perhaps what's happened for individuals, what's changed as regards trusts and what's changed to the IHT regime?
Speaker 2:Thank you, roy, and it's a pleasure to be with you and your listeners here today. So, in short, a lot has changed in principle and, as you say, those changes affect non-dom individuals differently to trustees, so perhaps we take each in turn. Fundamentally, the proposals as mooted by Jeremy Hunt in his budget are that the non-dom regime will, for all intents and purposes, end with effect from the 6th of April 2025. There's a big question mark there, clearly, as to who will be in government as at that date, but let's assume that the rules remain as they are. So, before we get into the changes, it might be worth just quickly highlighting what the rules are today, for the sake of comparison.
Speaker 2:The rules as they work today are for the UK resident but non-UK domiciled individuals non-doms, so people born outside the UK.
Speaker 2:They have the ability to claim the remittance basis of taxation up to a period of 15 years and, very simply, what that means is, subject to making an appropriate claim, they are not subject to tax on their foreign income and capital gains ie stuff and outside the UK unless they remit it to the UK and then, from that 15 years of residence, they also become subject to inheritance tax on a worldwide basis, much the same as any Brit. From the 6th of April 2025, that regime will fall away and will be replaced with a residency based test whereby new arrivals are able to effectively exempt foreign income gains, but only for a period of 4 years. So in that 4 year period, their foreign income gains aren't subject to UK tax, a big difference being they can then freely remit those sums to the UK without any tax, but then, after that 4 year period, they don't have the ability to claim that beneficial regime, and that is predicated on individuals having had a period of non-residents for at least 10 years prior to that day. Any remarks?
Speaker 1:No, I'm definitely because I think that four-year period is quite a short period, particularly for budding entrepreneurs who perhaps are building their businesses and who won't realise any income or gains in that four-year period.
Speaker 2:It's a really good point, roy, and it's sort of the detail of the proposals aside, it's worth reflecting on. Why did that period come to be? How does it stack up versus international peers, etc. Just listing off a few other developed nations and their regimes that were, ironically, built upon ours Israel has a 10-year inbound regime, italy 15, portugal 10, spain 5. We were all expecting within the profession that the Conservatives would likely do an Italian job, as it was colloquially known. So a 10 or 15-year regime with a fee to actually access of an amount, say, up to 100 or 150,000 pounds per year. So a four-year regime with no corresponding fees is quite a large deviation.
Speaker 1:I had thought that it would be seven years. Actually, the fact that there's no fees attached to it might be interesting, of course, for high net worth or people who have got a lot of money that could be valuable, but it's only for four years. So, yes, it is a surprise, I think.
Speaker 2:I think, just to answer your question, it's a very attractive regime for that four years. The question is, if you were coming to the UK for the first time, would it be attractive if perhaps you might make money in years five onwards? Who knows?
Speaker 1:The interesting thing about the budget before we get onto the trust side, which I'm very interested in is that the individuals who are here who are non-doms already, can omit the income that they've left offshore in 2025-6 and 2026-7 for a 12% tax charge. I think that's a really interesting, politically correct idea because it will bring a huge amount of money back into the UK. Subject to 12%, so there's going to be a tax benefit, but there's also going to be a lot of money in the UK now coming from those, and I don't know how much that's been and whether or not you know the volume that that's likely to be, but it seems quite attractive.
Speaker 2:I totally agree. It's a really interesting point and, whilst we were previously focused on people coming here for the first time, you're quite right. There's a whole population of non-doms that would have been here for between four and 15 years and 15 years onwards, who would have expected to be able to claim them into spaces that are affected, and there are some transitional reliefs, including the one that you mentioned for that population of people. I think it is attractive because, look, if you're a deemed domiciled individual with a lot of foreign income and gains effectively locked up offshore, this is a great sort of one-off amnesty whereby-.
Speaker 1:I was going to say it's an amnesty isn't it, it is. I didn't mention the word amnesty, but I think it is. It's like the Italian amnesty that took place, which was extremely successful and brought a huge amount of wealth back into Italy.
