The UK tax landscape is shifting significantly in 2025, with major changes to inheritance tax (IHT) rules that will particularly affect expatriates with UK assets or connections. Navigating these changes is crucial for protecting your wealth and ensuring it passes efficiently to your loved ones. Lead Solution Wealth Management breaks it down for you.
Farewell to Domicile: The New Long-Term Resident Test
From 6 April 2025, one of the most significant changes to UK inheritance tax will take effect: the concept of domicile, which has been central to UK tax planning for generations, will be replaced with a new “long-term resident” test.
This fundamental shift means that your inheritance tax liability will no longer be determined by your domicile status but instead by your residence history in the UK. This change is particularly important for expatriates who have maintained UK connections while living abroad.
What This Means for Expatriates
If you’ve lived outside the UK for some time but maintained connections to Britain, your tax position may change substantially under these new rules. Previously, many expatriates benefited from “non-dom” status, which limited UK inheritance tax to UK-situated assets only.
Under the new system, your worldwide assets could potentially fall within the scope of UK inheritance tax if you qualify as a “long-term resident” under the new criteria.
UK Assets Remain in Scope
It’s important to note that regardless of your residence status, UK assets will always remain within the scope of inheritance tax. This maintains the existing position, meaning that any property, investments, or other assets located in the UK will continue to be subject to inheritance tax at rates of up to 40%.
For expatriates who own UK property or investments, this means that careful planning remains essential even if you’ve been living abroad for many years.
The New Residence-Based Regime
The changes to inheritance tax align with broader reforms to the UK tax system. From 6 April 2025, the current remittance basis regime will be replaced with a new residence-based test.
This new regime will be available for four years from the start of the 2025/26 tax year, or from the first tax year in which an individual becomes UK resident if that’s later. This temporary relief period provides a window for new arrivals to adjust to the UK tax system.
Four-Year Relief Period
For those who qualify, the new system introduces a four-year relief for foreign income and gains. This 100% relief is available to new arrivals who have not been UK tax residents in the prior ten years.
This transition period could provide valuable planning opportunities for those considering moving to the UK, allowing time to restructure affairs before full UK taxation applies.
UK Residency Rules Remain Strict
Understanding your UK residency status remains crucial under these new rules. You’re generally considered a UK resident for tax purposes if you:
- Spend 183 days or more in the UK during the tax year
- Have a home in the UK that you use regularly
- Work full-time in the UK
For expatriates who frequently visit the UK, these thresholds are important to monitor. Exceeding them could bring you within the scope of UK tax on your worldwide income and, potentially, affect your inheritance tax position.
Capital Gains Tax Increases
Alongside these inheritance tax changes, the Autumn Budget 2024 announced increases to Capital Gains Tax (CGT) rates. From 30 October 2024, the main rates have increased from 10% and 20% to 18% and 24% respectively.
This change affects disposals of assets such as property (excluding your main residence) and investments, potentially increasing the tax liability when transferring assets as part of inheritance planning.
Planning Ahead: Essential Steps for Expatriates
With these significant changes on the horizon, expatriates with UK connections should consider:
- Reviewing asset locations: Consider whether the location of your assets is optimal given the new rules
- Updating wills and trusts: Ensure these reflect the new tax landscape
- Exploring alternative structures: Consider whether alternative ownership structures might be more tax-efficient
- Timing of gifts: Assess whether making lifetime gifts before the rule changes might be beneficial
- Professional advice: Seek specialist expatriate tax advice to navigate these complex changes
Conclusion
The 2025 changes to UK inheritance tax represent the most significant overhaul of the system in decades. For expatriates with UK connections, understanding these changes and planning accordingly is essential to protect family wealth.
At Lead Solution Wealth Management, our specialists have extensive experience in helping expatriates navigate UK tax changes. We can provide tailored advice on how these changes might affect your specific circumstances and the steps you can take to mitigate any adverse impacts.
Contact our team today for a personalised consultation on how the 2025 inheritance tax changes might affect your wealth planning strategy.
