Who were the Budget’s inheritance tax (IHT) winners?
20th December 2024
Posted in Articles, IHT by Andrew Marr
The 30 October budget was for many people an IHT nightmare. Business and farm owners saw IHT reliefs which had previously been unlimited being slashed to a £1m limit for full relief, with any relief over this level being halved. Also, it was announced that pension schemes will be within the scope of IHT from 6 April 2027. There were further barriers for anyone who wants to escape the UK tax net with the introduction of the concept of a “long term resident”. This is defined as a person who has been resident in ten out of the last twenty tax years. Most people who want to escape the UK IHT net will now have to leave the UK for at least ten tax years. From 2025/2026 this will be the only thing that matters for IHT purposes, and the concept of domicile will be a thing of the past.
I do not want to go into all the details of the “long term resident” here but rather wanted to highlight a class of people who should welcome the new rules. These are the people who are UK domiciled but have already been out of the UK for many years. They can now return to the UK and not have to worry about IHT on non-UK assets for at least ten years.
Pete and Janet
Pete and Janet moved from Yorkshire to Australia in the late 1990s and have lived there happily ever since. In recent years they have been keen to return to the UK but were concerned about the IHT consequences of doing so. They were advised that as soon as they arrived back in the UK their domicile of origin would revive and therefore all their worldwide assets would fall within the UK tax net. On 30 October 2024, however, they were one of the few wealthy couples to greet the Budget with the popping of champagne. They are now making plans to return to the UK safe in the knowledge that they have at least 10 years until everything falls within the scope of IHT.
The fun is only just starting for Pete and Janet above as they are about to also be advised that for the first four years they will be exempt from UK tax on offshore income and gains. They will therefore be able to gift their Australian assets to their children during this period, free from UK capital gains tax. Furthermore, these gifts (as non-UK situs assets) would be outside the scope of UK IHT.
Forbes Dawson view
These new rules will be welcomed by all those individuals who were reluctant to fall into the UK IHT trap by returning. Perhaps they can buy a few of the houses from the non-domiciled individuals who are scarpering before they get caught by the “long term resident” rules! Such ‘prodigal pensioneers’ will have four years to do all sorts of useful tax planning with offshore assets, happy in the knowledge that they will be outside the scope of IHT for ten years and outside the scope of income tax and capital gains tax for four years. They should still take local advice in the offshore jurisdictions where the assets are based as there may still be tax implications there.
