Fidatezza

A significant change is coming for UK businesses with overseas operations.

From 2027, HMRC will make the Foreign Branch Exemption regime mandatory, removing the choice to tax foreign branch profits in the UK. While overseas profits will be exempt, businesses will lose access to overseas branch losses for UK tax relief, with further restrictions on historic losses.

Now is the time to reassess international structures, branch vs subsidiary models, and potential Permanent Establishment exposures.

The UK inheritance tax landscape has shifted dramatically in just two years — and the pace of change is still accelerating.

Since April 2025, the UK has moved from a domicile-based system to a residence-based IHT regime. Long-term UK residents can now be exposed to inheritance tax on worldwide assets, with that exposure continuing for up to 10 years after leaving the UK.

Further changes followed in April 2026:
• APR and BPR reliefs were capped
• Full 100% relief now applies only to the first £2.5m of qualifying assets per person
• Relief above that threshold is reduced by half
• AIM shares also lost part of their relief

And from April 2027, most unused pension funds are expected to fall within the scope of IHT for the first time.

Individually, each reform is significant. Together, they fundamentally reshape areas many clients once viewed as settled: cross-border structuring, business succession, agricultural estates, and pension planning.

What makes this particularly challenging is not only the substance of the reforms, but the speed and uncertainty surrounding them — ongoing consultations, evolving guidance, and continued speculation around future political direction.

For advisers and families alike, medium-term planning now requires far greater flexibility. Structures built under the previous regime may no longer deliver the outcomes originally intended.

Inheritance tax planning has rarely required more active review than it does today.

“About time 👏

HMRC finally increased the mileage allowance to 55p per mile (for the first 10,000 miles) from April 2026.

After 15 years stuck at 45p while fuel, insurance, servicing, and literally everything else soared… this change was long overdue 🤯

Small win, but we’ll take it.”

The UK personal allowance is one of the most commonly misunderstood entitlements for non-residents.

Many internationally mobile clients assume that the first £12,570 of UK income is automatically tax-free, regardless of where they live or what passport they hold.

It is not.

For non-residents, the UK personal allowance is not automatic. It must be claimed on a tax return, and only certain categories of individuals qualify.

The main routes are:

✅ British citizens — regardless of where they live.
This is the route that most often applies in practice.

✅ EEA nationals.
The entitlement survived Brexit.

✅ Certain non-EEA nationals where a double tax treaty specifically grants the allowance.
The list is narrower than most people expect, and the conditions are often highly technical.

A few examples illustrate the point:

✅ An Australian living in Australia qualifies.
❌ An Australian living in the UAE does not. The treaty requires nationality and residence to align.

✅ A British citizen living in the US qualifies.
❌ Their American spouse does not. The US/UK treaty contains no personal allowance article.

✅ A French national living in Hong Kong with UK rental income can shelter the first £12,570 from UK tax.
❌ A South African national in Hong Kong pays UK tax from the first pound of profit.

The pattern repeats across most expat jurisdictions:

Nationality, residence, and treaty wording all matter — and the outcome is often very different from what clients expect.

In cross-border tax planning, assumptions are expensive. The detail matters.

April 2025 ended the UK non-dom regime — and a year later, the same misunderstandings keep appearing.

Here are two of the biggest:

1. Assuming FIG eligibility without checking the full history

The new FIG regime allows qualifying new arrivals to bring foreign income into the UK tax-free for four years.

But there’s a catch: you must have been non-UK tax resident for the previous 10 consecutive tax years.

Even a single year of UK residence during that period can reset the clock. Many people are planning around reliefs they may not actually qualify for.

2. Confusing residence with domicile

Under the old rules, UK inheritance tax was largely tied to domicile — where your permanent home was considered to be.

Now, the focus is residence.

If you’ve been UK resident for 10 out of the last 20 tax years, your worldwide estate can fall within the scope of UK inheritance tax.

And leaving the UK doesn’t necessarily remove you immediately — the exposure can continue for up to 10 years after departure.

The old regime rewarded structures.
The new regime rewards timing, planning, and understanding the detail.

