Recent changes in the UK taxation system have sparked significant interest among high-net-worth individuals (HNWIs). These changes are set to reshape the tax landscape, particularly with the abolition of the resident non-domiciled (RnD) regime. As a result, understanding these updates and their implications is crucial for effective financial planning. In this article, we will explore the new tax rules, compare them with the abolished RnD regime, and discuss the transitional measures designed to ease the shift to the new system.
What are the main changes to the taxation of high-net-worth individuals in the UK?
The UK’s RnD regime, which allowed RnD individuals to shelter foreign income and assets under the remittance basis, will be abolished effective 6 April 2025. It will be replaced by the Foreign Income and Gains (FIG) regime, which offers less favorable terms. Under this new regime, individuals who become UK residents after at least 10 consecutive years of non-UK residence will qualify for exemptions from UK tax on foreign income and gains for a maximum of four fiscal years.
Individuals who have been UK residents since the 2022/23 fiscal year or later may qualify for the FIG regime for any remaining eligible years. Under the FIG regime, qualifying taxpayers will be exempt from UK tax on foreign income and gains, irrespective of whether these amounts are remitted to the UK. However, unlike the RnD rules, foreign income and gains must be declared in UK tax returns.
To ease the transition to the arising basis of taxation, certain transitional measures have been introduced to reduce the tax burden for affected individuals.
What are the main differences between the abolished RnD taxation and the FIG regime?
Qualifying individuals under the FIG regime will be exempt from UK tax on foreign income and gains for up to four years of their UK residence. However, for those who arrive before the 2025/2026 fiscal year, the four-year period will be adjusted accordingly. The FIG regime applies regardless of the taxpayer’s domicile or nationality and exempts foreign income and gains even if remitted to the UK.
While the new regime expands the scope of the exemption in terms of both eligible individuals and taxable income, its limitation to just four years is a notable drawback. After this period, taxpayers will be subject to income tax on their worldwide income and gains. Additionally, full disclosure of all worldwide income and gains will be required.
What are the transitional measures?
To ease the transition to the arising basis of taxation, the UK has introduced several transitional measures:
✔ Temporary Repatriation Facility: Taxpayers can remit foreign income and gains at a reduced tax rate for three years starting from the 2025/26 tax year. Repatriated income and gains will be taxed at 12% during the first two years, increasing to 15% in the third year.
✔ Rebasing of Foreign Assets: Taxpayers who previously claimed the remittance basis under the RnD regime but do not qualify for the FIG regime due to extended UK residence can rebase their foreign assets to their value as of 5 April 2017 for capital gains tax purposes.
Are there any other changes to tax rules impacting individuals?
Another significant change involves the introduction of a “tail” tax for inheritance tax purposes. This rule extends the duration for which individuals remain subject to UK inheritance tax after becoming non-UK residents:
Specifically:
✔ For individuals who have resided in the UK for 10 to 13 years, their estate will be subject to UK inheritance tax if they pass away within three years of leaving the UK.
✔ For each additional year of UK residence beyond 13 years, the “tail” extends by one year.
✔ The maximum period of this extraterritorial inheritance tax liability is capped at 10 years.
The impact of the “tail” tax may be mitigated if a double tax treaty covering inheritance tax exists between the UK and the deceased taxpayer’s last jurisdiction of residence.
Are there other countries that offer beneficial taxation rules for high-net-worth individuals?
High-net-worth individuals can take advantage of favorable tax regimes in several countries:
✔ Monaco: No personal income tax.
✔ United Arab Emirates: Tax-free income and capital gains.
✔ Switzerland: Lump-sum taxation agreements.
✔ Italy: Flat tax for new residents.
✔ Malta, Cyprus, and Greece: Beneficial tax regimes with incentives for relocation.
When selecting a new jurisdiction, it is essential to consider:
✔ Application of the Immigration Rules: Residency criteria and visa requirements.
✔ Legal and Fiscal Stability: Robust legal protections and stable tax regulations.
✔ Quality of Life in a Given Jurisdiction: Infrastructure, healthcare, education, climate, and cultural opportunities.
A holistic approach that balances tax benefits with these broader considerations is crucial for making an informed and sustainable decision.
The upcoming changes to the UK’s taxation system for HNWIs signify a major shift in how foreign income and assets are treated. Understanding the differences between the abolished RnD regime and the new FIG regime, along with the available transitional measures, is key to minimizing tax liabilities. At LINDEMANNLAW, we specialize in helping HNWIs manage complex tax landscapes and optimize their financial strategies. Contact us today for tailored tax advice and ensure your financial planning is aligned with the latest regulatory changes.
Disclaimer:
The strategies and information provided herein are for general informational purposes only and do not constitute legal advice. Businesses should consult with a qualified attorney at LINDEMANNLAW for tailored legal advice specific to their individual circumstances and to ensure compliance with applicable laws and regulations.
