UK Budget and New Domicile Rules

[Mel Lofts]

The UK budget is changing the rules for tax that is applied to non UK assets and earnings - link here - https://www.gov.uk/government/publications/spring-budget-2024-non-uk-domiciled-individuals-policy-summary/spring-budget-2024-non-uk-domiciled-individuals-policy-summary  I am wondering how these new rules will affect us Brits living permanently in Australia. Whilst it is clear that we live in Australia so are not resident for UK tax income tax purposes, it is not so clear as far as inheritance tax is concerned. The old rules were that you were classed as domiciled in the UK if your father was born in the UK. You could choose to be non-domiciled by choosing another country of domicile e.g. Australia. HMRC would not recognise that domicile of choice unless you met specific criteria - some of which is objective e.g. need to be non resident for a number of years in the last 20, some are subjective e.g. how many ties you have to the UK such as members of social clubs. This was not concrete and was at HMRC discretion at the time of death. The upshot of this is that anyone classed as UK domiciled would be subject to inheritance tax at 40% on any GLOBAL assets worth more than 325000 GBP per a single person or 650000 GBP for a married couple. This has to be paid within 6 months of death. Now the new rules seem to be anyone coming into the UK that is there for 4 years is subject to being domiciled. Obviously we aren't in the UK but that rule of x numbers of years being removed so where does that leave us. Most people would think oh that's ok we don't have more than 650000 GBP between us but don't forget the UK will see that as your Aus home plus your Aus super plus any savings or other assets you have regardless of where they are located. Even getting good financial advice is going to be tricky as it's such a specialist area and it will be the little guys that get penalised the most as they will have just over the limits and not be able to afford financial wizards and trusts like the super rich. Anyone on here with financial wizardry have any ideas?        

[bluequay]

I hadn't realised about the non-dom IHT issue, we are moving before April 2025 so assume we would be under the existing rules, so need to not be resident for last 3 years and 15 out of the last 20. So the Mrs and I will need to survive for 5 years 

Edited March 7 by bluequay

[Marisawright]

1 hour ago, Mel Lofts said:

 The old rules were that you were classed as domiciled in the UK if your father was born in the UK. .... You could choose to be non-domiciled by choosing another country of domicile e.g. Australia. HMRC would not recognise that domicile of choice unless you met specific criteria - some of which is objective e.g. need to be non resident for a number of years in the last 20, some are subjective e.g. how many ties you have to the UK such as members of social clubs. 

Having spent some time reading the old rules, it doesn't sound as bad as that.  If you had moved to Australia and made it your permanent home for at least 4 years, you were considered "domiciled by choice" in Australia.   It seems to have been more of a problem for expat executives, who may live overseas for years but not stay in one country long enough to establish a domicile by choice (and perhaps still have their home in the UK).  

I understood the new changes in rules were aimed at people from other countries who had moved to the UK, but managed to avoid being considered domiciled (so as to avoid inheritance tax). I don't see anything about changes to how people who have settled permanently in another country will be treated.

Edited March 7 by Marisawright

[paulhand]

8 hours ago, Marisawright said:

but managed to avoid being considered domiciled (so as to avoid inheritance tax)

They avoided a lot more than just inheritance tax: https://www.taxadvisorypartnership.com/advisory-services/non-dom/

In 2022, the Guardian estimated that “Rishi Sunak’s wife has potentially avoided up to £20m in UK tax by being non-domiciled and pays £30,000 a year to keep the status – revelations that come amid growing political pressure on the chancellor.” (https://www.theguardian.com/politics/2022/apr/07/rishi-sunaks-wife-says-its-not-relevant-to-say-where-she-pays-tax-overseas?CMP=Share_iOSApp_Other)

 

[Blue Manna]

32 minutes ago, paulhand said:

They avoided a lot more than just inheritance tax: https://www.taxadvisorypartnership.com/advisory-services/non-dom/

In 2022, the Guardian estimated that “Rishi Sunak’s wife has potentially avoided up to £20m in UK tax by being non-domiciled and pays £30,000 a year to keep the status – revelations that come amid growing political pressure on the chancellor.” (https://www.theguardian.com/politics/2022/apr/07/rishi-sunaks-wife-says-its-not-relevant-to-say-where-she-pays-tax-overseas?CMP=Share_iOSApp_Other)

 

I thought she had changed that? But I'd be surprised if they pay any inheritance tax. They would trust it surely? 

I thought pensions sat outside of inheritance tax, as does life insurance payments. Does super fit this description?

I also thought gilts weren't covered if owned by non residents.

I've always thought it a very unfair tax on the working class who have done well.

Edited March 7 by Blue Manna

[paulhand]

Just now, Blue Manna said:

thought she had changed that?

She has … but I don’t believe that she’s paid previous years and my point was more to illustrate what a fab deal it was for wealthy foreigners living in the U.K.  No other country has been so generous. 

[AliG]

The Telegraph says (https://www.telegraph.co.uk/money/tax/inheritance/british-expats-benefit-inheritance-tax-break-non-dom-scrap/#:~:text=As part of a swathe,IHT on their estates globally.):

"Tens of thousands of British expatriates could see their inheritance tax bills cut under government plans to reform the non-dom regime.

