Inheritance tax loophole could save millions of Brits from 40% death duty | Personal Finance | Finance
Rachel Reeves‘ Budget has left millions of UK residents questioning whether to make the move to retire abroad. Well, a certain change to non-dom rules may now be the push they need to take the plunge if they want to avoid paying inheritance tax (IHT).
The Autumn Budget saw a major change to Brits with a ‘domicile’. Historically, those would be required to pay IHT on their wealth accrued around the world, even if they retire and die in a foreign country.
However, Labour’s new system will replace domicile for residency. This means those who choose to retire abroad, and have been living outside of the UK for at least 10 years, will no longer have to pay IHT on their foreign assets.
With the ‘death duty’ currently standing at a whopping 40%, this change will be welcomed by British expats who could avoid paying the tax altogether.
Coming into play in April 2025, the tens of thousands of Brits already living abroad will be immediately exempt from IHT when they die, such as Airline tycoon Richard Branson who has been based in the British Virgin Islands for nearly 20 years.
A person’s domicile is currently considered to be where their permanent home is. Non-doms (non-domiciled), means an individual who resides in the UK yet their permanent tax residence is abroad. This means those who hold this status do not have to pay UK taxes on their foreign assets.
However, Rachel Reeves’ move to change the non-dom status has raised concern from experts over the mass exodus of wealthy individuals in the UK.
“The abolition of the non-dom regime will drive away highly mobile wealth creators and so their tax contribution will decrease and they will invest less in our economy,” according to Maxwell Marlow at the Adam Smith Institute.
Ms Reeves’ predecessor, Jeremy Hunt, had drawn up plans to scrap the non-dom regime in his previous Budget, yet officials warn of the increased number of individuals set to leave the UK under the current chancellor’s plan.
The Office for Budget responsibility predicted Mr Hunt’s plan would see 10% of non-doms leave the country, yet this estimated figure has risen to 12% under Ms Reeves.
