Lucy Byrne examines the first post-Budget HMRC non-dom taxation subgroup meeting in ThoughtLeaders4 Private Client Magazine
Lucy’s article was published in ThoughtLeaders4 Private Client Magazine, Tax Edition (page 12), and can be seen here.
Key points from the first post-Budget HMRC non-dom taxation subgroup meeting
As we move into the New Year, the dust has begun to settle following the 2024 Autumn Budget. On 18 November 2024, HMRC invited members of its Wealthy External Forum and Capital Taxes Liaison Group to the first post-Budget non-dom taxation subgroup meeting, the minutes of which have now been published.
Representatives invited included those from the Law Society, the Society of Trusts and Estates Practitioners and the Institute of Chartered Accountants in England and Wales, among others.
The subgroup will meet approximately every four weeks and aims to give HMRC a greater understanding of the impacted customer group, increase transparency, provide an opportunity for representatives to feed directly into draft guidance, facilitate discussions around implementation, and ultimately enhance the working relationship between HMRC, customers and representatives.
The first meeting focussed on discussion of some of the key provisions of the Finance Bill, including the treatment of double tax treaties, the statutory residence and domicile tests, exit charges, national insurance, the temporary repatriation facility and the remittance basis.
Some clarity…
Double tax agreements – no change?
Attendees sought clarity on how the long-term residence test will interact with double tax agreements, particularly concerning US domiciled individuals.
In circumstances where a US domiciled, UK deemed-domiciled individual returns to the US and dies within 3 years of living there, they would currently be caught by UK inheritance tax under the new long-term residence rules. Attendees sought clarity as, unlike the deemed-domicile rules, long term residence as set out in legislation does not appear to override treaties and, given that the US treaty still mentions domicile, it is unclear whether the legislation will address this.
HMRC confirmed that there is no change within the draft legislation to the way that the double taxation conventions currently operate.
It was also queried whether it was HMRC’s intention that, where a non-UK domiciled spouse who qualifies for inheritance tax relief under a double taxation agreement elects to becoming long term resident in the UK for inheritance tax purposes, this election should have no practical effect. HMRC confirmed that their status as a long-term resident will not be relevant to the operation of double tax treaties. However, HMRC additionally clarified that where the domicile or deemed domicile status gives taxing rights to the UK under the treaty, the long-term UK residence rules will be relevant.
Statutory residence test (SRT) – possibility of election pre-2013-2014
Attendees noted that it can often be difficult to ascertain residence under the pre-SRT rules, particularly with the passage of time since 2013-2014.
Attendees therefore suggested that individuals could be offered the opportunity to elect to apply the SRT rules where residence has not been settled pre-2013-2014.
Existing pre-SRT rules do not allow individuals to determine residence according to SRT rules for pre-2013-2014 tax years, so the legislation would need to be adjusted should Government wish to adopt this approach.
Domicile test replaced by long-term residence test - reset after 10 consecutive years of non-residence
HMRC clarified that the reference to 19 years in the newly inserted section 6A IHTA 1984 below:
‘but an individual is not a long-term UK resident at any time in a tax year (“the current tax year”) if they were non-UK resident—
(a) for any 10 consecutive tax years during the 19 tax years before the current tax year, or
(b) for at least the required number of consecutive tax years ending 10 with the tax year before the current tax year’
provides a mechanism for a reset after 10 consecutive years non-residence, aligning with foreign income and gains. Attendees agreed that individuals could otherwise still be in scope of inheritance tax in the 11th year.
Exit charges
HMRC confirmed that if an individual is currently a formerly domiciled resident and becomes a non-long-term resident on 6 April 2025, trust property will change to excluded property and there will be an exit charge.
Attendees also asked whether the tax treatment will be the same if an individual leaves the UK before 6 April 2025, and is initially still treated as a long-term resident, but then ceases to be a long-term resident after 3 years. HMRC confirmed that an exit charge would similarly arise in this situation.
On exit charges as at 6 April 2025, attendees highlighted that it could be seen as unfair treatment for those UK domiciles whose trusts were in scope, but become out of scope under the long-term resident settlor test. HMRC confirmed that this would bring forward a charge from the next ten-year anniversary.
Many UK domiciled, non UK resident individuals with trust structures may face charges on these relevant property trusts as they move out of the relevant property regime on 6 April 2025.
Situs of foreign property
HMRC clarified that for the provisions relating to an interest in possession or gift with reservation of benefit trusts to apply, a property must be foreign situated throughout (not just at the relevant chargeable event) to remain excluded. This may discourage individuals from acquiring UK property, which was noted by attendees.
Relief on Foreign Employment Income and application of PAYE for internationally mobile employees
HMRC confirmed that legislation does not change the National Insurance position or process for employees. The existing social security agreements and processes for globally mobile workers will continue.
And some answers yet to come…
Attendees also raised questions about the Temporary Repatriation Facility and the remittance basis after the 2024/25 tax year upon which HMRC have yet to provide clarification. With the next meeting due to take place in the coming weeks, it is hoped that HMRC will continue to expand upon the points raised and account for the intricacies of the drafting required.
The confirmed changes and clarity provided thus far underline the importance of obtaining specialist advice on residency status as well as remaining mindful of key dates for trusts, and the situs of any assets held.
