Chapters in this guide
20
This chapter provides a general background to the key taxes and the legal framework in the United Kingdom of Great Britain and Northern Ireland (UK). However, it should be noted that, strictly, there is no such thing as “UK law”, because the UK traditionally consists of three legal jurisdictions:
- England and Wales;
- Scotland; and
- Northern Ireland.
The introduction of devolution means that Wales, Scotland and Northern Ireland are now devolved nations, and limited legislative powers have been devolved to elected assemblies in Cardiff, Edinburgh and Belfast, respectively. Further to the public referendums held in September 1997, the UK Parliament passed the three devolution acts: the Northern Ireland Act 1998, the Scotland Act 1998, and the Government of Wales Act 1998 (later superseded by the Government of Wales Act 2006). These acts established the three devolved legislatures, giving them certain powers which were previously held at Westminster. Further powers have been devolved since, through the Scotland Act 2016 and the Wales Act 2017.
Scotland’s chapter features separately in this guide because Scotland has its own distinct legal system (and has its own limited powers to raise and lower income tax). Prior to the devolved assemblies, Wales did not have its own separate law and it is still correct, following devolution, to refer to the law of “England and Wales”. Nonetheless, there will now be some minor areas of tax law where the law in Wales will be different from that in England. For example, the Welsh Parliament has some control over income tax, stamp duty and landfill tax (the latter is not examined in this chapter). Nonetheless, it is still standard practice in precedent English legal documents to refer to the law of England and Wales.
Devolution in Northern Ireland is distinct, and government powers have been divided into three categories. Legislative powers relating to capital transfer taxation rest with the UK Parliament.
For the avoidance of doubt, the law discussed in the rest of this chapter refers just to the law of England and Wales, unless specifically stated otherwise.
Residence, domicile, the remittance basis and the foreign income and gains regime
It is important to note that significant changes relating to the taxation of international individuals were announced in March 2024 by the former Conservative Government’s Chancellor, Jeremy Hunt, which were adopted and expanded by the current Labour Government’s Chancellor, Rachel Reeves, in her Budget on 31 October 2024. The changes will come into force from 6 April 2025. The old, pre-6 April 2025 rules will continue to have some relevance, but the focus of this chapter is on the position from 6 April 2025.
Under the pre-6 April 2025 rules, domicile was a key feature of UK taxation. It is a common law concept that seeks to identify an individual’s “home” and must not be confused with nationality. A “domicile of origin” is acquired at birth. This is normally the domicile of the father if the individual’s parents are married.
Domicile of origin may, with varying degrees of difficulty, be replaced by a “domicile of choice”. In general terms, a person may be said to be domiciled in the place where they have their permanent home. An individual cannot have a generic “UK” domicile; they will have a specific domicile within the UK, in England and Wales, for example, or in Scotland or in Northern Ireland, as appropriate. Even after 5 April 2025 domicile remains relevant as a connecting factor for succession law purposes.
Domicile and tax residence are separate and distinct concepts under English law. An individual can be tax resident and not domiciled. UK (all nations) tax residence is determined by a statutory residence test. A person will be regarded as UK resident if:
- they stay in the UK for more than 182 days in any tax year; or
- they meet any of the other automatic UK tests or the sufficient ties tests under the UK’s statutory residence test (SRT).
The mainstay of the pre-April 2025 system of UK taxation was the remittance basis. Under the remittance basis, non-domiciled individuals could move to the UK and be taxed only on the post-arrival income or gains that they remitted to the UK, in addition to any UK source income or capital gains.
However, from 6 April 2025, domicile will no longer be important for UK tax purposes and it will no longer be possible to claim the remittance basis. Instead, after being non-UK resident for 10 consecutive tax years, individuals will be able to claim the foreign income and gains (FIG) regime. If an individual successfully claims the FIG regime they will not be subject to UK income tax or capital gains tax (CGT) on their FIG for the first four years of their UK residence. Unlike the remittance basis, there is no charge to claim the FIG regime. UK income and gains would be taxed in the UK. After four whole or part years of UK residence, individuals will be taxed in the UK on their worldwide income and gains. Where relevant, double tax treaties may be utilised to prevent double taxation.
