US Citizens Resident in the UK: Actions to Take Before 6 April 2025

Written by Barry Brosnan

While removing the current benefits available to non-doms, the October 2024 UK Budget does offer investors a unique opportunity to create more clean capital in the UK at a significantly reduced tax cost. Investments that might otherwise be taxed at up to 45% in the UK can, if investors act before 6 April 2025, avail of this new 12% tax rate.

This opportunity arises as a result of one of the transitional reliefs confirmed in the Budget, namely the Temporary Repatriation Facility (‘TRF’), which is being introduced to soften the impact of the otherwise drastic changes in the rules. This relief is available to current non-doms and already deemed domiciled individuals who have claimed the remittance basis of taxation at any point before 6 April 2025. It allows you to ring-fence any income and gains realised before that date, provided they have not previously been taxed in the UK or remitted to the UK. You can then pay a flat 12% tax on these amounts, enabling you to bring them into the UK at a time of your choosing without any additional tax cost.

There is a three-year window in which a claim for relief under TRF can be made, from the beginning of the 2025/26 tax year until the end of the 2027/28 tax year. The flat rate is 12% for claims made in 2025/26 and 2026/27, increasing to 15% in 2027/28. In the absence of a claim under TRF, tax rates of up to 40% or 45% could apply on future remittances, as any such remittances would be viewed under the current rules. The claim for relief under TRF is made via reporting or ‘designating’ any relevant income and gains on the relevant UK tax return and paying the 12% flat rate as part of the tax preparation process for that year.

There are a number of investments that are tax-inefficient for US citizens resident in the UK, such as US mutual funds and ETFs that do not have Reporting Fund status in the UK. Any gains on the sale of such assets are subject to Income Tax rates in the UK of up to the highest marginal rate of 45%. In comparison, US funds and ETFs that do have Reporting Fund status in the UK are subject to Capital Gains Tax rates in the UK, up to a top rate of 24%. This represents a significant additional tax cost.

The rule changes, therefore, present a window of opportunity to divest from these tax-inefficient investments in your portfolio and make the proceeds remittable to the UK at a much lower tax cost. Timing is key, as investors need to realise gains on these UK tax-inefficient investments before 6 April 2025 (effectively by Friday 4 April) in order to benefit from the remittance basis of taxation in the current tax year while ensuring the event meets the timing criteria for eligibility under TRF in the next tax year. The next step will be to designate these foreign gains on the relevant UK tax return and pay the tax due. The foreign gains can then be brought into the UK at any time in the future. We understand that there is no requirement to bring the gains or income to the UK immediately.

While there is a window of opportunity, the relative benefits and drawbacks will depend entirely on your circumstances. We therefore suggest you seek tax advice before making any decisions, and we remain available to assist with any discussions.

The Legal Stuff

• The information contained herein is subject to copyright with all rights reserved.  The document may not be copied, forwarded or otherwise distributed, in whole or in part, to any other party without our written consent.
• Any impact from the actual or speculative tax changes contained in this document will depend on the individual circumstances of each client and may be subject to change in the future.
• Nothing in this document constitutes investment, tax or any other type of advice and should not be construed as such.
• MASECO is not a tax specialist and we recommend that anyone considering investing seeks their own tax advice.
• The views expressed in this article do not necessarily reflect the views of MASECO as a whole or any part thereof.
• This document is provided for information purposes only and is not intended to be relied upon as a forecast, research or investment advice.
• This document does not constitute a recommendation, offer or solicitation to buy or sell any products or to adopt an investment strategy.

MASECO LLP (trading as MASECO Private Wealth and MASECO Institutional) is established as a limited liability partnership under the laws of England and Wales (Companies House No. OC337650) and has its registered office at The Kodak Building, 11 Keeley Street, London, WC2B 4BA.  For your protection and for training and monitoring purposes, calls are usually recorded.

MASECO LLP is authorised and regulated by the Financial Conduct Authority for the conduct of investment business in the UK and is registered with the US Securities and Exchange Commission as a Registered Investment Advisor.

MASECO Private Wealth is not a tax specialist. This article does not take into account the specific goals or requirements of individuals and is not intended to be, nor should be construed as, investment or tax advice. You should carefully consider the suitability of any strategies along with your financial situation prior to making any decisions on an appropriate strategy.  Information about potential tax benefits, including the levels, bases of and reliefs, from taxation is based on our understanding of current tax law and practice and may be subject to change.  We strongly recommend that every client seeks their own tax advice prior to acting on any of the tax mitigation opportunities described in this article. The tax treatment depends on the individual circumstances of each individual and may be subject to change in the future.