UK Autumn Budget 2024: The Offshore Structuring Implications

A Budget That Reshaped International Planning

The UK Autumn Budget delivered on 30 October 2024 by Chancellor Rachel Reeves was the most consequential fiscal event for internationally mobile individuals and offshore structures in over a decade. The changes — affecting inheritance tax, capital gains tax, non-domicile status, and carried interest — collectively reshaped the planning landscape for UK-connected high-net-worth individuals and the advisors who serve them.

Abolition of the Remittance Basis — The Headline Change

What Changed

The government confirmed the abolition of the remittance basis of taxation for non-UK domiciled individuals, effective 6 April 2025. The remittance basis — which had allowed non-doms to avoid UK tax on foreign income and gains provided they were not remitted to the UK — was replaced by a new residence-based regime.

The New Four-Year FIG Regime

The replacement is the Foreign Income and Gains (FIG) exemption:

• Individuals who have been non-UK tax resident for the ten consecutive tax years immediately preceding their arrival in the UK are eligible
• The FIG exemption lasts for four years from the date of becoming UK tax resident
• During the four-year period, foreign income and gains are exempt from UK income tax and CGT
• After the four-year period, the individual is taxed on worldwide income and gains on the arising basis — with no option to shelter foreign income

Transitional Provisions

For existing non-doms who had been using the remittance basis:

• Temporary Repatriation Facility (TRF): A three-year window (2025-2028) during which previously accumulated foreign income and gains can be remitted to the UK at a reduced rate of 12%
• Rebasing: Non-doms who held foreign assets on 5 April 2017 can elect to rebase those assets to their market value at that date for CGT purposes when the FIG regime ends
• Capital loss election: Transitional rules allow certain capital losses to be brought into account

Inheritance Tax — The Offshore Trust Revolution

The End of Excluded Property Status

The most significant change for offshore structuring is the reform of excluded property trust rules. Prior to April 2025, assets held in a trust settled by a non-UK domiciled individual were "excluded property" for IHT purposes, regardless of how long the individual subsequently remained in the UK.

Under the new rules:

• Residence-based test: The excluded property status of trust assets is determined by the settlor's UK residence status at the time of a chargeable event (death, ten-year anniversary, exit), not by domicile at the time of settlement
• Ten-year tail: An individual who leaves the UK remains within the IHT net for ten years after departure (previously this was three years under the deemed domicile rules)
• Pre-existing trusts: Trusts settled before 30 October 2024 by non-UK domiciled individuals benefit from transitional protection — the existing excluded property status is preserved for trust assets settled before the Budget date, but new additions after that date are not protected

Practical Impact

For non-doms who settled offshore trusts while non-UK domiciled and non-UK resident:

• If they remain outside the UK, the trust assets continue to be excluded property
• If they have been UK resident for more than four years (FIG exhausted), trust assets may become chargeable to IHT at the next ten-year anniversary or on distributions
• The ten-year tail means that leaving the UK does not immediately restore excluded property status

For new arrivals, the planning window is narrow: the FIG exemption provides four years of income tax relief, but the IHT reforms mean that offshore trust assets may become chargeable much sooner if the individual remains in the UK beyond the FIG period.

Capital Gains Tax — Rate Increases

The Changes

The Budget increased CGT rates effective 30 October 2024:

• Lower rate (basic rate taxpayers): Increased from 10% to 18% (aligning with the residential property rate)
• Higher rate (higher rate taxpayers): Increased from 20% to 24% (aligning with the residential property rate)
• Residential property rates: Unchanged at 18% (basic) and 24% (higher)
• Business Asset Disposal Relief (BADR): The 10% rate was preserved for 2024-25 but will increase to 14% from April 2025 and 18% from April 2026

Impact on Offshore Structures

For internationally mobile individuals, the CGT increases affect:

• Gains on disposal of UK property (subject to non-resident CGT regardless of residence)
• Gains realised by offshore structures that are attributed to UK-resident beneficiaries under the transfer of assets abroad (TOAA) rules (ITA 2007, ss.714-751)
• Gains realised by non-resident trusts that are attributed to UK-resident beneficiaries under TCGA 1992, s.87

The higher rates increase the tax cost of structuring that results in UK-taxable gains, making it more important to consider whether structures can be reorganised to defer or eliminate UK CGT exposure.

Carried Interest Reform

What Changed

The Budget announced that carried interest will be subject to income tax rates (up to 45%) rather than CGT rates from April 2026. A transitional rate of 32% will apply for 2025-26.

Current Position

Currently, carried interest — the performance fee earned by fund managers, typically structured as a share of profits — is taxed as a capital gain at 28% (the current higher rate for carried interest). The government considers this to be an undertaxation of what is essentially a reward for services.

Impact on Fund Structuring

For offshore fund structures with UK-based managers:

• The economics of UK-based fund management are significantly altered
• Fund managers may consider relocating to jurisdictions with more favourable carried interest taxation (Dubai, Singapore, Switzerland)
• Existing fund structures may need to be renegotiated to address the increased tax cost
• The competitiveness of London as a fund management hub is directly affected

Employer National Insurance Contributions

The Change

Employer NIC increased from 13.8% to 15% from April 2025, with the secondary threshold reduced from GBP 9,100 to GBP 5,000. This increases the cost of UK-based employment.

Impact

For international groups with UK-based employees, the increased NIC cost may:

• Accelerate the relocation of functions to lower-cost jurisdictions
• Increase the attractiveness of non-UK locations for new hires
• Affect the economic substance analysis for entities that maintain UK staff

Planning Responses

For Existing Non-Doms

• Evaluate the TRF: The 12% rate for repatriation of historic foreign income and gains is a significant planning opportunity — clients should model the cost of remitting accumulated funds during the 2025-2028 window
• Consider departure: The ten-year IHT tail makes departure less immediately effective, but for clients with a long-term horizon, relocating to a jurisdiction without IHT (UAE, Singapore, Monaco) remains the most comprehensive solution
• Review trust structures: Pre-30 October 2024 trusts benefit from transitional protection, but additions after that date do not — clients must avoid inadvertently tainting protected trusts

For New Arrivals

• Maximise the FIG period: The four-year FIG exemption is valuable but short — clients should structure their affairs to maximise foreign income during this window
• Time trust settlements: Offshore trusts settled during the FIG period may benefit from excluded property status, but the rules are complex and specialist advice is essential
• Plan the exit: If the client does not intend to remain in the UK permanently, the ten-year IHT tail must be factored into the departure timeline

For Fund Managers

• Model the carried interest impact: The increase from 28% to 45% (via the 32% transitional rate) fundamentally changes the after-tax economics of UK-based fund management
• Consider jurisdictional alternatives: Dubai (0% personal income tax), Singapore (low rates with incentives), and Switzerland (lump-sum taxation in certain cantons) are the primary alternatives

Key Takeaways

• The abolition of the remittance basis and introduction of the four-year FIG regime fundamentally changes the UK's tax treatment of internationally mobile individuals
• The IHT reforms remove excluded property status for offshore trusts on a residence basis with a ten-year departure tail
• Pre-30 October 2024 trusts benefit from transitional protection on existing settled assets
• CGT rate increases to 24% (higher rate) affect all UK-source gains including those attributed from offshore structures
• Carried interest reform (to income tax rates from April 2026) significantly impacts UK-based fund management economics
• The Temporary Repatriation Facility (12% rate, 2025-2028) is a planning opportunity for remitting historic foreign income
• Clients with long-term non-UK plans should model the ten-year IHT tail and consider the timing of departure