The UK tax treatment of Crypto income is a relatively new and complex area.
The issue
Our client wanted to know how a potential move overseas would impact his UK taxable income and assets. Specifically, our client needed to know the impact that moving abroad would have on any DAO tokens, which are received as part of his self-employment.
How we solved it
We assisted our client with providing personalised advice in relation to their UK tax residence status and the actions required to be considered a non-UK tax resident, to benefit from advantageous tax treatment. The client was previously unsure of what would be required to lose his UK tax residence status and we were able to help apply the complex rules to his circumstances.
The Outcome
We clearly set out the steps our client needs to take to be considered a non-UK tax resident and provided calculations to show the impact that this would have on any DAO tokens he receives.
Next Steps
Our expert team of tax advisers are here to support you with a range of tax services in relation to your cryptocurrency activity.
Whether you are just getting started or have been investing in cryptocurrency for several years, our team of tax specialists can provide bespoke advice to support you to achieve your objectives in a tax-efficient manner. Please do get in touch.
In a strategic move aimed at offering a fair and globally competitive tax environment to attract skilled individuals and crucial investments for economic UK growth, the government has announced plans to update its tax system for non-UK domiciled individuals. Set to take effect from April 2025, these changes aim to phase out the current concept of domicile.
Under the proposed changes, the existing rules concerning non-UK domiciled individuals (known as ‘non-doms’), will be replaced by a new residence-based taxation system. Domicile is a British concept and is not recognised by most of the rest of the world. For example, French, German & US tax systems operate by taxing residents in their country, this is without any regard to their nationality or ‘domicile’.
Individuals arriving in the UK will enjoy 100% tax relief on foreign income and gains for their first four years of UK tax residence, with special transitional arrangements in place for current non-doms.
Individuals who have been tax residents in the UK for more than four years will be required to pay UK tax on all foreign income and gains, aligning them with other UK tax residents.
Key Changes to the ‘Non-Dom’ scheme
Non-domiciled individuals can currently benefit from favourable tax treatment, under the remittance basis. The remittance basis enables individuals to exclude foreign income and gains from the scope of UK tax, on the assumption that this is paid and retained offshore.
The upcoming changes will eliminate this favourable tax treatment, which HMRC claims will be simpler and fairer. From April 2025 onwards, the remittance basis for non-doms will be abolished.
Under the new system, ‘arrivers’ with ten consecutive years of non-residence will receive full tax relief on foreign income and gains (FIG) during their first four years of UK tax residence. Similarly, current eligible UK tax residents will benefit from relief until their fourth year of tax residence.
In addition to this, non-doms currently taxed under the remittance basis will still qualify for Overseas Workday Relief (OWR) during their first three years of UK tax residence. HMRC have advised that OWR will be simplified under the new rules.
Transitioning period
Considering that these updates entail a significant shift for existing non-domiciled individuals affected, HMRC are introducing transitional measures for certain individuals. These include:
A temporary 50% reduction in the tax they owe on their personal foreign income for non-domiciled individuals who will no longer have access to the remittance basis starting from April 6, 2025, and do not qualify for the new 4-year FIG exemption scheme in the 2025-26 UK tax year.
If non-domiciled individuals sell their foreign assets after 6 April 2025, they can calculate the tax they owe based on the value of those assets as of 5 April 2019.
Non-domiciled individuals can bring back foreign income and profits earned before 6 April 2025, to the UK at a tax rate of 12% during the UK tax years 2025-26 and 2026-27 using a new facility called Temporary Repatriation Facility.
The government will remove protections on trusts that hold foreign income and gains generated after 6 April 2025. Income and gains from trusts set up before this date won’t be taxed unless they’re given to UK residents who’ve been in the country for more than 4 years.
What about inheritance tax?
The current inheritance tax rules are based on whether you’re UK-domiciled and where your assets are located. The proposed inheritance tax changes are not yet finalised, but we understand that the aim is for property considered excluded and incorporated into a settlement before 6 April 2025, will remain excluded property. It seems the intention is for individually held property, previously categorised as excluded, will become subject to UK inheritance tax if the individual meets the relevant residence criteria (10 years in the UK). There has not yet been any mention of transitional relief concerning the new rules.
