The UK’s new tax regime: time to consider a move back to the UK?  

The UK’s new tax regime is now in force and for some, the new rules present an opportunity to live tax efficiently in the UK.  

We highlight below the key tax measures that will apply to those looking to move back to the UK after a period away and outline the planning opportunities available.  

We also highlight a number of immigration and visa considerations.  

Many of the points below also apply to those who are moving to the UK for the first time.  

Key tax measures  

The four-year foreign income and gains regime (the FIG Regime) 

Under the new regime, qualifying individuals will be exempt from paying UK tax on foreign income and gains (FIG) for a four-year period, even if the FIG are remitted to the UK. It is a requirement of the FIG Regime that a claim is made in the tax return of the individual who is claiming the relief, to exempt the FIG from a charge to UK tax. The four years must run consecutively from the first year of UK residence and therefore operate on a “use it or lose it” basis. Any unused years cannot be carried forward to future years.  

After four years of residence, worldwide income and gains will be taxed as they arise (subject to the availability of any double tax treaty reliefs).  

An individual will qualify under this new regime if they have not been tax resident in the UK in any of the 10 tax years before the first year of the four-year period.  

UK Inheritance tax (IHT) 

Whilst domicile has previously been a determining factor for assessing an individual’s IHT exposure, the test for IHT will be based solely on tax residence from 6 April 2025. IHT will be charged on non-UK assets where an individual is a “Long-Term Resident” (LTR) on death or any other chargeable event. An individual will become a LTR on the first day of the 11th year of tax residence, after a period of 10 years of UK residence (within the 20 prior tax years).  

This means that an individual who has been outside the UK for at least 10 out of 20 tax years can return to the UK and avoid exposure to IHT on non-UK assets for a further 10 tax years. Crucially, the new regime does not distinguish between those who were born in the UK and those who were not.   

The new regime provides clarity on the tax status of expats who may otherwise be considering whether or not they have lost their UK domicile. The test is now simply one of aggregating years of non-residence rather than looking at other UK connecting factors and trying to assess subjective intentions.  

This is particularly important where trusts are involved. An IHT charge of 20% will be incurred where a UK domiciled individual settles assets into trust, with additional ongoing IHT liabilities for the trust. Under the pre-6 April 2025 rules, where non-UK assets were transferred into a trust by a non-domiciled settlor, the assets were excluded property (so, not subject to IHT charges at any point, including on the settlor’s death, and even if the settlor subsequently became UK domiciled).  

Therefore, without certainty of an individual’s domicile, any trusts created may have been exposed to IHT.  

Under the new regime, the tax status of trusts comprising non-UK trust assets will be directly linked to the residence status of the settlor. A charge to IHT will arise only if the settlor is a LTR on a chargeable event, which presents opportunities for returning expats.  

Planning opportunities  

Creating trusts  

For those looking to return to the UK, establishing a trust may now be more attractive than ever.  

When non-UK assets are transferred into a trust by an individual who is not a LTR, there will be no upfront 20% IHT charge. For those who were previously unsure about their domicile position, settling the trust after 6 April 2025 will give clarity that no entry charge will become due, if the residence test is satisfied.  

For those returning to the UK and intending to stay here permanently or for longer than 10 years, assets will become relevant property in the future and will be subject to ongoing IHT charges (an exit charge on a distribution, and 10-year anniversary charges).   

However, due to the way the rules work, an individual will not become a LTR until the first day of the 11^th tax year meaning that if the trust is settled in the year prior to the return to the UK, the settlor will not be a LTR on the first 10-year anniversary and no IHT charge will therefore arise. A charge could arise on the second 10-year anniversary, but this is quite some time after the trust was settled meaning it represents a long-term planning option.  

Whilst the settlor is not a LTR, the Trust Fund will not form part of the chargeable estate of the settlor, even if the settlor is a beneficiary. Thought will need to be given to whether the settlor should be excluded from benefit as the change in status approaches.  

