The UK’s increasingly hostile tax environment has forced many of the nation’s super-rich overseas. While some may have considered the relocation temporary, new Inheritance Tax (IHT) changes about to come into play could give them more reasons not to return to the UK for a while longer, a leading tax expert has suggested.
From 6 April 2025, individuals not classified as ‘long-term UK residents’ (LTR) will see their non-UK assets fall outside the UK’s Inheritance Tax scope. This marks a significant change and a major win for expat Brits, Helena Luckhurst, partner at Fladgate said.
What’s changing?
Under current law, returning Brits classified as ‘formerly domiciled residents’ face IHT on their global assets after one year after coming back to the UK. From 6 April 2025, however, returning British citizens who have been non-UK residents for at least 10 of the previous 19 tax years will benefit from a 10-year IHT exemption on their non-UK assets upon their return.
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While this change applies to all nationalities, it has a particular impact on those born in the UK with a UK domicile of origin.
‘Of course, you don’t have to be a Brit to enjoy this IHT treatment but the contrast between the current rules and the soon-to-be current rules could not be starker for those born in the UK with a UK domicile of origin in particular,’ she said.
Maintaining accurate records of UK tax residency years will be crucial and taxpayers should seek advice to ensure compliance with the new rules, Luckhurst said.
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For Brits who plan to remain abroad, the changes are even more beneficial, Luckhurst added.
‘Under current rules, individuals living abroad who retain their UK domiciles (actual or deemed) are exposed to IHT on their worldwide estates, regardless of where they are tax resident,’ she explained.
‘It’s hard to lose a UK domicile if you like to move between different countries or intend to return to the UK upon retirement. From 6 April 2025, expats just need to work at staying “not LTR” if they want to keep their non-UK status outside the clutches of IHT.’
Chancellor Rachel Reeves’ Spring Statement did little to appease non-doms considering more favourable jurisdictions in the wake of the removal of IHT protections on existing settlements announced in the Autumn Budget.
IHT thresholds remain frozen, pushing more estates into the tax net as property values and asset prices rise. But this is likely to be offset by the wealthy leaving the country. Following the Spring Statement, Marc Acheson, global wealth Specialist at Utmost Wealth Solutions, said: ‘We can expect to see a continuation of non-doms and HNWs exiting the UK in the coming years, with significant ramifications for future tax receipts.’
[See also: A Labour olive branch to non-doms?]
What is LTR and how do you qualify?
LTR status applies to those individuals aged 20 or over who have been UK residents for at least 10 of the previous 20 tax years. Once an individual leaves the UK, their LTR status gradually phases out over three to 10 years, depending on their previous UK residency history. For instance, someone who was a UK resident for 13 of the past 20 tax years loses LTR status after three years of non-UK residency while an individual who was a UK resident for 16 of the past 20 years loses LTR status after six years abroad.