In Summary
The new set of rules involve significant changes and we haven’t seen updates in this area since HMRC’s update on deemed domicile in 2017.
Next Steps
If you require any support or guidance in relation to the new rules, please do let us know, and we would be happy to help. Please contact us here.
Navigating the intricate landscape of Capital Gains Tax (CGT) can be complex.
In this article, we explain the significance of both formal, and statutory clearances and informal, non-statutory clearances. Understanding the distinctions and implications of these clearance mechanisms is pivotal for individuals and businesses seeking clarity and compliance in the world of CGT.
What is HMRC clearance?
HMRC clearance is a formal process that enables individuals and businesses to seek official approval on specific transactions. This clearance is designed to provide certainty and clarity, particularly in transactions with potential tax implications. HMRC clearance comes in two forms: statutory and non-statutory. Statutory clearance involves a formal application process with a legal basis, while non-statutory clearance is an informal consultation seeking advice on matters not covered by specific legislation. Both processes aim to offer transparency and ensure compliance with various tax laws, playing a crucial role in the complex landscape of UK tax.
Why is HMRC clearance (statutory and non-statutory) important for CGT purposes?
Statutory and non-statutory clearance processes are essential for Capital Gains Tax (CGT) for several reasons, summarised below.
Certainty and Compliance – Seeking statutory clearance provides formal approval from HMRC for specific transactions, ensuring that the proposed actions align with UK tax laws. This certainty is crucial for individuals or businesses to proceed confidently, reducing the risk of any unintentional non-compliance.
Tax Planning – Both types of clearance processes are important in tax planning. Statutory clearance is often necessary for significant transactions such as company reconstructions or share buy-backs, influencing the overall tax strategy. Non-statutory clearance provides informal guidance for various transactions, aiding in informed decision-making and effective tax planning.
Avoiding Penalties – Obtaining statutory clearance can offer protection against potential penalties. If a taxpayer follows the approved structure provided by statutory clearance, it serves as a defence against penalties that may arise due to an unintentional breach of tax laws.
Complex Transactions – For intricate or innovative financial arrangements, non-statutory clearance allows individuals or businesses to seek guidance from tax authorities, ensuring a clear understanding of the tax implications before entering into a transaction.
Transparent Communication – Both statutory and non-statutory clearances foster transparent communication between taxpayers and tax authorities. This open dialogue helps build trust, reduces ambiguity, and allows for a collaborative approach to tax compliance.
The difference between statutory and non-statutory clearance
Statutory Clearance
– Statutory provisions are in place to provide certainty in transactions
– A strict 30-day time limit is set for a material response by HMRC
– HMRC are obligated to respond to the application
– The clearance is binding on all HMRC staff involved
– In certain cases, a formal appeal process is available
Non-Statutory Clearance (NSC)
– Informal arrangements not mandated by statute
– No specific time limit, but efforts are made to reply within 28 days
– HMRC are not obliged to respond to the application
– The clearance is binding on all HMRC staff involved
– No formal process for appeal; judicial review is likely to face challenges
Refer to our ‘HMRC Clearances – Statutory & Non-Statutory Top Tips’ on how to make a clearance application and guidance on whether it is required for your scenario.
HMRC will only give NSC where there is genuine uncertainty as to how a transaction should be taxed.
Next Steps
If you have a Capital Gain Tax query please do get in touch, one of our expert tax advisers will be able to assist you.
Favourable tax treatment for UK non-domicile individuals asking; do you qualify for the remittance basis?
Intro
Reviewing an individual’s domicile status can be complex as there are many different personal variables to take into consideration when undertaking the analysis. Especially when it comes to qualifying for the remittance basis. Domicile has a massive impact on the way in which an individual is taxed in the UK, and so it is crucial to ensure that this is correctly reviewed.
