October Budget 2024 Changes to Inheritance Taxation: Shift from Domicile to Residence Based Assessment

The recent budget changes, while challenging, have also opened up planning opportunities. For individuals residing outside the UK, there are strategic avenues to reduce exposure to UK inheritance tax (IHT) of 40% on worldwide assets. Likewise, UK residents considering a move abroad can explore options for special tax regimes available in Europe and beyond. With careful cross-border planning, taking into account diverse tax systems and legal frameworks, Partners Like Us can help you optimise your financial strategy.

Currently, UK inheritance tax (IHT) on an individual’s worldwide estate is determined by their “domicile.” This involves a range of factors like where they’ve lived, their family’s history, and future intentions. However, beginning on April 6, 2025, this rule will change, and residence will replace domicile as the determining factor.

Key Changes
1. Residence-Based IHT for Long-Term UK Residents

• Individuals who have been UK residents for at least 10 out of the last 20 tax years at the time of death will have their worldwide assets subject to UK inheritance tax.
• Those who are not long-term residents will be taxed only on UK-based assets.
• After ten years of consecutive non-residence, the IHT status resets, even if the individual returns to the UK.

2. Implications for Trusts and Excluded Property

• Under current rules, property settled in trusts before the settlor becomes UK domiciled can maintain IHT exclusions.
• From April 6, 2025, trust assets will only qualify as excluded property if the settlor is not a UK long-term resident.
• This shift means that previously excluded, non-UK assets settled in trusts may become subject to UK inheritance tax if the settlor becomes a UK resident.

Why This Matters
The new residence-based approach aims to add certainty to the inheritance tax process. It eliminates the complexity around domicile, which previously led to UK inheritance tax implications even for those who had been abroad for decades.

By working closely with strategic partners, we assist clients in reducing UK-situs assets, structuring tax-efficient wealth transfers, and exploring tax residency programs that may offer favourable terms. Whether you aim to protect global assets from UK tax or are interested in leveraging international tax advantages as you prepare for a move, our team provides insights and expertise to ensure a personalised plan.

If you’d like to learn more about these planning opportunities and the new residence-based inheritance tax approach, we’d be pleased to discuss your situation in detail. Our network includes specialists who provide tailored international and cross-border advice on a wide range of topics, from succession and domicile to UK inheritance and capital gains tax.