May Tax Summary

A roundup of tax news and deadlines for the month of May 2025

CHANGES TO THE TAXATION OF NON-UK DOMICILED INDIVIDUALS

From 6 April 2025, a new regime for the taxation of UK resident non-domiciled individuals came into effect. HMRC have published a brand-new manual on the regime which can be viewed here.

Until 5 April 2025, special tax rules applied to individuals who were resident in the UK but whose domicile (i.e. their permanent home, usually determined by their father’s permanent home at the time the individual was born) was outside the UK. Such individuals could choose to either pay UK tax on their foreign income and gains as they arose or, alternatively, they could claim the remittance basis, which meant only foreign income and gains remitted to the UK were taxed.

From 6 April 2025, all UK residents will be taxed on the arising basis of assessment. The remittance basis will no longer be an option. A new regime for Foreign Income & Gains (FIG) will be available to individuals for their first four years of UK tax residence after a period of 10 years non-residence. Individuals who make a claim to use the new 4-year FIG regime will not pay tax on FIG arising in those four years. Former remittance basis users will continue to pay tax on FIG that arose before 6 April 2025 that they remit to the UK.

New rules also apply for Inheritance Tax (IHT) purposes. The new test for whether non-UK assets are in scope for IHT is whether an individual has been resident in the UK for at least 10 out of the last 20 tax years immediately preceding the tax year in which the chargeable event (including death) arises. This is known as being a ‘long-term UK resident’. Where an individual is a long-term UK resident and becomes non-UK resident, they will remain in scope for IHT for a minimum of 3 years and a maximum of 10 years depending on the amount of time they resided in the UK.

HOLIDAY LETTINGS AND PROPERTY

The Furnished Holiday Lettings (FHLs) regime was abolished on 6 April 2025. What does the abolition mean for your holiday letting property?

The property will become part of either your main UK or overseas property business. This means that some of the beneficial tax rules that previously applied will no longer apply, such as:

• Tax relief for dwelling-related loan interest will be restricted to basic rate (20%).
• New capital expenditure will generally not qualify for capital allowances, Instead, the replacement of domestic items relief may apply.
• Capital Gains Tax reliefs for trading business assets (such as Business Asset Disposal Relief, Gift Relief and Rollover Relief) will no longer be available.
• Income from the property will no longer be included in ‘relevant UK earnings’ for the purposes of calculating maximum pension relief.

However, all is not lost! There are some transitional measures that you may benefit from:

• It will be possible to carry forward losses that were generated by an FHL business prior to 6 April 2025. These losses will be available for set off against future years’ profits of either the UK or overseas property business, as appropriate.
• Where an FHL business had a capital allowances pool at 5 April 2025, the pool can be carried forward within the general property business. Going forwards, it will be possible to claim writing-down allowances on the pool.
• For Business Asset Disposal Relief (BADR), where the FHL conditions were satisfied in relation to a business that ceased prior to 6 April 2025, relief may continue to apply to a disposal that occurs within the normal 3-year period following cessation.

If your property previously qualified as an FHL and you have questions about the new tax treatment, please get in touch with us!

VAT: ‘Food’ or ‘Confectionery’?

Group 1 of Schedule 8 VAT Act 1994 specifically makes ‘food’ zero-rated, although there is a long list of ‘excepted items’ which do not qualify for the zero-rating and are therefore standard-rated. Excepted item No. 2 is “Confectionery, not including cakes or biscuits other than biscuits wholly or partly covered with chocolate or some product similar in taste and appearance”.

Note 5 expands on the meaning of ‘confectionery’, saying that it “includes chocolates, sweets and biscuits; drained, glace or crystallised fruits; and any item of sweetened prepared food which is normally eaten with the fingers”.

Over the years, there have been numerous court and tribunal cases that have considered whether or not a food item meets the definition of ‘confectionery’. The most recent case has concerned ‘Mega Marshmallows’; the kind usually toasted on a skewer over outdoor fires and barbecues.

In HMRC v Innovative Bites Ltd ([2025] EWCA Civ 293), the Court of Appeal (CoA) has allowed HMRC’s appeal and has remitted the case to the First Tier Tribunal (FTT) to consider whether mega marshmallows are a “sweetened prepared food which is normally eaten with the fingers”. The CoA found that both the First-Tier and Upper Tribunals had not put sufficient emphasis on the manner in which Mega Marshmallows are ‘normally eaten’.

It will be interesting to read the First-Tier Tribunal’s ruling, as toasted marshmallows are normally eaten from a skewer, albeit one that is held with fingers!

DIARY OF MAIN TAX EVENTS

MAY / JUNE 2025

Disclaimer: The information in this article is provided for general information only and does not constitute legal or professional advice. We cannot accept responsibility or liability for any actions you may take, or not take, based on this information.