Issue
A client of ours had a large amount of overseas personal income and was looking to understand his domicile status, to determine whether he will qualify for the remittance basis. This Basis an extremely favourable tax treatment for non-domiciled individuals living in the UK. An individual’s domicile status is also relevant when looking at inheritance tax and estate planning.
How we solved it
We were able to provide an advice report reviewing the client’s domicile status. Within this report, we provided planning advice in relation to claiming the remittance basis. This gave the client a clear opinion on their domicile status and meaning they could confidently claim the remittance basis. We also provided them with a clear understanding of the types and levels of his earnings which would be taxable in the UK.
The outcome
The client was able to benefit from claiming the remittance basis. At the same time, clearly understood from the outset the UK tax saving this would allow him.
Upcoming changes to the UKs tax regime for non-domiciled individuals (non-doms) may inadvertently deepen the fiscal deficit. The Governments newly introduced transitional rules, to take effect in April 2025, could accelerate the departure of non-doms, thus reducing potential tax revenue.
A Lucrative One-Way Ticket?
The new rules, effective from 6 April 2025, will end the current reliance on domicile as a tax-defining factor. For a long time, the UK has been the only country to consider an individuals domicile status. Instead, a persons tax residence will determine whether their worldwide income and assets fall under the UKs IHT regime. Non-doms who have been UK residents for at least 10 of the past 20 tax years will be subject to IHT on their global assets, even after they leave for a period of ten years (known as the Ten Year Tail).
However, the proposed transitional rule allows non-doms planning to leave the UK next year to avoid this new 10-year IHT tail, creating a short-term lucrative opportunity for those already considering relocation.
Impact on Offshore Trusts
The reforms will also have significant implications for trusts. Currently, trusts holding non-UK assets are typically exempt from IHT as long as the settlor is not UK-domiciled. From April 2025, however, the trusts IHT status will depend on the settlors residency status.
Previously, a trust could shift in and out of the inheritance tax system depending on whether the settlor was deemed a long-term UK tax resident. This introduces added complexity for trustees, who may not always maintain regular contact with settlors over time.
Trustees could also face an exit charge on non-UK assets if the settlor ceases to be a long-term resident.
Urgent Decisions for Non-Doms
With only a few months until the rules take effect, non-doms need to consider whether to relocate to countries with more favourable tax regimes, some of which offer zero IHT.
Next Steps
As the deadline for the new rules approaches, please do get in touch if you require any UK tax support.
Upcoming changes to the UKs tax regime for non-domiciled individuals (non-doms) may inadvertently deepen the fiscal deficit. The Governments newly introduced transitional rules, to take effect in April 2025, could accelerate the departure of non-doms, thus reducing potential tax revenue.
A Lucrative One-Way Ticket?
The new rules, effective from 6 April 2025, will end the current reliance on domicile as a tax-defining factor. For a long time, the UK has been the only country to consider an individuals domicile status. Instead, a persons tax residence will determine whether their worldwide income and assets fall under the UKs IHT regime. Non-doms who have been UK residents for at least 10 of the past 20 tax years will be subject to IHT on their global assets, even after they leave for a period of ten years (known as the Ten Year Tail).
However, the proposed transitional rule allows non-doms planning to leave the UK next year to avoid this new 10-year IHT tail, creating a short-term lucrative opportunity for those already considering relocation.
Impact on Offshore Trusts
The reforms will also have significant implications for trusts. Currently, trusts holding non-UK assets are typically exempt from IHT as long as the settlor is not UK-domiciled. From April 2025, however, the trusts IHT status will depend on the settlors residency status.
Previously, a trust could shift in and out of the inheritance tax system depending on whether the settlor was deemed a long-term UK tax resident. This introduces added complexity for trustees, who may not always maintain regular contact with settlors over time.
Trustees could also face an exit charge on non-UK assets if the settlor ceases to be a long-term resident.
Urgent Decisions for Non-Doms
With only a few months until the rules take effect, non-doms need to consider whether to relocate to countries with more favourable tax regimes, some of which offer zero IHT.
Next Steps
As the deadline for the new rules approaches, please do get in touch if you require any UK tax support.