Under the FIG regime, there will also be no income tax and CGT charges for the settlor for the first four years of UK residence, even if the settlor is a beneficiary of the Trust. It would therefore be possible for the Trust Fund to be invested in a traditional investment portfolio for that period.  When the 4-year FIG Regime period is nearing an end, the trustee should take advice on whether to transfer the investments into a wrapper style product to ensure roll up of income and gains.  

Making lifetime gifts 

Any gifts made from non-UK assets will not be subject to IHT where the donor is not a LTR.  

Where gifts are made in lifetime, and the donor fails to survive seven years after making the gift then that amount shall remain within the deceased’s estate for IHT. However, this will not be the case where the donor is a LTR at the date of gift and the gift is of non-UK assets.  

Accordingly, if the donor makes the gift before returning to the UK or before their 11^th year of tax residence then there will be no IHT implications.  

Additionally, if the gifts are made before returning or within the four-year FIG regime window, there will also be no CGT implications of the gift.  

Care will need to be taken to ensure that the transfer of assets between donor and donee does not inadvertently change the situs of the asset before the gift is complete.  

Immigration and visa considerations 

From an immigration perspective, the process of moving the family or domestic helpers of returning expats to the UK, takes significant advance planning. Here are some top considerations. 

Visa applications have to be made from outside of the UK 

It is not possible to travel to the UK as a visitor and then file a visa application to remain in the UK upon arrival. This is the case even if the individual in question has a British spouse/partner or British child. 

Visa eligibility 

If the individuals are not eligible for a family visa and do not have a work sponsored visa, then visa options can be very limited so advance planning is required to find a viable immigration pathway.   

Some visas require proof of financial solvency which in some instances mean liquidating assets into cash that has to be held for six months prior to application.  

Processing times 

Visa processing times vary significantly depending on the country of application and nationality of the applicant. This is due to the varying degrees of security checks required. Whilst most visas are granted in six to twelve weeks, some can take as long as six months to process.  

Applicants are also advised not to travel to the UK whilst their visa application is pending a decision (even if you’ve been able to retain your passport throughout the process). Undertaking recon visits to secure housing, school places etc can therefore be impeded. 

Domestic staff 

Families that rely on support from domestic help will find that travelling to the UK with domestic staff is rarely straightforward, with timing, planning and preparation being essential in order to achieve the desired outcome of obtaining an Overseas Domestic Worker visa.  

In many instances, the immigration rules don’t permit these staff to relocate at all, so families may want to recruit new local staff in advance of relocation so there is time for them to embed into the family routine before the move. 

Whilst there is an Overseas Domestic Worker visa category – it is only available for temporary stays of up to six months and where the employer is only a visitor to the UK. Visa holders and their employers must return to their home country before their visa expires, as extensions are not permitted under this visa route.  

In addition, to qualify for the visa, a wealth of supporting documents will also be expected to be provided to demonstrate eligibility and evidence the work relationship. The Home Office will seek formal employment contracts, payslips, proof of paying employment taxes etc. Many of these documents formalising the employer/employee relationship are not routinely in place in some countries so meeting the evidential requirements can be challenging. 

Families often underestimate the complexities and details involved in bringing their domestic staff to the UK with them, with not only considerations from an immigration perspective to regard, but also employment obligations such as remuneration and regulations surrounding the hours that will be worked per week.  

The Home Office sees the Overseas Domestic Work visa as at risk of abuse, and if an applicant submits multiple applications in a short period, it may be difficult to convince the Home Office that their intention is not to settle in the UK, especially if they repeatedly seek entry after only brief stays abroad. Consulting with Immigration and Employment specialists will largely assist families in navigating the various requirements and complexities, increasing their chances of achieving their desired outcome. 

What should you be doing?  

Although the new tax regime offers more clarity and certainty than the existing rules, it is recommended that British expats seek advice before returning to the UK. Nuances remain in determining a residence status and further rules surrounding existing trust structures, for example, can have complex implications. Therefore, undertaking tax planning before your return to the UK is advisable to avoid possible pitfalls and ensure efficient use of the options detailed above.  

If you need advice or clarification on your residence status or wish to discuss any of the issues raised in this article, the Birketts International Private Client Team and Immigration Team would be happy to help.