Global Daily Tax News, UK Seeks Input On Inheritance Tax, OWR Reforms, (Aug 5, 2024)

The UK Treasury has announced that the Government intends to hold outreach sessions with stakeholders on the inheritance tax changes and reforms to the Overseas Workday Relief (OWR), included among its recent proposals to reform the rules for non-domiciled taxpayers.

As part of the wider reforms, the Government has said it intends to remove the concept of domicile status from the tax system and implement a new residence-based regime. It intends to implement the four-year foreign income and gains (FIG) regime announced by the previous government at the Spring Budget. However, certain concessions for non-domiciled individuals will be reined in. For instance, preferential tax treatment based on domicile status will be removed for all new foreign income and gains (FIG) that arise from April 6, 2025.

To replace the remittance basis of tax, the Government plans to introduce an "internationally competitive" residence-based regime, providing 100 percent relief on FIG for new arrivals to the UK in their first four years of tax residence, provided they have not been UK tax resident in any of the 10 consecutive years prior to their arrival.

From April 6, 2025, the protection from tax on income and gains arising within settlor-interested trust structures will no longer be available for non-domiciled and deemed domiciled individuals who do not qualify for the four-year FIG regime.

The Government has also said it intends to conduct a review of offshore anti-avoidance legislation, including the Transfer of Assets Abroad and Settlements legislation, to modernize the rules and ensure they are fit for purpose. These changes will not be introduced before the 2026/27 tax year.

The Government has also said it will retain a form of Overseas Workday Relief (OWR).

The Government has also set out plans for a new residence-based regime for inheritance tax. Inheritance tax (IHT) is currently a domicile-based system. The Government intends to replace this with a new residence-based system from April 6, 2025. This will affect the scope of property brought into UK IHT for individuals and trusts.

The Government envisages that the basic test for whether non-UK assets are in scope for IHT from April 6, 2025, will be whether a person has been resident in the UK for 10 years prior to the tax year in which the chargeable event (including death) arises, with provision to keep a person in scope for 10 years after leaving the UK.

The Government has said it will engage further with stakeholders on the operation of the new test, so that any refinements can be considered fully. IHT charges arising on deaths occurring before April 6, 2025, will be unaffected by these changes and will be charged according to the existing rules.

The Government will end the use of Excluded Property Trusts to keep assets out of the scope of IHT. It plans to change the way IHT is charged on non-UK assets which are held in such trusts, so that everyone who is in scope of UK IHT pays their taxes in the UK.

To support the development of the policies, the Treasury has said it intends to hold a series of "insight gathering sessions" to encourage contributions from stakeholders. The Government said it is "keen to hear from representative bodies and other stakeholders with expertise of dealing with IHT on estates and trusts impacted by the announced reforms."

It will hold a series of face-to-face and Microsoft Teams sessions between August 12 and August 23, 2024 on the inheritance tax changes. Stakeholders must register their interest in participating by August 7, 2024.

Between August 9 and August 16, 2024, further sessions will be held for stakeholders on the proposals regarding the reform of OWR. The Government said: "These sessions will be focused on practical insight and feedback. As set out in the policy paper, confirmation of the final policy design will be published at Budget."