Inheritance Tax Implications for UK Expats After Non-Dom UK Budget Changes

25 Feb

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ProACT Sam Orgill discusses the long-game implications of Inheritance Tax Changes for UK Expats Living and Working Abroad.

For UK expats, the main consideration regarding inheritance tax (IHT) is their domicile status, which determines their IHT liability on worldwide assets.

The UK autumn budget changes 2024 non-dom status rules - changing the basis of assessment of domicile and inheritance tax for UK Expats Living and Working Broad - and in some ways for the better.

DOMICILE OF ORIGIN

Your country of origin is not necessarily your country of birth… domicile in law uses your parents and grandparent's nationality as well. In countries like the UK citizenship can be obtained after 5 years of residence and becoming a ‘permanent resident’ (indefinite leave to remain in UK)

Expats relocating to the UK take up to 15 years to be deemed domicile under current rules, the reverse is true when leaving the UK.

Anyone who is a UK Domiciled at death is liable to UK Inheritance Tax assessment at 40% on worldwide assets.

ABOLITION OF NON-DOM STATUS

Effective April 6, 2025, the UK will abolish the non-dom regime, replacing it with a residence-based taxation system. This means that individuals will be taxed on their worldwide income and gains based on their UK residency status after just 4 years of UK tax residency, rather than 15 years based on their domicile status.

INHERITANCE TAX REFORMS

The UK will move to a residence-based system for IHT, charging IHT on worldwide assets for individuals who have been UK resident in ten out of the last twenty tax years. Such individuals will remain within the scope of IHT for up to ten years following exit from the UK, with the IHT 'tail' depending on how long they were resident in the UK.

IMPLICATIONS FOR UK Expats:

For UK expatriates, these changes mean that upon returning to the UK, they will be subject to UK tax on their worldwide income and gains from the outset, without the previous non-dom status benefits. Additionally, the new IHT rules could affect the taxation of their global assets - property, business, investments, pensions, come under assessment on death.

Given these significant changes, it is advisable for UK expatriates and non-doms to review and consult with the ProACT Expat tax professionals to understand how these reforms may impact their family and business circumstances and to plan accordingly.

Domicile vs. Residence: UK inheritance tax is payable on worldwide assets by UK domiciled individuals, even if they are living and working abroad as expats with tax residence in another country like Cyprus.
UK Domicile: If an expat is still considered UK domiciled, they will have a 40% liability on death to UK IHT on worldwide assets, including overseas property, businesses, pensions and investments.
Changing Domicile: It's possible to change your domicile, but it's a complex process. If an expat becomes domiciled in Cyprus, they may benefit from Cyprus's 0% inheritance tax.
Planning Ahead: ProACT offer Family and Business Solutions for saving on inheritance tax include making lifetime gifts or Family Trust escaping the 40% IHT on your wealth and estate upon death.
EU Succession Laws: EU Succession laws can affect how expats organize their family inheritance, business, pensions and overseas property investment assets. Forced heirship of estates if you don't have the correct measures in place
Information Exchange: International exchange of property and asset information between countries will impact how IHT is assessed on worldwide assets going forward. In the past discreet plans meant the UK Government could not track and monitor you and your wealth. 2024 changes bring forward the Orwellian scenario of 1984 into our world where a government can track your everythought..

25 Years of Cyprus Know How

UK Expats need to get ahead with their planning. Only by organising your affairs in good time can you save 40% tax. You earned the income and it was taxed, you invested money to make capital gains and it is taxed, give your family the chance to inherit your net wealth without your death being taxed at 40% too.

It's crucial for UK expats to seek professional advice and plan their family & business wealth and long term estate planning carefully to make the maximum tax savings potential inheritance tax liabilities. ProACT Partnership know how to protect your family's wealth.

For help and guidance, contact us.