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Brits planning to retire abroad and those already living overseas will become ‘unintended beneficiaries’ due to changes to non-dom rules outlined in the Budget, with a 40% cut on death obligations may be avoided.
Currently, anyone with a UK ‘domicile’ is subject to Inheritance Tax (IHT) on their global wealth, even if they live and die overseas.
However, under the new system, which replaces ‘domicile’ with place of residence, most people living abroad for more than 10 years will not face IHT on their overseas assets.
Philip Munro, a partner at law firm Withers, said British migrants living in expatriate areas such as Dubai, Spain, Hong Kong and Singapore were the “net winners” from the non-dom rule changes.
“I lost my UK address and it was very difficult to get my preferred address outside the UK,” he said. “This change is good news for long-term expatriates in the UK, as it essentially removes the UK inheritance tax deduction associated with overseas assets.”
The changes could also persuade people to retire overseas if they believe they will live another 10 years.
Chris Etherington, partner at accountancy group RSM, said: “For those considering retiring overseas, this could be the boost they need.”
Alexandra Britton-Davies, a partner at accountancy firm Saffery, said it could make the difference between “wanting to retire in the south of England” or “wanting to retire in a warm place with no IHT”.
The changes, which come into force in April, will give tens of thousands of Brits already living overseas the benefit of immediate exclusion from net UK inheritance tax on death, provided they have lived abroad for at least 10 years. means to receive.
These include wealthy British entrepreneurs like Richard Branson who have lived abroad for more than a decade. Fund manager Terry Smith is also a prominent businessman who has been based outside the UK since 2017.
“Many expatriates may not really understand what happened and pay less attention to the non-dom rules, so they may find themselves receiving a windfall. They may not realize it,” Etherington added.
The changes will also bring certainty to people classified as British nationals under the current outdated domicile definition rules, tax advisers said.
Addresses are currently based on where individuals consider their permanent residence. A person’s “permanent domicile” is determined by the father’s address at the time of birth, and the mother’s address is usually only taken into account if the child was born out of wedlock.
You can change your UK residence status by taking ‘voluntary residence’ in another country, but it is not easy and depends on a number of factors. Tax experts said severing ties with one’s country of origin and obtaining citizenship in another country could play a role, but was not decisive.
Anthony Watling, managing director at Alvarez & Marsal Tax, said: “If you’re a British national and you’ve been outside the UK for a long period of time, you’re probably considered not to have a domicile, but we don’t know. ” he said. “After your death, your executor may have a dispute with HMRC.”
Meanwhile, Britons who have already spent more than 10 years abroad could also return to the UK from April and benefit from a new regime that offers 100% relief in UK tax on foreign income and capital gains for the first four years. be. Be a resident of the UK.
The rules also require you to have lived in the UK for 10 years before becoming eligible for full IHT.
“This is a planning opportunity that (British) has never had before,” said Tim Strovold, a partner at Moore Kingston Smith. “Unless the rules change again, some may think 10 years abroad is a price to pay.”
