Rachel Reeves may have taken the winter fuel payment away from many pensioners, but she has also confirmed that their families might be much better off if they retire somewhere warmer.
As part of the proposed rule changes for non-doms, published on 29 July 2024, it is envisaged that ‘the basic test for whether non-UK assets are in scope for inheritance tax (IHT) from 6 April 2025 will be whether a person has been resident in the UK for 10 years prior to the tax year in which the chargeable event (including death) arises, with provision to keep a person in scope for 10 years after leaving the UK’.
The test will be the subject of ‘refinement’ and the government will ‘engage with stakeholders on the operation of the new test’. That suggests a consultation will be published in due course, most likely on 30 October 2024, the date of the Budget.
At the moment, exposure to UK IHT is determined based on an individual’s domicile, which can be summarised as the country/jurisdiction that is their permanent home. So even if someone has been resident outside of the UK for a long time, they could still remain subject to UK IHT on their worldwide assets, particularly if they haven’t settled in a single spot overseas.
This proposed rule change will mean that even if someone still considers their permanent home to be the UK, their non-UK assets may not be subject to UK IHT once they have been non-UK tax resident for 10 years. As is the current position, property and other assets that are treated as located in the UK are likely to remain subject to UK IHT regardless.
Clearly, 10 years is a long time and moving overseas purely for tax reasons is rarely the right thing to do. It’s also important to be mindful that the country someone moves to may apply their own version of IHT, or other taxes like a wealth tax. Some may also charge capital gains tax on death instead of IHT, which could lead to interesting double-tax considerations.
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By GlobalDataIt will be interesting to see how other countries respond to this development in the UK. We have already seen countries such as Greece offer tax breaks to encourage individuals to move there. It is possible that we could see some countries introduce preferential IHT regimes to attract wealthy UK expats to their shores.