The UK’s second automatic residence test — often called the “Home Test” — is one of the most underestimated parts of the Statutory Residence Test, especially for internationally mobile individuals.

In simple terms, a person can become automatically UK tax resident if they:

• Have a UK home available for at least 91 consecutive days (with at least 30 of those days falling in the relevant tax year)
• Spend 30 or more days at that UK home during the tax year
• Spend fewer than 30 days in any one overseas home during the same period

What makes this rule particularly important is what it doesn’t consider.

It is not focused on total UK day count.
It is not asking where someone’s “centre of life” is.
Instead, it looks narrowly at the existence and use of a UK home compared with overseas accommodation.

This is where highly mobile professionals can be caught unexpectedly.

For example, someone who keeps a London apartment, uses it for 30+ days a year, and moves between multiple overseas locations — without establishing substantial presence in any one overseas home — may still become automatically UK resident, regardless of how international their lifestyle appears.

A technical rule, but one with very practical consequences.

Careful planning matters.

We recently carried out an inheritance tax (IHT) review for a couple planning to retire overseas.

The projected liability on second death was substantial — not an easy figure to digest.

Naturally, the next question was: could moving abroad reduce their exposure?

The answer is yes — but with careful planning.

Under the UK’s new residence-based IHT rules (introduced in April 2025), there is a potential opportunity for those leaving the UK long-term. In simple terms, after a sustained period of non-residence, overseas assets may fall outside the UK IHT net.

However, the detail matters:
• Breaking UK residence properly is a technical process
• The 10-year timeline requires careful management under the Statutory Residence Test
• UK-based assets remain within scope
• The tax rules of the destination country must also be considered

This kind of planning is rarely done in isolation — it typically involves tax advisers, wealth managers, and often overseas specialists working together.

The key takeaway?
If you’re considering retiring abroad, start the IHT conversation early. The longer the planning horizon, the greater the opportunity.

Spain may tax your UK pension.

That catches many British expats off guard. A common assumption is that because you paid into the system, the income you receive is yours to take tax-free. Once you become a Spanish tax resident, that is no longer the case.

Under the Spain–UK double taxation agreement, UK pension income is generally taxed only in Spain. In most cases, HMRC does not deduct tax. However, the Spanish tax authorities treat pension income as ordinary income—and ordinary income is taxable.

This is not double taxation, even if it feels like it. The confusion usually comes from expecting one outcome and discovering another later.

What this means in practice depends on several factors: how much you withdraw, the type of pension you hold, and how it fits with your other income. A state pension and a defined benefit scheme are handled differently, and a SIPP (Self-Invested Personal Pension) brings its own considerations. Timing also plays a role.

A common mistake is leaving this until you start drawing the pension. By then, many of the decisions that could have made a meaningful difference are already in the past.

If you are living in Spain with a UK pension and have not reviewed your situation in detail, that is a sensible place to begin.

⛔️ No—you can’t simply park profits offshore and sidestep UK tax. ‼️

This is one of the most common misunderstandings among UK-resident business owners.

If you’re a UK tax resident, you’re taxed on your worldwide income. Setting up an overseas company and leaving profits abroad doesn’t automatically keep them outside the UK tax net. It makes no difference whether the money stays offshore or sits in a foreign bank account.

UK anti-avoidance rules can still apply, often bringing those profits into charge well before you take any money out.

If you’re UK resident, your structure has to work within UK tax rules—not just overseas ones.

Get it wrong, and you could be unknowingly creating a future tax issue.

All you tax enthusiasts may have spotted a notable change to the 2025/26 employment pages—one that could have a real impact on directors and shareholders.

HMRC has introduced new boxes asking whether your employer is a “close company”—broadly, a UK-resident company controlled by its directors or by five or fewer participators (because, of course, tax can’t resist a bit of complexity).

If the answer is yes, you’ll now need to disclose:
• Company details
• Dividends received
• Crucially, your percentage shareholding

If your shareholding changed during the year, HMRC wants the highest percentage held at any point—not the year-end position, and not an average.