A new Inheritance Tax loophole which has opened up can help people avoid losing 40 percent of the value of their estate.
Labour in its Budget has targeted tax loopholes, with one unpopular change around farmers Inheritance Tax forcing large farm estates to start paying tax proving especially controversial.
But one change around non-dom status could actually help people avoid paying tax on their estate.
Wealthy Brits retiring overseas could avoid paying any tax on their foreign assets as long as they follow the ‘10 year rule’ being introduced.
That means if you live outside the UK for 10 years, you won’t be liable to pay the 40 percent Inheritance Tax on your assets after all.
Currently, anyone with a British ‘domicile’ must pay Inheritance Tax on their worldwide assets, even if they spend retirement abroad (such as moving to Spain).
But in the new system, domicile status is being replaced with residency status and thousands of expats will potentially benefit from April 2025 and it means those resident in another country for 10 years before they die won’t owe Inheritance Tax on the overseas assets in their estate.
Expert tax firm BDO outlined the changes. It said: “The new rules will apply to IHT (inheritance tax) on chargeable events occurring on or after 6 April 2025 and the test for whether overseas assets are within the scope of IHT will be whether a person has been UK resident for 10 tax years prior to the year of the chargeable event.
“Once you meet this 10 year test, you stay within the UK IHT net for the next 10 years whether resident in the UK or not.
“Consequently, individuals would need to be non-UK tax resident for at least 10 years after leaving the UK to be outside of Inheritance Tax.”
An HM Treasury spokesperson told GB News: “Replacing the outdated non-dom tax regime with a new internationally competitive new residence-based system addresses unfairness in our tax system, attracts the best talent and investment to the UK.”
