{"id":6277,"date":"2025-03-25T09:24:28","date_gmt":"2025-03-25T09:24:28","guid":{"rendered":"https:\/\/www.bainesjewitt.co.uk\/blog\/?p=6277"},"modified":"2025-03-25T09:24:30","modified_gmt":"2025-03-25T09:24:30","slug":"major-changes-to-inheritance-tax-from-april-how-new-residence-rules-and-the-end-of-non-dom-status-could-affect-your-estate","status":"publish","type":"post","link":"https:\/\/www.bainesjewitt.co.uk\/blog\/major-changes-to-inheritance-tax-from-april-how-new-residence-rules-and-the-end-of-non-dom-status-could-affect-your-estate\/","title":{"rendered":"Major changes to Inheritance Tax from April \u2013 How new residence rules and the end of non-dom status could affect your estate"},"content":{"rendered":"

Major reforms to the UK\u2019s Inheritance Tax (IHT) regime are on the horizon, with sweeping changes, particularly affecting non-domiciled individuals (non-doms) set to take effect from 6 April 2025.<\/span><\/p>\n

<\/p>\n

At the heart of these reforms is a move away from the current domicile-based framework to a residence-based system.\u00a0<\/span>\u00a0<\/span><\/p>\n

For many people, particularly non-UK domiciled persons residing in the UK, this could affect their estate planning and succession strategies.<\/span>\u00a0<\/span><\/p>\n

Moving from domicile to residence<\/span><\/b>\u00a0<\/span><\/h3>\n

Currently, an individual\u2019s exposure to IHT on non-UK assets hinges on whether they are UK domiciled, or deemed domiciled, under specific rules.\u00a0<\/span>\u00a0<\/span><\/p>\n

From April 2025, this will change. The concept of domicile will no longer determine the liability for IHT on non-UK assets.\u00a0<\/span>\u00a0<\/span><\/p>\n

Instead, the focus will shift to an individual\u2019s long-term residence status.<\/span>\u00a0<\/span><\/p>\n

An individual will be classified as a long-term resident once they have spent 10 out of the previous 20 tax years resident in the UK.\u00a0<\/span>\u00a0<\/span><\/p>\n

This is assessed using the same statutory residence test currently applied for Income Tax and Capital Gains Tax (CGT) purposes.<\/span>\u00a0<\/span><\/p>\n

Once someone meets this threshold, all their worldwide assets (including non-UK assets) will be subject to IHT, effective from the start of their eleventh year of UK residence.<\/span>\u00a0<\/span><\/p>\n

What happens after you leave the UK?<\/span><\/b>\u00a0<\/span><\/h3>\n

A notable addition to the new rules is the so-called Inheritance Tax tail.\u00a0<\/span>\u00a0<\/span><\/p>\n

Even after an individual ceases UK residence, their worldwide estate won\u2019t immediately fall outside the UK\u2019s IHT net.\u00a0<\/span>\u00a0<\/span><\/p>\n

Instead, there will be a \u2018tail\u2019 period of continued IHT exposure, lasting between three and ten years, depending on the length of their previous UK residence.<\/span>\u00a0<\/span><\/p>\n

For instance, those resident in the UK for 10 to 13 years will face a three-year tail. For each additional year of residence beyond this, the tail extends by one year, up to a maximum of 10 years.<\/span>\u00a0<\/span><\/p>\n

However, there is some relief for non-UK domiciled individuals who exit the UK before the changes take effect.\u00a0<\/span>\u00a0<\/span><\/p>\n

Transitional rules mean that those non-resident during the 2025\/26 tax year, and able to demonstrate a non-UK domicile status as of 30 October 2024, will retain a fixed three-year tail, regardless of how long they were a UK resident prior to leaving.<\/span>\u00a0<\/span><\/p>\n

Trusts under scrutiny<\/span><\/b>\u00a0<\/span><\/h3>\n

Trusts have long been a favoured tool for non-UK domiciled individuals to safeguard non-UK assets from IHT.\u00a0<\/span>\u00a0<\/span><\/p>\n

However, the reforms alter the treatment of trusts from April 2025.<\/span>\u00a0<\/span><\/p>\n

Going forward, the excluded property status of non-UK assets settled into trust will depend on the settlor\u2019s residence status.\u00a0<\/span>\u00a0<\/span><\/p>\n

If the settlor is a long-term UK resident when a chargeable event (such as a 10-year anniversary or capital distribution) arises, those non-UK assets will fall within the IHT net.<\/span>\u00a0<\/span><\/p>\n

