Wealthy Brits Turn to ’10 Out, 9 In’ Strategy to Avoid Inheritance Tax Trap

UK Inheritance Tax Overhaul: What Expatriate Britons Need to Know

As of 6 April 2025, significant changes to the UK’s Inheritance Tax (IHT) regime are set to impact expatriate Britons in profound ways. These changes, announced in the UK Government’s autumn budget of 2024, mark a substantial shift from the traditional domicile-based system to a residence-based approach.

Here is a detailed look at what these changes mean for British expats and how they can prepare.

The End of Domicile-Based IHT

Historically, IHT liability in the UK was determined by an individual’s domicile status. UK-domiciled individuals were subject to IHT on their worldwide assets, while non-domiciled individuals (non-doms) were only taxed on their UK-sited assets.

However, the new rules abolish this domicile-based system, replacing it with residence-based criteria.

The New Residence-Based System

Under the new system, individuals who have been UK-resident for 10 out of the previous 20 tax years will be subject to IHT on their worldwide estate. This change is particularly significant for British expatriates who may have assets spread across multiple jurisdictions.

The Statutory Residence Test (SRT) will play a crucial role in determining UK tax residence. It is essential for expats to understand how sporadic or partial UK residence could accumulate and impact their IHT liability.

Implications for Expatriate Britons

For expatriate Britons, the key consideration is no longer solely their domicile status but their residence history. If an individual has been a UK resident for 10 out of the last 20 years, they will be liable for IHT on their global assets.

This means that even if an expat has been living abroad for several years, periods of residence in the UK could still subject their entire estate to UK IHT.

Cross-Border Estate Planning

Given these changes, it is crucial for expatriate Britons to engage in efficient cross-border estate planning. Understanding the SRT and how it applies to their specific situation is vital.

Here are some steps expats can take:

Review Residence History
Carefully review the last 20 years of residence to determine if the 10-year threshold has been met.

Trusts and Treaty Provisions
For those with assets held in trusts, particularly under the US/UK estate treaty, there may be provisions that can shelter certain assets from IHT. However, these provisions should be treated with caution and require careful analysis.

Consult Tax Advisors
Given the complexity of these changes, consulting with tax advisors who are well-versed in both UK and international tax laws is highly recommended.

Abolition of Non-Dom Status

The new rules also mark the abolition of the non-dom status, which previously allowed certain individuals to avoid IHT on their non-UK assets. This change simplifies the system but also means that more individuals will be subject to IHT on their worldwide estates.

Expats who were previously non-doms need to reassess their estate planning strategies in light of these changes.

Practical Considerations

For many expatriate Britons, the practical implications of these changes will be significant. Here are a few key points to consider:

Life Interest Trusts
The termination of certain life interest trusts may now attract a 40 percent IHT charge if the settlor or income beneficiary is a long-term UK resident (LTR) at the relevant time. There are exemptions for certain trusts that had IHT-exempt status before 30 October 2024, but these need to be carefully reviewed.

Domicile of Origin
While domicile of origin is still relevant in certain contexts, the new residence-based system reduces its importance in determining IHT liability. However, understanding domicile can still be crucial, especially in relation to treaty provisions and specific trust arrangements.

Conclusion

The changes to the UK’s Inheritance Tax regime are far-reaching and have significant implications for expatriate Britons. By understanding the new residence-based system, reviewing their residence history, and engaging in cross-border estate planning, expats can better prepare for these changes and ensure their estates are managed efficiently.

As always, consulting with experienced tax advisors is essential to navigate these complex new rules.

At Cutts and Co Accountancy, we are committed to helping our clients understand and adapt to these changes. If you are an expatriate Briton concerned about the impact of the new IHT rules on your estate, we encourage you to reach out to our team of experts for personalised advice and guidance.