Speaker 2:And it is attractive because one would assume that for those population of people that have been here for a long time they've likely already remitted their clean capital, so sums that can be brought to the UK without tax already foreign income and gains that would otherwise attract a tax charge. And if they have foreign capital gains then the minimum is 20%, if there's foreign income 45%, and practically some people you know it's so hard to even untangle what those amounts are that have accrued over many years. So it's not only is it an attractive tax rate to get money into the UK, they actually save a lot of brain ache by just accepting a palatable 12% charge to inward invest. So as a foreign direct investment policy, I think it's a great way to get a real cash injection into UK PLC.
Speaker 1:Okay, no, I think that's right. What's changed as regards trusts, and particularly protective trusts, the ones that have been created by non-doms prior to becoming domiciled?
Speaker 2:Yes, that's a very good question, roy, and perhaps we take it in in two parts, because there's the income and gains position for assets held in such vehicles and then there's the inheritance tax position, which we await further detail on and it is subject to consultation. So, tax aside, clearly people set up a truck for a whole host of reasons, but if we focus on the tax, it's standard practice for individuals approaching the date they become deemed domiciled so 15 years of residence to consider setting up excluded property trust. Why? Because it effectively it grandfather's the benefits, the remitted spaces. So unless value is extracted out of such vehicles, income and gains can roll up tax free, or foreign income to be precise, and all capital gains can roll up tax free until until value is extracted and non-UK Citus assets remain excluded from inheritance tax. So very sort of attractive vehicles to grandfather the benefits of the remittance spaces.
Speaker 2:What the proposal say is, as we're reading this, as long as there are either existing trusts or newly created trusts that are set up prior to 6th of April 2025, then from an inheritance tax perspective at least, that status will remain. So non-UK assets will remain outside the scope of inheritance tax. So there's a big push for clients before 6th of April 25 to consider setting up such vehicles. From an income and gains perspective that's an interesting one. There will be a fundamental sea change in the way that these vehicles work going forward.
Speaker 2:Very broadly, any income and gains that accrue within such structures prior to 8th of April 25 will remain outside the scope of UK tax, potentially indefinitely, and will be assessed with reference to sort of distributions received from the trust. So it remains an effective roll-up vehicle. However, income and gains are rising after that date for set law interested trusts. So for trusts where the set law retains, or close family retain an interest, those income and gains will be assessed on the set law. In the first four years for individuals able to access the new foreign income and gain sort of residence-based tests that we talked about a moment ago, those income and gains will be tax-free. But after that period the individual will be assessed personally. So the trust sort of ceases to be an effective roll-up vehicle from an incoming capital.
Speaker 1:Yeah, if the circular and his wife are not beneficiaries and cannot benefit from the trust, then the transfer of assets a board regime if you like isn't applicable for them. So those trusts, those protective trusts, would still be able to earn income and gains after that period.
Speaker 2:Yeah, so that's an interesting point you make. So for existing trust structures whereby the set law is excluded or the set law has deceased or the set law is non-resident, then you're absolutely right, there might be a different category of trust that get sort of more favourable and old school treatment, if you like. It's worth noting that for the capital gains tax at least, a trust will remain set law interested, unless you exclude all the way down to grandchildren. So there's different rules for income tax, cgt and inheritance tax. So that the devil is in the detail. But you are right in principle that there are definitely opportunities to look at the exact drafting of such vehicles.
Speaker 1:So, practically, what would you recommend? What would you be recommending to clients now and I'm sure you've had quite a few clients who've been on the phone to you asking what to do We've got plenty of time to do it, which is quite I'm not saying surprising, because you know we're near to the 5th of April 2024, so I wouldn't have been that surprised if they'd have introduced all these changes as of that date, but probably, practically they weren't able to do so. So there is time to do this planning. What would you suggest people do now?
Speaker 2:Yeah, so that's a great question. Thanks, roy. So I think it depends what camp you sit in, so whether you're a new arrival or someone potentially considering coming to the UK versus someone who would have expected to get the remittance basis but doesn't benefit from the new regime from the 6th of April 2025 versus someone who's been here more than 15 years. But I think all you can do is sort of understand the potential implication of these rules, and the reason I say potential is because, as we said earlier, if labour are successful at the next general election, then they have every right to tinker with these rules at their first budget. I would consider whether a trust made sense prior to April 25 for clients who may want to benefit from such structures.
