Significant changes to UK tax laws are coming, and they will affect UK residents and Isle of Man entities linked to non-domiciled individuals, pensions, and trusts. These updates take effect in April 2025, so understanding the impact on your financial structures and taking steps to prepare is essential.

Key UK Tax Changes to Know

1. Non-Domiciles

• New Rules: From 6 April 2025, the UK will adopt a residence-based tax system, replacing the current remittance basis.
• Global Income Impact: UK residents, regardless of domicile status, will be taxed on worldwide income and gains after a four-year transition period.
• Inheritance Tax (IHT): A new “ten out of twenty years” rule will extend IHT liabilities for long-term UK residents.

2. Pensions

• Tax Changes: From April 2027, most pension distributions will be taxed at 40%. This change ends the current exemption for inherited pension funds.
• Action Needed: Review and update pension structures and beneficiary designations if necessary.

3. Trusts

• New Tax Scope: Offshore trusts with settlors who have been UK residents for 10 of the last 20 years will fall under UK IHT rules from 6 April 2025.
• Financial Impact: A 6% IHT charge will apply every 10 years, with possible exit charges. Trustees should monitor the settlor’s residency and understand the “gifts with reservation of benefit” rules for trusts created or amended after October 2024.

What This Means for Isle of Man Entities

These changes could significantly affect Isle of Man-based structures, especially those tied to individuals with UK residency or assets.

• Worldwide Income Taxation: UK residents with interests in Isle of Man entities may face UK tax on global income from 6 April 2025.
• Increased IHT Exposure: Long-term UK residents will find their worldwide assets, including those held in Isle of Man structures, within the UK IHT framework.
• Offshore Trust Risks: Offshore trusts may lose some tax protections, potentially exposing Isle of Man trusts to UK taxation.

Next Steps: How to Prepare

1. Review Existing Structures: Assess all trusts, pensions, and asset holdings for potential UK tax exposure.
2. Consider Strategic Adjustments: Restructuring trusts or updating terms may help mitigate the impact of these changes.
3. Seek Expert Advice: Consult professionals familiar with UK and Isle of Man tax systems to implement effective strategies.

Proactive planning is key to staying compliant and protecting your assets during these significant tax changes.