In his budget last week, UK Chancellor Jeremy Hunt, announced his intention to move to a residence-based regime for Inheritance Tax (IHT).
The question is how will this affect us as expats?
Background
Currently, liability to UK IHT depends on domicile status and location of assets.
Domicile is very much a British concept and is not the same as residence.
If you are deemed to have UK domicile then your worldwide assets are subject to IHT.
However, if you are non-domiciled, then only UK-situated assets are subject to IHT.
If you were born in the UK or to British parents then there is a good chance that you will have acquired UK domicile at birth.
It is possible to change this, but it is incredibly difficult to do (the case of Richard Burton is a prime example of how difficult it is).
Jeremy Hunt’s Proposed Change
To replace this, the Chancellor is proposing a system based on residence.
Simply, if you have been resident in the UK for 10 years, you are liable for IHT on your worldwide assets.
Equally simply, once you have left the U.K. for more than 10 years, then IHT does not apply to your worldwide assets (it would still apply to your UK-situated assets).
This would certainly make life a lot more straightforward for those of us who have left the UK, with much less uncertainty about whether or not IHT would apply to our worldwide assets.
Don’t Get Too Excited
However, there is no actual legislation at this stage. Only the promise of a consultation later this year. By which time there will quite possibly be a new government in place.
In the meantime, HMRC updates have shown that IHT receipts rose to £6.3 billion in the period from April 2023 to January 2024, which is an increase of 7%.
IHT has continued to grow in recent years and no doubt it will continue to do so. It is no longer a “rich persons tax”, but the everyday persons tax.
There are a number of ways in which it can be mitigated currently, and, in the absence of a concrete change to the rules, it would be wise to continue to take advantage of them.
Further Reading
Inheritance Tax Planning For Expats: Using The PASTOR Framework To Effectively Manage Your Estate
Using Gift Allowances To Reduce IHT: Six Tips On Using Gifts To Reduce Inheritance Tax