As part of a swathe of reforms to the current tax rules, the estates of Britons living abroad may no longer be charged UK inheritance tax (IHT) on assets outside of the country.

Currently individuals who are UK domiciled – the UK is their home country – but resident abroad, are charged IHT on their estates globally.

However, under plans to move to a ‘residence-based regime’ from April 2025, expatriates who have lived outside of the UK for 10 years or more will only need to pay IHT on assets in the UK."

[AliG]

PS I think Non-Doms refers to people living in UK but being treated as if they are outside of the UK with respect to Income earned abroad - so strictly speaking, the change to IHT for Brits abroad its not a change in the treatment of Non-Doms but a change to the treatment of UK Domiciled Brits living abroad that is being introduced in parallel.

[InnerVoice]

On 08/03/2024 at 19:43, AliG said:

The Telegraph says (https://www.telegraph.co.uk/money/tax/inheritance/british-expats-benefit-inheritance-tax-break-non-dom-scrap/#:~:text=As part of a swathe,IHT on their estates globally.

"Tens of thousands of British expatriates could see their inheritance tax bills cut under government plans to reform the non-dom regime.

As part of a swathe of reforms to the current tax rules, the estates of Britons living abroad may no longer be charged UK inheritance tax (IHT) on assets outside of the country.

Currently individuals who are UK domiciled – the UK is their home country – but resident abroad, are charged IHT on their estates globally.

However, under plans to move to a ‘residence-based regime’ from April 2025, expatriates who have lived outside of the UK for 10 years or more will only need to pay IHT on assets in the UK."

Thanks for including the link so I could read the whole article.

These proposals are set to be implemented in April 2025, by which the time the current government will almost certainly no longer be in power. So will they still go ahead?

[Blue Manna]

33 minutes ago, InnerVoice said:

Thanks for including the link so I could read the whole article.

These proposals are set to be implemented in April 2025, by which the time the current government will almost certainly no longer be in power. So will they still go ahead?

I think it's unusual for an incoming government not to uphold laws which have been declared by the preceding government. Certainly not unless they actively campaigned against them.

[Marisawright]

On 08/03/2024 at 20:43, AliG said:

Currently individuals who are UK domiciled – the UK is their home country – but resident abroad, are charged IHT on their estates globally.

This is a potentially misleading statement which will needlessly worry some migrants.  Many people would think "the UK is their home country" means, "the land where they were born".    That's not what it means.   

Executive 'expats' are often UK domiciled because they've kept a home base in the UK while living around the world, and they may not have permanent right of residency in any other country.  However permanent migrants have usually moved their whole lives to their new country, apart from the odd bank account or investment --  so they'd have no difficulty being classified as "Australian domiciled by choice".  In which case they're not liable for IHT on their estates globally.  

[paulhand]

3 hours ago, InnerVoice said:

Thanks for including the link so I could read the whole article.

These proposals are set to be implemented in April 2025, by which the time the current government will almost certainly no longer be in power. So will they still go ahead?

Yes … this was Labour policy long before the Conservatives hijacked it. 

[InnerVoice]

10 minutes ago, paulhand said:

Yes … this was Labour policy long before the Conservatives hijacked it. 

Great reply - loved that!

[Philip]

On 07/03/2024 at 18:12, Mel Lofts said:

 link here - https://www.gov.uk/government/publications/spring-budget-2024-non-uk-domiciled-individuals-policy-summary/spring-budget-2024-non-uk-domiciled-individuals-policy-summary  I am wondering how these new rules will affect us Brits living permanently in Australia. Whilst it is clear that we live in Australia so are not resident for UK tax income tax purposes, it is not so clear as far as inheritance tax is concerned.

From the quoted link:

Liability to inheritance tax (IHT) also depends on domicile status and location of assets. Under the current regime, no inheritance tax is due on non-UK assets of non-doms until they have been UK resident for 15 out of the past 20 tax years. The government will consult on the best way to move IHT to a residence-based regime. To provide certainty to affected taxpayers, the treatment of non-UK assets settled into a trust by a non-UK domiciled settlor prior to April 2025 will not change, so these will not be within the scope of the UK IHT regime. Decisions have not yet been taken on the detailed operation of the new system, and we intend to consult on this in due course.

So it isn't clear because they don't know and haven't decided.

The old (actually, current) rules relating to IHT are here: https://www.gov.uk/guidance/inheritance-tax-deemed-domicile-rules

Someone mentioned that you have to move to Australia permanently and be out of the UK for 5 tax years before UK IHT ceases to apply to your worldwide estate, which I believe is correct.

 

You can only be UK "non-dom" for income tax if you are actually tax resident in the UK, so if you are tax resident in Australia the changes will not affect you.

To avoid UK IHT you have to put assets into trust before you become UK domiciled, but income from assets in trust is typically taxed at 45% in the UK. If you already domiciled in the UK and you put assets into trust you basically pay (less) IHT up front and possibly on an ongoing basis too.

[Ken]

On 08/03/2024 at 03:11, Blue Manna said:

I thought she had changed that?

She has, but the point is that thousands (perhaps tens of thousands) of other people are doing the same thing and don't have a spouse with the political exposure to force them to change.