Under the pre-6 April 2025 rules, residents in the UK for 15 out of the previous 20 UK tax years became “deemed domiciled” for tax purposes. UK deemed domiciled individuals were subject to UK tax on their worldwide income and gains and, on death, their worldwide estate was chargeable to UK inheritance tax (IHT). However, the new rules coming into effect from 6 April 2025 provide that IHT will be charged on an individual’s worldwide assets when they have been resident in the UK for 10 or more of the previous 20 tax years, at which point they will be treated as a “long-term resident” (LTR).
An LTR will remain within the UK’s IHT net after they cease to be resident in the UK for a fixed period, depending on the length of their UK residence. An individual leaving the UK and ceasing to be UK tax resident under the SRT after no more than 13 years of UK residence in a 20-year period will remain within the IHT net for three years. If they remain UK tax resident for more than 13 years, an additional year is added for each additional year of UK residence up to a maximum of 10 years for those resident for 20 tax years or more.
Two transitional reliefs have been introduced to support former remittance basis users following this seismic change:
- The temporary repatriation facility (TRF). This enables former remittance basis users to designate unremitted FIG, within a three-year window from 6 April 2025, and to remit the designated amounts or treat them as remitted at a lower tax rate (12% in 2025/2026 and 2026/2027 and 15% in 2027/2028).
- April 2017 rebasing. Former remittance basis users can rebase certain assets held by them to their April 2017 values, thereby reducing the gain realised on a later disposal.
Taxation of individuals in the UK is mostly administered on a self-assessment basis. Whilst employers often deduct income tax at source, the majority of high-net-worth UK tax resident individuals will be required to provide a self-assessment tax return, reporting their taxable income and capital gains to HM Revenue and Customs (HMRC). A claim for the FIG regime will be made on the self-assessment tax return.
UK tax years run from 6 April of one year to 5 April of the next. When filed online, tax returns must be filed by 31 January following the end of the tax year — so, for example, an individual’s return for the 2024/2025 UK tax year must be filed by 31 January 2026.
Income tax
Applies in England and in Northern Ireland (Scotland and Wales have had partial income tax powers devolved, although the Welsh system differs only very slightly from the English system).
The income tax rates for the current tax year from 6 April 2024 to 5 April 2025 are as follows:
| Band | Taxable income | Tax rate* |
| Personal allowance | Up to GBP 12,570 | 0% |
| Basic rate | GBP 12,571 to GBP 50,270 | 20% |
| Higher rate | GBP 50,271 to GBP 125,140 | 40% |
| Additional rate | over GBP 125,140 | 45% |
*Scotland has additional bands above the personal allowance threshold, with rates applying from 19% up to 48%.
Capital gains tax
Applies across all devolved nations.
The Chancellor’s Budget on 30 October 2024 introduced new rates with effect from that date. Therefore, for the current tax year from 6 April 2024 to 5 April 2024, the annual tax-free allowance is GBP 3,000, and the prevailing rates are as follows, for 6 April 2024 to 29 October 2024:
| Band | Residential property (not a main residence) | Carried interest** | Non-residential property assets |
| Basic rate taxpayers* | 18% | 18% | 10% |
| Higher or additional rate income taxpayers | 24% | 28% | 20% |
For 30 October 2024 to 5 April 2025 the prevailing rates are:
| Band | Residential property (not a main residence) | Carried interest** | Non-residential property assets |
| Basic rate taxpayers* | 18% | 18% | 10% |
| Higher or additional rate income taxpayers | 24% | 28% | 24% |
Note that, above this threshold, taxpayers will pay 20% or 28% on any amount above the basic tax rate. *From 6 April 2025 carried interest gains made by investment managers are subject to a flat 32% rate.
Inheritance tax
Applies across all devolved nations.
The nil rate band (NRB) tax-free amount is GBP 325,000 per estate. NRBs are transferable between spouses and civil partners. Transfers of assets between spouses and civil partners are IHT exempt, except on transfers from UK spouses to non-UK spouses, where an election for UK IHT status may be made by the receiving non-UK spouse. Charitable legacies to UK charities are also IHT exempt.
The residence nil rate band (RNRB) of GBP 175,000 per estate is available where an estate is below GBP 2,000,000 and a qualifying residence is left to one or more direct descendants. The RNRB tapers down over GBP 2,000,000 and estates over GBP 2.35m are not eligible. The RNRB is also transferable between spouses and civil partners.
