[World Tax News] UK Publishes Policy Paper on Changes to the Taxation of Non-UK Domiciled Individuals and More

Editorial Team – [2024] 165 taxmann.com 294 (Article)

World Tax News provides a weekly snippet of tax news from around the globe. Here is a glimpse of the tax happening in the world this week.

1. UK publishes policy paper on changes to the taxation of non-UK domiciled individuals

The UK Government announced the implementation of the 4-year foreign income and gains (FIG) regime in the Spring Budget. It intends to implement a new residence-based regime that is internationally competitive and focused on attracting the best talent and investment to the UK. However, this approach left several advantages for existing non-doms, which the government is committed to ending.

(a) New residence-based regime for foreign income and gains

The government will remove preferential tax treatment based on domicile status for all new foreign income and gains (FIG) that arise from 6 April 2025. To replace the remittance basis of tax, the government will introduce an internationally competitive residence-based regime, providing 100% 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 6 April 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 4-year FIG regime.

(b) Transitional arrangements for affected non-UK domiciled individuals

UK resident individuals who are ineligible for the 4-year FIG regime (or who choose not to make a claim for a tax year) will be subject to Capital Gains Tax (CGT) on foreign gains in the normal way. For CGT purposes, current and past remittance basis users will be able to rebase foreign capital assets they hold to their value at the rebasing date when they dispose of them. The government is considering the appropriate rebasing date and will set this out in the Budget.

Any FIG that arose before 6 April 2025 while an individual was taxed under the remittance basis will continue to be taxed when remitted to the UK, as is the case under the current rules. This includes remittances of pre-6 April 2025 FIG for those who are eligible for the new 4-year FIG regime. A new Temporary Repatriation Facility (TRF) will be available for individuals who have been taxed on a remittance basis. The government is also exploring ways to expand the scope of the TRF, including to stockpiled income and gains within overseas structures.

(c) 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 6 April 2025. This will affect the scope of property brought into UK IHT for individuals and trusts.

The government intends to change the way IHT is charged on non-UK assets, which are held in such trusts so that everyone who is in the scope of UK IHT pays their taxes. The government recognises that trusts will already have been established and structured to reflect the current rules, so it is considering how these changes can be introduced in a manner that allows for appropriate adjustment of existing trust arrangements while ensuring that the treatment of all long-term residents of the UK is the same for IHT purposes.

Source: HM Treasury

2. Chilean Tax Authority releases guidelines on optional substitute tax for accumulated taxable profits

The Chilean tax authority (Servicio de Impuestos Internos – SII) has issued Circular No. 34, dated 30 July 2024, providing guidelines on the optional substitute tax for final taxes (Impuesto Sustitutivo de los Impuestos Finales – ISIF) established by Law No. 21,681. This law created the Transitory Emergency Fund for Fires and other reconstruction measures, including the optional ISIF regime. The ISIF regime is available to taxpayers under the general corporate tax regime and the SME regime who have a balance of accumulated taxable profits pending taxation in the Taxable Income Registry (RAI) as of 31 December 2023. Eligible taxpayers can opt into the regime until the last banking business day of January 2025, with the following ISIF rates:

• 12% without corporate tax credits for those under the general regime, and
• 30% with corporate tax credits for those under the SME regime.

Taxpayers can apply this regime to part or all of their accumulated taxable profits in the RAI, subject to certain adjustments. Profits taxed under the ISIF regime can be distributed in the future without incurring additional taxes.

Source: Circular No. 34 of 30 July 2024

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