BDO Guernsey’s Tax Director, Mark Savage, has broken down the UK’s Autumn Budget and what its changes will mean for the local community.
Mark (pictured) began the hour-long session by confirming that Labour’s first budget in 14 years did indeed ‘live up to the hype’ with significant changes, particularly to how ‘non-domiciled’ residents of the UK are considered in tax terms.
Mark noted that Labour will move away from the current use of ‘domicile’ in the UK system to a more fact-based, objective test based on residency. Inheritance Tax on worldwide assets will now no longer be charged on UK domiciliaries but on long-term residents who have spent ten of the last 20 years in the UK. Now, any such long-term residents upon leaving the country will remain subject to tax for a ‘tail period’.
This period runs for a minimum of 3 years and a maximum of 10 based on the number of years one has spent in the country following the 10-year long-term residency threshold. Mark gave the example of someone who has lived in the UK for 12 years will still potentially be subject to inheritance tax for the 3 years following their departure.
The abolition of domicile for tax purposes also ends the UK’s remittance basis of taxation that favours UK residents who are not domiciled in the country. New residents to the UK are to be tempted away from holding assets offshore by being offered zero tax on their foreign income and gains (FIG) which can be remitted to the UK without further tax.
A particular threat to offshore territories is Labour’s continuation of the Conservatives’ Temporary Repatriation Facility (TRF) scheme that allows previously unremitted (and untaxed) income to be brought into the UK, from offshore, at preferential rates of only 12% in 2025/26 and 2026/27 and 15% tax in 2027/28.
Implications for Trustees were also at the forefront of Mark’s presentation. Trust taxes such as 10-year anniversary, entry, and exit charges are all to be impacted by the introduction of the long-term residency test. The taxation of assets in trust will now depend on the long-term residency status of the settlor at the date of the potentially taxable event, rather than the settlor’s domicile at date of settlement. This means Trustees will now need to keep track of a settlor’s residency history to ensure Trusts account for the appropriate inheritance tax.
Finally, Mark noted that Guernsey residents who own properties in the UK will be affected by Labour’s extension of the ‘Making Tax Digital’ policy. This enforces the usage of approved accounting software for sole traders (including landlords) earning over the threshold. With the intent to bring this threshold as low as £20,000 per annum in the next few years, islanders with UK assets and properties will have to comply, making the use of professional digital tax software for record keeping even more important.
Mark said: “Whilst some of the changes announced in the Budget weren’t as bad as many feared, neither were they particularly helpful. There are many challenges for those who are or have been resident in the UK for significant periods and those who administer structures, especially trusts, on their behalf. Record keeping and staying on top of tax commitments to HMRC will be paramount and I foresee this being a burden for many.”
