A tax clampdown on so-called non-doms – a group of wealthy foreigners living in the UK – is set to see a wave of departures from the UK within five months.
Tax advisers and lawyers say there is good evidence that a significant number of this group are selling up in order to leave before April in order to escape inheritance tax under changes introduced in last month’s Budget.
As part of the broader changes in chancellor Rachel Reeves’ Budget, the old system under which inheritance tax (IHT) is levied only on non-doms’ UK assets will be abolished from the start of the next tax year in April 2025.
Instead, IHT will be imposed on people’s UK assets for their first 10 years of residence in the country, after which it will apply to all of their holdings, including those overseas.
The new rules also require people to live outside the country for between three and 10 years before they are exempt from UK inheritance tax, or IHT, of 40 percent on their foreign assets.
IHT will be imposed on people’s UK assets for their first 10 years of residence in the country (Image: Getty)
However, if someone emigrates in the current tax year, they will reduce their exposure to UK IHT on their worldwide possessions to a maximum of three years.
Philip Munro, partner at law firm Withers, said: “(The rules are) basically saying if you want to go, you have to go this tax year.”
He added that the recent changes — including measures intended to soften the change of regime — had “crystallised the decision to leave” for many non-doms.
Emma Chamberlain, a specialist barrister, told the Financial Times said the April deadline was encouraging people in their sixties and above to leave earlier. She added that younger non-doms were less worried about a long period of exposure to IHT and were more likely to buy insurance to cover the risk of death duties.
Under the old system, people could leave the UK without being liable for IHT on their global assets for the maximum 15-year period in which they could retain non-dom status in the country.
If they remained in the UK for more than 15 years, they would lose their non-dom status, and, if they subsequently moved abroad, they would have to wait three years before being exempted from IHT on non-UK assets.
Alexandra Britton-Davis, partner at Saffery, an accountancy firm, suggested that a rush of non-doms leaving during this tax year could have a knock-on impact on the government’s expected revenue.
“We will definitely see people accelerating their departure ahead of April 2025, who may have stayed a couple more years paying tax on all their gains and worldwide income,” she said.
During the Budget Rachel Reeves said that the non-dom reforms were expected to raise £12.7bn over the next five years, although the Office for Budget Responsibility, the independent fiscal watchdog, flagged the estimates as “highly uncertain”.
The £12.7bn figure is in addition to the £21bn in new revenue predicted by the previous Conservative government when it announced the scrapping of the non-dom regime in March.
The Treasury said: “These arrangements strike the right balance, ensuring that people who choose to settle in the UK pay tax on the same basis as other long-term UK residents, whilst giving people who have planned their affairs based on the current set of rules a short period to adjust.”