IHT remains at 40% above the balance of available NRBs and RNRBs, although, if 10% or more of a net estate is left to a qualifying UK charity, then the estate benefits from a reduced rate of IHT at 36% on the balance.
Annual tax on enveloped dwellings
Applies across all devolved nations.
Annual tax on enveloped dwellings (ATED) is an annual tax payable mainly by companies that own UK residential property valued at more than GBP 500,000. ATED, which was introduced on 1 June 2013, and associated measures have heavily discouraged the acquisition and holding of residential property through companies.
| Property value (as at 1 April 2022) | Annual charge for 1 April 2024 to 31 March 2025 | Annual charge for 1 April 2025 to 31 March 2026 |
| GBP 500,001 to GBP 1m | GBP 4,400 | GBP 4,450 |
| GBP 1,000,001 to GBP 2m | GBP 9,000 | GBP 9,150 |
| GBP 2,000,001 to GBP 5m | GBP 30,550 | GBP 31,050 |
| GBP 5,000,001 to GBP 10m | GBP 71,500 | GBP 72,700 |
| GBP 10,000,001 to GBP 20m | GBP 143,550 | GBP 145,950 |
| Over GBP 20m | GBP 287,500 | GBP 292,350 |
Stamp duty land tax
Applies in England and in Northern Ireland (Scotland and Wales have their own equivalent land transaction taxes).
The current stamp duty land tax (SDLT) threshold for residential properties before SDLT becomes payable is GBP 250,000. The threshold from 1 April 2025 starts at GBP 125,000. The threshold for non-residential land and properties is GBP 150,000. There are numerous SDLT rates depending on the circumstances, type of property and value. SDLT is charged according to a slice system, as set out below.
Importantly, if a purchaser of UK property is not present in the UK for at least 183 days (six months) during the 12 months before purchase or the 12 months after, they are “not a UK resident” for the purposes of SDLT. Non-resident purchasers will usually pay a 2% surcharge if buying a residential property in England (or Northern Ireland) on or after 1 April 2021.
All purchasers will usually pay a 5% surcharge on top of these rates if they already own another residential property, and the purchase is not to replace their main residence.
From 20 March 2014 to 30 October 2024, SDLT was charged at 15% where the residential property is purchased for a value in excess of GBP 500,000 by a corporate body. The higher rate for corporate bodies was increased to 17% on 31 October 2024.
Residential property rates:
| Property/lease premium value (single property, purchase by a UK resident individual) | SDLT rate from 23 September 2022 to 31 March 2025 | SDLT rate from 1 April 2025 |
| Up to GBP 125,000 | 0% | 0% |
| The next GBP 125,000 (the portion from GBP 125,001 to GBP 250,000) | 0% | 2% |
| The next GBP 675,000 (from GBP 250,001 to GBP 925,000) | 5% | 5% |
| The next GBP 575,000 (from GBP 925,001 to GBP 1.5m) | 10% | 10% |
| The remainder over GBP 1.5m | 12% | 12% |
Commercial property rates:
| Property/lease premium value | SDLT rate |
| Up to GBP 150,000 | 0% |
| The next GBP 100,000 (from GBP 150,001 to GBP 250,000) | 2% |
| The remainder over GBP 250,000 | 5% |
The “Register of Overseas Entities” came into force in the UK on 1 August 2022 through the Economic Crime (Transparency and Enforcement) Act 2022. This introduced a Register of Overseas Entities to ensure that the identities of the beneficial owners of UK property are no longer obscured behind privacy screening offshore companies, as the global push towards ownership transparency continues. This change had been tabled for some time.
Foreign companies owning UK property now need to openly identify their beneficial owners, and register them with Companies House, bringing them into parity with UK companies owning UK property, and UK companies generally, under the PSC (person with significant control) register. This was introduced by the Small Business, Enterprise and Employment Act 2016 (implemented under the Companies Act 2006 as amended) and supplemented by the Register of People with Significant Control Regulations 2016. As of 6 April 2016, UK companies are required to keep a register identifying people who retain significant control over them, as a way to target a perceived lack of transparency over who controls companies doing business in the UK. The rules will also apply to individuals who have significant control over the foreign entity, for example, if they hold 25% minimum of the voting rights or shares, they will be caught.
