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British people planning to retire overseas and people already living abroad are the “unexpected beneficiaries” of changes to the non-dom rules outlined within the Budget that might see them escape death duties of 40 per cent.
Currently, anyone with a British “domicile” faces inheritance tax, or IHT, on their global wealth even in the event that they live and die overseas.
But under the brand new system, which replaces “domicile” with residency, most individuals living overseas for greater than 10 years won’t face IHT on their foreign assets.
Philip Munro, partner at law firm Withers, said that UK émigrés in expat hotspots equivalent to Dubai, Spain, Hong Kong and Singapore were “net winners” from the non-dom rule changes.
“It was very hard to lose your UK domicile and acquire a non-UK domicile of selection,” he said. “This transformation is great news for long-term UK expats because essentially it takes them out of the UK inheritance tax net in relation to their foreign assets.”
The change could also persuade people to retire internationally, in the event that they are confident of living for one more 10 years.
“If someone was pondering of retiring overseas, this will likely give them the push they needed,” said Chris Etherington, partner at accountancy group RSM.
Alexandra Britton-Davis, partner at accountancy firm Saffery, said it could make the difference between wanting to “retire within the south of England” or “somewhere warmer where they don’t have IHT”.
The changes that come into force in April will mean tens of 1000’s of Brits already living abroad will immediately profit from being faraway from the UK’s inheritance tax net on their death — provided they’ve lived outside the country for no less than 10 years.
These include wealthy British entrepreneurs equivalent to Richard Branson. Fund manager Terry Smith is one other well-known business figure who has been based outside the UK since 2017.
“Numerous people who find themselves expats don’t really appreciate what’s happened and is probably not paying much attention to the non-dom rules, so wouldn’t realise they’re the unexpected beneficiaries,” added Etherington.
The changes may also provide certainty for individuals who have been classed as British under the antiquated domicile definition rules, tax advisers said.
Currently, domicile is predicated on where a person considers their everlasting home to be. An individual’s “domicile of origin” is set by their father’s domicile at birth, with the mother’s domicile is simply often considered if the kid was born outside of marriage.
A UK-domiciled status will be modified by acquiring a “domicile of selection” out of the country, nevertheless it will not be straightforward and relies on several aspects. Cutting ties together with your country of origin and gaining citizenship elsewhere can play a task but will not be decisive, tax experts said.
“If as a Brit you’d been outside the UK for a very long time, you were probably considered non-domiciled, but you wouldn’t be certain,” said Anthony Whatling, managing director at Alvarez & Marsal Tax. “After your death, your executors might find yourself in a dispute with HMRC.”
An HM Treasury spokesperson said: “Replacing the outdated non-dom tax regime with a brand new internationally competitive latest residence-based system addresses unfairness in our tax system, attracts the very best talent and investment to the UK, and ensures everyone who’s a long-term resident within the UK pays their taxes here.”
Meanwhile, British individuals who have already spent greater than 10 years in a foreign country could also return to it from April and profit from the brand new regime, which provides 100 per cent relief on UK tax on foreign income and capital gains for the primary 4 years of residence within the UK.
Under the foundations, additionally they must live within the UK for 10 years before being subject for full IHT.
“It’s a planning opportunity which [British people] have never had,” said Tim Stovold, partner at Moore Kingston Smith. “Some people will think 10 years living abroad is a high-quality price to pay”, so long as the foundations don’t change again.
