In the Spring Budget in March 2024, reforms to the Inheritance Tax regime for non-domiciled individuals were announced. The proposed changes, due to come into force by 6 April 2025 at the earliest, have not yet been written into legislation, but are believed to be as follows:
What are the current rules?
Currently, assessment to Inheritance Tax (IHT) is determined by an individual’s domicile. Your domicile can be determined in a number of different ways, such as where you are born and raised, whether you reside in a country for a permanent/indefinite period of time, or whether you have been tax resident in the UK for at least 15 of the previous 20 years, known as your deemed domicile.
Once your domicile has been determined, this governs whether you are assessed to IHT on your UK or worldwide assets at death.
What are the proposed changes to Inheritance Tax?
Under the governments proposed changes, IHT will be assessed on worldwide assets that an individual owns at death, whereby that individual has been resident in the UK for at least 10 years at the date of death.
In order for an individual to cease to be assessed to IHT on their worldwide assets, they will have to have been non-resident in the UK for at least 10 years.
What is still to be determined?
As final legislation has yet to be confirmed, and is subject to consultation, there are still many aspects of the proposed changes that we are not yet sure of. These are, among other things:
- Any expected transitional provisions;
- Whether there will be any other factors for consideration, other than an individual’s residence;
- The interaction with any previously made domicile elections;
- The effect of these changes on individuals who have previously been considered UK domiciled, and reside in the UK;
- The effects of these changes with regards to trusts, and calculating their charges.
It is worth noting that the consultation that the government have provided to date references that “connecting factors” will be a consideration in determining domicile. It is therefore advisable to wait for confirmation on what these factors may be before making any decision with regards to an individual’s domicile.
What should I do next?
As every individual’s circumstances are unique, and there is consideration to be had as to the changes announced in the Spring Budget to the taxation of income and gains for non-domiciled individuals, any planning around IHT will have to be tailored to that individual. If you wish to discuss this matter in more detail, please contact your Tax Adviser, or if you are a prospective client, please contact Liz Higgins, our Head of Private Client Tax.