While trusts settled before 30 October 2024 will benefit from certain transitional protections (shielded from the gift with reservation of<\/span> benefit rules), they will still be subject to ongoing relevant property charges of up to six per cent.<\/span>\u00a0<\/span><\/p>\n

Additionally, if a settlor becomes non-resident and loses their long-term resident status, an exit charge may apply to assets reverting to excluded property status.<\/span>\u00a0<\/span><\/p>\n

Other factors to consider<\/span><\/b>\u00a0<\/span><\/h3>\n

The reach of these reforms does not stop there.\u00a0<\/span>\u00a0<\/span><\/p>\n

Individuals with agricultural or trading businesses based outside the UK should be aware that changes to Agricultural Property Relief (APR) and Business Relief (BR) are also scheduled for 6 April 2026.\u00a0<\/span>\u00a0<\/span><\/p>\n

These reliefs will be capped at \u00a31 million of qualifying assets, with only partial relief available above that threshold, potentially increasing IHT liabilities.<\/span>\u00a0<\/span><\/p>\n

While the UK\u2019s estate tax treaties remain unaffected by these reforms, establishing whether you qualify for treaty protection may still require a careful review of your domicile status under common law.<\/span>\u00a0<\/span><\/p>\n

Steps to take now<\/span><\/b>\u00a0<\/span><\/h3>\n

With the clock ticking, proactive planning is essential. Some key areas to review are below:<\/span>\u00a0<\/span><\/p>\n

    \n
  • Succession arrangements <\/span><\/b>\u2013<\/span> Re-evaluate wills and succession strategies in light of the new residence rules.<\/span>\u00a0<\/span><\/li>\n<\/ul>\n
      \n
    • Trust structures <\/span><\/b>\u2013<\/span> Consider whether existing trust arrangements still achieve the desired outcomes under the revised IHT framework.<\/span>\u00a0<\/span><\/li>\n<\/ul>\n
        \n
      • Asset ownership <\/span><\/b>\u2013<\/span> Explore alternatives such as family investment companies, partnerships or lifetime gifting strategies, particularly before 6 April 2025.<\/span>\u00a0<\/span><\/li>\n<\/ul>\n
          \n
        • Liquidity planning <\/span><\/b>\u2013<\/span> Ensure that funds are available to meet potential IHT liabilities, possibly through life insurance.<\/span>\u00a0<\/span><\/li>\n<\/ul>\n
            \n
          • Residence and domicile status <\/span><\/b>\u2013<\/span> If considering leaving the UK, assess your residence position under the statutory residence test, and review your domicile status for transitional relief eligibility.<\/span>\u00a0<\/span><\/li>\n<\/ul>\n

            While these changes may limit some traditional planning routes, there are still opportunities to structure affairs efficiently, provided action is taken in good time.<\/span>\u00a0<\/span><\/p>\n

            If you would like advice on how these reforms may affect you, please get in touch with our Inheritance Tax specialists today.<\/span><\/b>\u00a0<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"

            Major reforms to the UK\u2019s Inheritance Tax (IHT) regime are on the horizon, with sweeping changes, particularly affecting non-domiciled individuals (non-doms) set to take effect from 6 April 2025.<\/p>\n","protected":false},"author":2,"featured_media":6280,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[24,125],"tags":[],"_links":{"self":[{"href":"https:\/\/www.bainesjewitt.co.uk\/blog\/wp-json\/wp\/v2\/posts\/6277"}],"collection":[{"href":"https:\/\/www.bainesjewitt.co.uk\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.bainesjewitt.co.uk\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.bainesjewitt.co.uk\/blog\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.bainesjewitt.co.uk\/blog\/wp-json\/wp\/v2\/comments?post=6277"}],"version-history":[{"count":1,"href":"https:\/\/www.bainesjewitt.co.uk\/blog\/wp-json\/wp\/v2\/posts\/6277\/revisions"}],"predecessor-version":[{"id":6278,"href":"https:\/\/www.bainesjewitt.co.uk\/blog\/wp-json\/wp\/v2\/posts\/6277\/revisions\/6278"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.bainesjewitt.co.uk\/blog\/wp-json\/wp\/v2\/media\/6280"}],"wp:attachment":[{"href":"https:\/\/www.bainesjewitt.co.uk\/blog\/wp-json\/wp\/v2\/media?parent=6277"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.bainesjewitt.co.uk\/blog\/wp-json\/wp\/v2\/categories?post=6277"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.bainesjewitt.co.uk\/blog\/wp-json\/wp\/v2\/tags?post=6277"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}