Speaker 2:From an inheritance tax perspective For existing non-doms you mentioned it earlier I would be considering the transitional reliefs, so the big E being the 12% rate for all foreign income and gains for the two-year period to 2027. So I'd be looking at what I've got, how much I need practically in the UK, and really think long and hard about if I'm going to remain here for the long term. That's a great one-off opportunity to get money into the UK. There's another transitional relief for people in the old remittance basis whereby only 50% of foreign income in 2526 is subject to tax, so you might say an effective 22.5% rate. I would be thinking is there anything I can do to control that, accelerate dividends from closely held companies etc. Offshore? Then there is the rebasing. That's an interesting point and the point there is for the people that have that have claimed the remittance basis in the past. They would have the ability to rebase personally held capital assets as long as they were personally held, as at April 2019, to the April 2019 value.
Speaker 2:The interesting point is why 2019? And we're all speculating on that point. I can only imagine that's because pre-COVID markets were at their highest. But I am guessing there's an exercise to get to sort of work with bankers etc to to ascertain and and take permanent notes of those asset values and then for clients who are beneficiary, set laws of existing trust structures. I would be working with my trustees to sort of draw a line in the sand as to what the income and gains calls are, as at April 25. So what's happened historically, so that you know I can understand the implication of future distribution. So there's a bit of a you know, an accounting exercise to be done for some clients. For other clients, there's a real decision point around. Am I going to remain in the UK? Do I see myself leaving? What might I need the cash flow purposes and you don't consider benefiting from these transitional reliefs?
Speaker 1:well from a yeah, from a political point of view. I mean, you mentioned if labour get back in, which they may well do, I I'm not sure that they would tinker that much with these rules, and I think this was quite a good pre-emptive strike, if you like. Do you think the conservatives have done enough to garner support for them in? You know, to some extent they have reduced inflation. They've done what they were saying. So do you think they've done enough with this budget to change the the tide in?
Speaker 2:short? No, I don't think so, because I think you know, for the common electorate. Okay, the non-dom issue has been in the press and it's you know it's a. It's a controversial point but whether or not you know, joe blogs will understand or care to be interested in in the exact detail of these rules. Who knows?
Speaker 1:do you think there were other things in there? I mean, yeah, the national insurance reduction of 2%, but that might have been countered by the what they call the stealth tax, which is, you know, the freezing of limits for capital for income tax purposes. So you know, one might have countered the other. If, with inflation being relatively still strong, then you know they might not have gained that much from the 2% cut. So I don't know, what do you feel about that?
Speaker 2:I think it was overall a positive budget in the spirit of fairness. Obviously there was the announcement to abolish multiple dwellings relief for stamp due to land tax purposes and yeah, that was hilarious.
Speaker 2:That announced it was hilarious and I saw Angela Rainer was quite exercised by the exchange in the comments on that one. But you know, and the sort of the abolishment of the furnished holiday let regime, so a lot a couple of policies there aimed at second home ownership fundamentally, which if you're thinking about fairness and then then that can only be seen as a as a positive step. There were no real I've subject to this new residents-based context of assessing IHT for non-dogs. There were no sweeping announcements on on inheritance tax, given, you know, not so long ago people were questioning whether Jeremy Hunt might consider scrapping inheritance tax all all together. So that was a bit of a U-turn and that might have perhaps guarded more support from pensioners etc. But clearly they have to balance, balance the books okay, well, I mean, that's really interesting.
Speaker 1:I think it's been fascinating. I know we've concentrated a lot on non-doms, but that's probably the you know, one of the things that have been most I don't know. I thought that it would happen, I suppose. So it was quite good that we've concentrated on that and there are. There was a lot, as you said, in the detail that we still have to consider before really practically making any plans for for clients. But anyway, thank you, joe, thanks for joining me today. It was really interesting. I'm sure our IBSA members will listen carefully to your comments and practical recommendations. I mean they may have some questions. You know we're meeting again on the 9th of May at the IBSA annual conference. It's actually our 10th year anniversary and we're concluding it with a champagne reception and evening barbecue, so I hope to see you there. Details are on our website at the IBSAorg. So it remains for me to thank Joe again and thank you all to our listeners for engaging with this podcast. I hope you've enjoyed it.