UK Trends and Developments Contributed by: James Ross and Helen Farr, Taylor Wessing LLP
years – both where the individual is engaged directly and where they are engaged through a service company (which is counteracted through targeted anti-avoidance rules) – and it seems likely that this litigation will continue, not least because the courts have struggled to develop tests of general application, meaning that each case tends to turn on its own facts. The increase in the rate of national insurance contributions is arguably the only major tax increase of general application introduced by the new government, which came to power hav - ing promised not to raise the rates of income tax, VAT, corporation tax or employee national insurance contributions. As these taxes are by far the government’s biggest revenue raisers, it has instead resorted to narrowly focused reve - nue-raising measures in an attempt to balance its books. Changes to the Taxation of Non-Domiciled Individuals – Income and Gains One such change (announced under the pre - vious government, but amended and imple - mented by the current government) is a com - plete overhaul of the regime for the taxation of individuals who are not “domiciled” in the UK – that is, those who move to the UK from abroad but whose permanent long-term home remains outside the UK. Such individuals have histori - cally been able to claim the remittance basis of taxation, whereby foreign-source income and gains were not taxed in the UK unless or until remitted thereto. The benefits of this status had been steadily pared back over the last 20 years, with annual flat-rate charges being introduced for longer-term residents claiming the remittance basis, and a longstop 15-year limit after which individuals could no longer claim it. However, the regime continued to provide significant benefits for many wealthier individuals.
However, all this changed from April 2025. Domi - cile is no longer relevant for income tax purpos - es, and the remittance basis has been abolished entirely (except for offshore income and gains arising before 6 April 2025). Individuals moving to the UK from that date can potentially claim a complete exemption from tax on foreign-source income and gains for up to four years – although, unlike under the remittance basis regime, they will be required to report all such income. After four years, they will become fully taxable on their worldwide income and gains. The ability to use offshore trusts to further defer any income has been removed. The new regime is in many respects simpler to navigate than its predeces - sor, but provides benefits for a shorter period of time and comes with significant compliance costs. Changes to the Taxation of Non-Domiciled Individuals – Inheritance Tax Of potentially greater significance to many non- domiciliaries, however, are the simultaneous changes to the scope of inheritance tax. Previ - ously, the estates of non-domiciliaries were only taxed on UK situs assets, though such individu - als were treated as UK-domiciled after 15 years’ residency, thus bringing their worldwide assets within the inheritance tax net. From April 2025, the worldwide assets of such individuals will come within the inheritance tax charge after ten years of residency, and, depending on how long they have been resident, may remain within the charge for several years after they leave. Plan - ning opportunities involving the use of trusts have also been curtailed. While UK income and capital gains tax rates are comparable to those in many other developed economies, the UK is more of an outlier when it comes to inheritance tax. Many such countries have no inheritance tax at all, and, among those
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