From April 2025, the UK government will introduce significant changes to the tax treatment of non-domiciled individuals (non-doms), shifting from a domicile-based model to one rooted in residency. These reforms will expand the scope of inheritance tax (IHT) to include global assets for long-term residents, while also offering a transitional period for those considering leaving the UK.
Key Changes to Non-Dom Taxation
- Global IHT Scope: Non-doms residing in the UK for 10 of the last 20 years will be liable for IHT on worldwide assets, aligning their tax obligations with UK residents.
- Reduced Exit Liability: Non-doms leaving the UK will face shorter IHT obligations, depending on their residency duration.
- Trust Taxation: Trust assets will now depend on the settlor’s residency status for IHT purposes, increasing compliance complexity for trustees.
Transitional Exit Opportunity
The government has introduced a unique window for non-doms to leave the UK before 6 April 2025, ensuring their global assets remain outside the scope of UK IHT. Tax experts view this as an advantageous chance for those planning relocation.
Residency Thresholds and IHT Implications
Non-doms meeting the 10-year residency threshold will see their global assets taxed under IHT, with liability calculated based on UK rules. Those who have been residents for fewer than 19 years will benefit from a reduced post-exit liability period.
Trust Management Challenges
Trustees will need to monitor settlor residency closely, as IHT exclusions for trust assets will now depend on whether the settlor qualifies as a long-term UK resident. Regular valuations and proactive tax reviews will be essential to maintain compliance.
Preparing for the New Rules
To navigate the upcoming changes, non-doms and trustees should:
- Assess Residency Plans: Consider the benefits of relocating before April 2025 to preserve excluded property status.
- Review Trust Structures: Ensure trust arrangements align with the new residency-based framework.
- Seek Professional Advice: Tailored advice will be critical to minimise tax exposure and optimise financial planning.
Conclusion
The 2025 non-dom tax reforms mark a major shift in the UK’s approach to non-domiciled taxation, extending IHT liabilities to global assets for long-term residents. While the changes pose challenges, the transitional rule provides an opportunity for non-doms to relocate without incurring future IHT burdens. Proactive planning and expert guidance will be key to navigating these changes effectively.
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