There are high financial penalties and criminal sanctions for failure to register where required on the Register of Overseas Entities.
There have been no local legislative and regulatory developments.
There have been no significant national case law developments.
There have been no significant local case law developments.
The first Budget of the new Labour Government on 30 October 2024 announced a number of significant changes to the taxation of individuals. The most significant change announced will come into force on 6 April 2025 with the abolition of the remittance basis regime for non-domiciliaries. Consultations on two other significant proposals, a cap on the amount of relief available on agricultural property and business property assets for IHT purposes and the removal of IHT relief from pension assets, will be announced in early 2025, with the proposals due to take effect from April 2026 and April 2027, respectively. Rates on carried interests are already set to increase to a flat 32% rate from 6 April 2025.
The new Government has committed not to raise taxes on employees, which leaves IHT and CGT available for future rises. However, the Chancellor has said that she will not need to raise taxes to “top up” public spending following her Autumn Budget.
UK restrictions at the pandemic’s peak forced practitioners to seek guidance on permissible methods of witnessing deeds, signing wills and the validity of electronic signatures.
Deeds
Prior to the pandemic, it was accepted that deeds may be signed electronically by all parties (as confirmed by the Law Commission on 4 September 2019), however, the witness must physically be present and have sight of the person making the deed.
Wills
On 7 September 2020, The Wills Act 1837 (Electronic Communications) (Amendment) (Coronavirus) Order 2020 SI 2020/952 was laid before Parliament. It amends The Wills Act 1837 to allow video witnessing and execution of wills through a live-action video link. It applies to wills made on or after 31 January 2020 and on or before 31 January 2024. Government advice remains that where people can make wills in the conventional way, they should continue to do so.
Making a will where video witnessing will be performed, or obtaining probate where a will was video witnessed or said to be video witnessed, introduces a further level of risk which practitioners and their firms need to assess and manage. We can expect to see cases heard in the UK courts in due course.
The SRT — expansion of COVID-19 exceptional circumstances
HMRC recognised that COVID-19 prevented some people from going to and from the UK and may have resulted in unexpected days in the UK. Guidance in the Remittance and Domicile manual expanded on pandemic-specific exceptional circumstances such as:
- quarantining or official advice to self-isolate;
- official Government advice not to leave the UK;
- closure of international borders preventing leaving the UK; and
- employer’s request to return to the UK temporarily.
Estate administration within England and Wales is regulated by the Probate Registry, part of His Majesty’s Courts and Tribunal Service (HMCTS).
The type of grant of representation issued to a deceased’s estate depends on whether the deceased left a valid will. If there is a valid will, the executors apply for a grant of probate. If there is no will (or the will is invalid) the estate is “intestate”, and an application is made for a grant of letters of administration, which appoints administrators. Both types of grant ultimately enable an estate to be administered, however, executors’ powers to deal with assets of the estate are derived from the will itself, whereas administrators’ powers are conferred by the grant of letters of administration. Having made this important distinction and for the purposes of the rest of this section, all further references to a grant of probate and a grant of letters of administration have been shortened to the “Grant”.
Property held jointly in the UK passes by operation of the law (survivorship) to the surviving joint owner; therefore, a Grant may not always be needed.
Estate administration
HMCTS has digitalised the Grant application process, which for solicitors is now via an online portal. Initially the portal was limited to applications by individual executors, however, it is now possible to use the online portal for trust corporations acting as executors. Certain applications must still be made on paper (for instance, where there is a non-UK will that is held in a foreign court and only a certified copy is available or the deceased was not UK domiciled or it is desired to re-seal a Grant obtained in another jurisdiction).
HMCTS increased the Grant fee from GBP 273 to GBP 300 per application. There is no fee if the estate is valued at GBP 5,000 or less. The cost for copies of Grants remains at GBP 1.50 per copy. There was some discussion around introducing a fee on a sliding scale, however, this was abandoned amidst concern that this would introduce a second-tier IHT by stealth. There are no current proposals to increase fees.
