A Seismic Shift in UK Inheritance Tax: What It Means for Expats

The new Labour government is gearing up to make a major move on inheritance tax (IHT), and for British expats, this could be a monumental shift.

What’s Changing?

The government is planning to overhaul the rules around who gets hit with inheritance tax.

Right now, your exposure to UK IHT is closely tied to your domicile – the country that HMRC deems to be your permanent home.

This means that even if you’ve been enjoying the expat life for years, you’re still likely to be on the hook for IHT on your worldwide assets.

So, whether you’re basking in the Mediterranean sun or taking in the sights in Sydney, UK tax authorities have still got their eyes on your global wealth.

But here’s where things get interesting: The proposed new rules suggest that if you’ve been living outside the UK for 10 years, your non-UK assets could finally escape the clutches of UK IHT.

That’s right—after a decade of non-UK tax residency, those overseas investments could be free from inheritance tax, even if you still consider the UK your permanent home.

This could be a massive relief for those with significant assets abroad.

When Does This Take Effect?

The proposed changes are scheduled to take effect on 6 April 2025.

This gives you some time to assess your situation and decide on your next steps—whether that’s rethinking your financial strategy or simply waiting to see how things unfold.

But make no mistake, this is a big deal, and it’s crucial to start considering the potential impact now.

The Catch: UK Assets

However, it’s important to note that UK assets, such as property, won’t be escaping the IHT net.

These will remain under the IHT umbrella, meaning that any property or other UK-based assets you own will still be subject to inheritance tax, regardless of how long you’ve been living abroad.

The Devil’s in the Details

While the proposed changes sound promising, there’s still a lot of ambiguity.

We won’t have the full picture until the Autumn Budget is released on 30 October.

That’s when we’ll see just how far the UK government is willing to go in shaking up the IHT landscape.

Will these changes make a significant difference for expats, or are they more limited than they appear on the surface?

There are still many questions that need answering. How will the government define non-UK assets? Will there be additional criteria to meet? And most importantly, how will these changes impact the way we plan our estates?

What Should You Do?

For now, the best course of action is to stay informed and start thinking about how these changes might affect you.

If you have significant non-UK assets, it might be worth consulting with a financial adviser to explore your options and plan for the potential tax relief.

In the coming months, as more details emerge, you’ll need to be ready to adjust your strategy accordingly.

Whether this means restructuring your assets or reconsidering where you base your permanent home, the upcoming changes could have a profound impact on your financial future.

Stay tuned—this could be the most significant change in expat tax law in years.