In the news week, let’s talk tax

What a week! Double taxes and ‘unfairly’ taxed US citizens according to President Trump, as well as further changes to the non-dom tax regime surprisingly announced by Chancellor Rachel Reeves at Davos…. what should you make of all the announcements?

Are you thinking of moving to the UK from the US?

President Trump is reported to want to double taxes for foreign nationals and corporations in the US where they hail from jurisdictions which are unfairly taxing Americans interests overseas. Could the UK be in the firing line?

Individuals

The starting point for an American living in the UK is that the rates they pay are not higher than the tax rates a UK-resident individual would pay – i.e. foreign nationals are not penalised. On the contrary, they can potentially claim reliefs which most UK residents are unable to access.

From an income tax perspective, UK tax rates are slightly higher than federal tax rates and the UK does not mirror the US exemptions or reliefs (e.g. tax-exempt is taxable in the UK, just like ISAs are taxable in the US). Qualifying dividends are taxed at a special rate of 15% in the US which is a lot lower than the UK’s top rate of 39.35%.

The UK’s rate of capital gains tax is, on the face of it, higher than the US (24% versus 20%) but when the net investment income tax (3.8%) is taken into account the tax payable is actually very similar.

A key relief open to many US nationals (and other non-UK domiciliaries) living in the UK has historically been the remittance basis, which exists to shelter non-UK income and gains from UK tax. Although this will end on 5 April 2025, it will be replaced by the FIG regime which will provide an exemption from UK tax on non-UK income and gains, albeit for a shorter period (four years).

An alternative for US individuals living in the UK for a fixed term is for them to consider whether they are “US treaty resident” under the UK/US treaty, which effectively gives the US exclusive taxing rights on certain types of income and gains and removes the UK liability.

Perhaps one area of “unfairness”, however, is the tax treatment of LLCs and the potential for double taxation. That remains a key problem for some Americans living here and the remittance basis will no longer be able to help from 6 April.

From an inheritance tax (IHT) perspective, the UK threshold is much lower than the US (£325,000 versus c$13 m). We know that from 6 April 2025 an American only needs to have lived here for 10 years before they find themselves in the scope of UK inheritance tax. On the face of it this does sound unfair but there is a US/UK estate tax treaty which can alleviate an IHT bill for qualifying US individuals – usually US domiciliaries who are not UK nationals and are living in the UK with a view to returning to the US at some stage.

Companies

The position for corporations is not as straightforward as one would like, following the introduction of the OECD’s global minimum tax rate of 15%. This was introduced to try to stop profit shifting by multinational groups and will come into effect for accounting periods beginning on or after 31 December 2023. In general terms, the effect of the rules is to ensure a minimum 15% corporate tax rate for multinationals where the global turnover exceeds €750 million by way of the introduction of domestic and multinational top up taxes where relevant.

Whilst this has been adopted by many countries including the UK, President Trump has now said that the US will not be doing so. The US also has its own global intangible low-taxed income regime where, currently, the global minimum rate is generally lower than 15%.

It will be interesting to see what happens to the US tax rates for corporations going forward. Currently, it is quite possible that the UK may be required to collect top up taxes from US corporations if the rate being paid by the US corporation is lower than 15%.

However, the first returns for top up taxes are not due until 30 June 2026, if the first accounting period reported for top up taxes ended on or before 31 December 2024; or 18 months after the last day of the group’s accounting period, if the accounting period reported for top up taxes ended after 31 December 2024. The US is a big player in the global market, and we will have to wait and see how the countries that have signed up to the global minimum tax react – a lot can happen in that time.

Also in the news: non-doms/internationally mobile people

We have been helping clients to navigate the various rules on the non-dom regime since the details were published at the end of October 2024. The rules are complicated and are being enacted quickly. Rachel Reeves’ announcement at Davos yesterday, that the government are considering ways to allow a more generous phase out of tax benefits will be welcomed by clients, but we await the details.

The changes are likely to focus on the Temporary Repatriation Facility which allows non-doms to pay a flat rate of (12% in 2025/26*) or (15% in 27/28*) on past income and gains that have benefited from the remittance basis although there may be slightly different rules for trusts.

As always, we will await the final details but if any of the above is on your radar and you haven’t yet taken advice, then get in touch with our team to discuss how it may impact on you, your family, or your business.

*figures and further details awaited.