In an attempt to simplify the application process, and effective 1 January 2022, significantly more non-IHT paying estates will be “excepted estates”. For deaths after that date it is no longer necessary to submit form IHT205 for excepted estates where the deceased died domiciled in the UK. Applications where the deceased died up until 31 December 2021 remain unchanged.
Trusts and the Trust Registration Service
The Trust Registration Service (TRS) was introduced in 2017, aimed at taxable trusts. The Money Laundering and Terrorist Financing (amendment) (EU Exit) Regulations 2020 was extended to include non-taxable UK trusts as well as some non-UK trusts with some specific exclusions. Taxable trusts are registrable by 31 January (or 5 October where there is first-time liability to CGT/income tax) following the end of the tax year in which the trust had a UK tax liability. Non-taxable trusts (UK or non-UK) in existence on or after 6 October 2020 require registration by 1 September 2022.
Non-taxable trusts created on or after 4 June 2022, and those created from 1 September 2022, are registrable within 90 days of creation. Some non-UK trusts are also subject to reporting requirements. There are certain exclusions, but tax tends to trump the exclusion. Practitioners need to have regard to the TRS’s wide net. Trusts of land will require registration if the beneficial and legal owners are not the same.
There have been no local legislative and regulatory developments.
Case law of note is addressed in detail below in Section 3.
There have been no local case law developments.
Trusts
In light of the TRS’s new and more onerous requirements, practitioners and trust corporations ought to audit trusts to ensure compliance. Record keeping and maintenance is key. As a general rule, UK express trusts and certain types of non-UK express trusts liable to UK taxation, or with interests in UK land, are required to keep detailed records on those trusts.
Administration
HMCTS experienced severe delays during the pandemic. Practitioners will recall that correspondence to obtain financial information from banks and authorities took significantly longer. All HMRC officers, including those answering the IHT queries helpline, started working from home, which created further delays.
In recognition of social distancing regulations and avoiding unnecessary contact, HMRC now permits IHT accounts to be signed electronically. This has continued since pandemic restrictions were lifted.
The area of trust and estate litigation is not one subject to significant legislative change, whether nationally (affecting the UK) or locally by jurisdiction.
At the time of writing, however, lawmakers in England and Wales are debating the topic of assisted dying (the Terminally Ill Adults (End of Life) Bill). While it remains to be seen whether the bill will be enshrined in legislation, this emotive topic raises a number of issues pertinent to estate litigation, from the application of forfeiture (a rule designed to prevent profiting from unlawful killing), to safeguarding against undue pressure on some of the most vulnerable people in society. A separate bill is already under discussion in Scotland.
Elsewhere, the Law Commission of England and Wales is presently consulting on the topic of predatory marriage and reform of the Wills Act 1837. Predatory marriage concerns a vulnerable person who generally suffers from mental capacity issues and is targeted for financial exploitation. Under the present law, marriage revokes a will, with the majority (if not all) of the estate passing to the surviving spouse upon intestacy. Where the degree of capacity to enter marriage is sometimes described as being lower than that to execute a will, there is a lacuna in the law and potential scope for abuse.
There have been no legislative and regulatory developments.
The past 12 months have seen some diverse case law developments, ranging from traditional principles which have stood the test of time, to creative and modern approaches from the judiciary.
Capacity continues to be a key area of estate litigation. The decision of Smith J in Leonard v. Leonard [2024] EWHC 321 (ChD) provided a comprehensive review of the Banks v. Goodfellow test, which remains the correct test for establishing testamentary capacity, undisturbed by the Mental Capacity Act 2005. The case also provides much-welcomed clarity to the first limb of the test, which is that the testator must be capable of understanding the nature and effect of the specific will in question, not just a will in the abstract.
The judgment is an important read for all private client practitioners on the approach to be taken in the preparation of testamentary documents, the application of the “Golden Rule”, and the importance of contemporaneous attendance notes. Unusually, in the immediate case, the court gave no weight to the will drafting solicitor’s evidence on capacity (cf. Hughes v. Pritchard & Ors [2022] EWCA Civ 386), and made findings that the will drafter’s involvement had made it “less likely” that the Deceased would have been able to understand the will. Unsurprisingly, the court permitted the parties to apply to join the drafting solicitors to the proceedings for the purposes of seeking a non-party costs order (see Key v. Key [2010] EWHC 769 (Ch)).
