Non-domicile changes – Inheritance Tax

Navigating personal and business tax complexities for non-domiciled individuals

The abolition of the non-dom tax regime

In the Spring Budget 2024 Jeremy Hunt announced the abolition of the non-dom tax regime and a new modernised ‘tax holiday’ for individuals moving to the UK.

It is one of the most significant reforms to the non-dom tax regime in our generation. Many affected individuals will now face a dilemma due to the proposed rules, in terms of both their existing structures and ongoing exposure to UK Tax.

It is important to note that changes to the Inheritance Tax (IHT) regime will be subject to consultation. The feeling at present seems to be that the changes are overly burdensome and potentially unworkable. It is expected that there will be further changes following the consultation.

The changes, as proposed at present, can be summarised as follows:

To test exposure to IHT, the UK will move away from a domicile-based regime to a residence-based test.
Individuals who have been resident in the UK for 10 years will become subject to IHT on their worldwide estate.
Individuals who have been non-UK resident for 10 years will lose this status and will thereafter only be subject to IHT in respect of UK situs assets. This creates a 10 year ’tail’ of IHT exposure for those who cease to be UK resident.
The excluded property status for trusts created after 5 April 2025 will become significantly more stringent, testing whether the settlor meets the new residence-based test not only at the time of the trust creation, but whenever there is an IHT event, such as an exit or 10-year anniversary.
The IHT protection afforded to trusts funded pre-6 April 2025 should be grandfathered. However, Labour have signalled their intention to remove such grandfathering should they win the next general election.

The biggest winner here will be UK expats who might previously have still been UK domiciled even though they had been non-resident for many years. They may no longer be subject to IHT on their worldwide estate.

For most others it will put them in a worse position, as they will become subject to IHT on their worldwide estate much sooner than would previously have been the case and will find it significantly harder to lose the IHT exposure, even after leaving for good.

How we can help

If you would like to discuss the impact of these IHT changes, please get in touch with your usual Blick Rothenberg contact, or one of the team using the below form.