
UK Inheritance Tax for Non-UK Residents: Take Action Now
The UK Government’s October 2024 Budget has brought significant changes to UK inheritance tax (IHT) rules for non-UK residents. These adjustments, effective from 6 April 2025, aim to clarify tax obligations for individuals who live abroad. While primarily targeting those who may return to the UK after working overseas, these changes also provide unexpected benefits for British expatriates planning to retire abroad permanently.
Key Changes to UK Inheritance Tax for Non-UK Residents
1. Domicile Replaced by Residence-Based Rules
The most notable change is the shift from domicile-based assessments to a residence-based test for IHT. Under the new rules, a British expat who becomes non-UK resident will still have their estate subject to IHT for a “tail” period of three to ten years, depending on their duration of UK residence. After 10 years of being non-UK resident, their non-UK assets will no longer be subject to IHT.
2. Transitional Rules for Existing Non-UK Residents
Individuals who were already non-UK resident and not UK domiciled as of 30 October 2024 will benefit from transitional provisions. These rules shorten the IHT tail, offering immediate clarity and potential tax advantages for long-term expatriates.
What This Means for British Expats
Historically, individuals born with a UK domicile of origin faced challenges in losing that status. Even decades of living abroad often didn’t suffice if they couldn’t demonstrate a permanent intention to remain in another jurisdiction. This often meant that their global assets remained subject to UK IHT.
The new residence-based system simplifies matters. Expats who spend at least 10 years outside the UK can ensure their non-UK assets are excluded from IHT assessments. This provides certainty for globally mobile individuals who want clear rules about their tax obligations.
Financial Planning Opportunities
The upcoming changes highlight the importance of proactive financial planning. British expats who act now to understand their tax status and plan accordingly could benefit significantly.
Key steps include:
• Reviewing current residence status and the length of time spent abroad.
• Consulting with a qualified financial advisor to align estate planning with the new rules.
• Exploring transitional provisions for individuals already non-UK resident and non-UK domiciled.
Uncertainty for Recent Expats
For those who have been non-UK resident for less than 10 years by 6 April 2025, some uncertainty remains. The transitional rules only apply to individuals who were non-UK domiciled as of 30 October 2024. These individuals should seek expert advice to navigate the interim period and make the most of the available opportunities.
Final Thoughts
The Budget’s changes to UK inheritance tax for non-UK residents present both challenges and opportunities. For British expats, understanding the implications of the new residence-based test is crucial. With the right financial planning, many can reduce or even eliminate their IHT liabilities on non-UK assets and perhaps more importantly move as much of your assets as possible into secure and efficient structures outside of the UK.
Take action now to review your estate plan and ensure you’re fully prepared for the changes coming in April 2025.
Contact Ingenium Financial for a full-range professional support.
Want to know more about the recent UK Budget changes? See a range of articles from HMRC here.