Continuing with the theme of costs, the Court of Appeal handed down its judgment in Kenig v. Thomson Snell & Passmore LLP [2024] EWCA Civ 15 to confirm that a beneficiary has the right to challenge solicitors’ costs in the administration of an estate or trust under section 71(3) of the Solicitors Act 1974. The court distinguished Kenig from previous, more restrictive authorities and found that the fiduciary relationship between the party chargeable and the beneficiary necessitated a wider duty under section 71(3) applications. The decision is a divisive one for fiduciaries and advisors alike, and will no doubt add a layer of complexity to administration disputes.
In another win for beneficiaries, Lonsdale v. Wedlake Bell [2024] EWHC 712 (KB) extended the White v. Jones principle of solicitor liability to disappointed beneficiaries of an inter vivos trust affected by negligent advice.
At the time of writing, we understand that the Supreme Court decision in Hirachand v. Hirachand is imminent, but costs generally remain a key consideration in financial provision claims under the Inheritance (Provision for Family and Dependants) Act 1975. In Jassal v. Shah [2024] EWHC 2214 (Ch) it was reaffirmed that an applicant’s costs cannot be considered in the court’s calculation of any substantive award under the Act. As proceedings under the 1975 Act are governed by the Civil Procedure Rules (CPR), it was wrong of the first-instance judge to adopt the family court approach of considering costs concurrently (as might be the case in financial remedy proceedings) when assessing need. The decision alludes to the fact that it might be unrealistic to separate legal costs from “financial obligations and responsibilities” (see section 3(6) of the Act), however, there are strong policy arguments for the division (namely, encouraging parties to settle and maintaining the Part 36 regime).
In relation to trust litigation, blessing applications for momentous decisions continue to feature in the court reports. One such example is Folds Farm Trustees Ltd & Anor v. Cutts & Ors [2024] EWHC 12 (Ch) which concerned the sale of the primary trust asset (a farm) to one of the discretionary beneficiaries (siblings), at a discounted rate. The blessing was ordered.
The law relating to deathbed gifts (donatio mortis causa) was clarified in the case of Rahman v. Hassan [2024] EWHC 1290 (Ch), with particular consideration of the requirements to transfer dominion and the distinction between asset classes (i.e., physical, choses in action, and land).
There have been no local case law developments.
In addition to the above, we have also noted a number of cases on the topic of construction, and the need for a dynamic approach to modern families in trust and estate administration is exemplified in the case of Marcus v. Marcus [2024] EWHC 2086. In that case, a family trust had been settled in the belief that the settlor was the biological father of his two sons. Unbeknownst to him, one of the children was the product of his wife’s infidelity. The court applied strict rules of interpretation that the term “children” in the trust deed would not ordinarily include a stepchild; however, the context (taking into account the settlor’s knowledge) meant that the stepson was within the class of beneficiary.
By the same token, capacity and vulnerability factors remain key concerns for practitioners considering modern family dynamics, with particular regard to undue influence and predatory marriage. The case of Langley v. Qin (following Rea v. Rea [2024] EWCA Civ 169) succeeded on a challenge to a will on the grounds of undue influence (as well as capacity and want of knowledge and approval).
As above, the rights and protection of beneficiaries is a lively topic for the court, as is an increasing scope for liability against professionals in this area (see Kenig, Leonard and Lonsdale).
There have been no pandemic-related developments.
4.1 What is the difference between “residence” and “domicile” under the law of England and Wales?
Generally speaking, an individual is domiciled in the jurisdiction with which he or she is most closely connected (which may be different from the country in which he or she is resident for the time being).
Unlike in the case of residence, an individual must, under common law, at all times be domiciled somewhere, but can only be domiciled in one jurisdiction at any one time.
The UK’s residence rules are outlined in various statutory rules and it is possible to determine in any given year if a person is UK tax resident. Until 5 April 2025 this, combined with domicile, determines an individual’s exposure to income tax, CGT and IHT. From 6 April 2025 domicile will cease to be a connecting factor for UK tax as it moves to a residence-based system. Domicile remains crucial for many non-tax purposes, which include aspects of succession, family law, and civil jurisdiction.