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Britons planning to retire abroad and those already living abroad are the “unexpected beneficiaries” of changes to non-dom rules outlined in the Budget that could allow them to escape the 40 per cent inheritance tax.
Currently, anyone with a British “domicile” faces inheritance tax, or IHT, on their overall wealth, even if they live and die abroad.
But under the new system, which replaces “domicile” with residence, most people who live abroad for more than 10 years will not face IHT on their overseas assets.
Philip Munro, partner at law firm Withers, said: United Kingdom Emigrants living in expatriate hotspots such as Dubai, Spain, Hong Kong and Singapore were the “net winners” from the changes to non-dom rules.
“It was very difficult to lose your domicile in the UK and acquire a domicile of choice outside the UK,” he said. “This change is great news for expats in the UK in the long term because it essentially takes them out of net UK inheritance tax in relation to their overseas assets.”
The change could also convince people to retire abroad, if they hope to live another 10 years.
“If anyone was thinking about retiring abroad, this could give them the push they needed,” said Chris Etherington, partner at accounting group RSM.
Alexandra Britton-Davis, a partner at accountancy firm Saffery, said it could make the difference between wanting to “retire in the south of England” or “somewhere warmer where they don’t have IHT”.
The changes coming into force in April will mean that tens of thousands of Britons already living abroad will immediately benefit from the removal of UK net inheritance tax on their death, provided they have lived outside the country for at least 10 years.
These include wealthy British businessmen who have lived abroad for more than a decade, such as Richard Branson. Fund manager Terry Smith is another well-known business figure who has resided outside the UK since 2017.
“A lot of expats don’t really appreciate what happened and may not pay much attention to the non-dom rules, so they wouldn’t realize they are the unexpected beneficiaries,” Etherington added.
The changes will also provide certainty to people who have found themselves classed as British under the current outdated domicile definition rules, tax advisers said.
Currently, domicile is based on where an individual considers their permanent home to be. A person’s “domicile of origin” is determined by the father’s domicile at birth, and the mother’s domicile is generally only considered if the child was born out of wedlock.
A domicile status in the UK can be changed by acquiring a “domicile of choice” in another country, but it is not simple and depends on a number of factors. Cutting ties with your home country and obtaining citizenship elsewhere may play a role, but it’s not decisive, tax experts said.
“If, as a Briton, you had been outside the UK for a long time, you would probably be considered non-domiciled, but you wouldn’t be sure,” said Anthony Whatling, managing director of Alvarez & Marsal Tax. “After his death, his executors could end up in a dispute with HMRC.”
Meanwhile, Britons who have already spent more than 10 years outside the country could also return from April and benefit from the new regime, which provides 100 per cent relief on UK taxes on foreign income and capital gains during the first four years. of residence in the United Kingdom.
Under the rules, they must also live in the UK for 10 years before being subject to full IHT.
“It is a planning opportunity that [British people] I’ve never had it,” said Tim Stovold, partner at Moore Kingston Smith. “Some people will think that 10 years living abroad is a good price to pay,” as long as the rules don’t change again.