The protection from taxation of income and gains within settlor-interested trust structures will be removed for those who don’t qualify for the new four-year foreign income and gains (FIG) regime from 6 April 2025 and FIG arising in these settlements will be taxed on the UK resident settlor on arising basis.
Many non-UK domiciled settlers who are UK residents had to reorganize their affairs to avoid or at least lessen the impact of these upcoming changes.
The asset protection afforded by a non-resident trust registered in the UK however remains a very attractive option for non-UK resident settlors and the beneficiaries of trusts with non-UK settlors as the income and gains will continue to be rolled up tax-free.
Inheritance tax for long-term residents – Upcoming changes
From 6 April 2025, individuals who have been resident in the UK for at least 10 out of the previous 20 tax years will become long-term residents and subject to UK inheritance tax on assets situated both in the UK and abroad.
Everyone is subject to inheritance tax on UK assets, regardless of residence status however, an individual moving to the UK will have a 10-year period during which foreign assets remain outside the scope of inheritance tax.
Once the individual becomes a long-term resident and subsequently leaves the UK, it will take between 3 and 10 years for them to fall outside the scope of inheritance tax on worldwide assets, depending on how long the individual has been a UK resident.
Furthermore, any trusts settled by the individual who becomes a long-term resident will become subject to a specific inheritance tax regime entailing 10 yearly and exit charges at up to 6%. In some cases, a trust can also become subject to tax at 40% if the settlor dies.
An individual who leaves the UK before becoming a long-term resident will not become subject to IHT on non-UK assets.