The previous government proposed shifting the scope of inheritance tax (IHT) from a domicile-based tax to a residency-based tax in the UK Spring Budget, released on March 6, 2024. A Policy Summary outlining the incoming government’s goals was released on July 29, 2024. Here, we look at an overview of inheritance changes in 2025.
New Policy Summary
After ten years of UK residency, the plan to charge an individual with IHT on their global assets has been reaffirmed. All non-UK assets held in EPTs (excluded property trusts), which are non-UK assets held in trusts settled by non-UK domiciled individuals, will be subject to IHT starting on April 6, 2025, according to the government’s proposal.
It is reasonable to assume that if a settlor has lived in the UK for more than ten years, then in addition to any UK assets that were already subject to UK IHT, the trustee’s non-UK assets will also be subject to IHT when assets are added to the trust, the settlor passes away, and on other occasions when trusts are subject to IHT charges (such as ten-year anniversaries and when assets leave the trust). Alternatively, the trustee’s non-UK assets are probably not subject to IHT if the settlor has been a non-UK resident for more than ten years. However, this stance will rely on the 10-year tail being applied.
Winners and Losers
There may be winners and losers with this, because the Policy Summary omitted any additional information regarding transitional procedures, specifically how the new test will affect people who have already left the UK and passed away after April 2025. More evidence suggests that the former might include Brits abroad or UK citizens who left the country more than ten years ago. Under the new criteria, their non-UK assets might be excluded from the IHT net earlier than the existing regulations allow.
Stay In The Know
It is wise to stay informed about changed to inhertiance tax laws, as it could help you make fiancial decisions in the future. To lessen future liability, some individuals coming into scope earlier than anticipated due to the new test could turn to IHT exemptions such as Business Property Relief (BPR). However, there is a lot of conjecture around BPR reform so that adjustments could be made.
For professional probate advice, contact Probate a Will on 0203 9859554.
