UK’s new non-state concession ‘accelerates’ rich people’s exit plans

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A wave of wealthy people are preparing to leave the UK before April to benefit from changes to deregulatory rules in last month’s Budget, tax advisers say.

Accountants and lawyers say many people are deciding to leave the country in the coming months because of changes to inheritance tax exemption requirements.

“[The rules are] basically saying if you want to go, you have to go within this tax year,” said Philip Munro, a partner at the law firm Withers.

He added that recent changes – including measures to soften regime change – had “crystallized the decision to leave” for many. not in the territory.

The Budget confirms the abolition of the non-dom system, allowing UK tax residents with a permanent home or “domicile” abroad to avoid paying UK tax on foreign income or interest their capital for 15 years.

It also sets out rules requiring people to live abroad for three to 10 years before being exempt from UK inheritance tax, or IHT, at 40% on their overseas assets.

However, if someone emigrates in the current tax year, they will reduce their exposure to UK IHT on their worldwide assets by a maximum of three years.

“Especially if you are an elderly person, the difference between surviving three years and surviving 10 years is significant,” Munro said.

Edward Hayes, a director at law firm Burges Salmon, said the clause meant “a lot of clients were put in a position where they had to leave almost immediately. . . or stay longer and face a maximum sentence of 10 years [wait] when they go in the future”.

He added that the £33bn the Labor government said it would raise from the IHT changes was “a huge number” which the industry considered “very optimistic”.

As part of wider changes in premier Rachel Reeves Budget, The old system under which IHT was only taxed on non-state-owned UK assets will be abolished from the start of the next tax year.

Instead, IHT will apply to people’s assets in the UK for the first 10 years of their residence in the country, after which it will apply to all assets they hold.

Labor has previously sought to force NGOs leaving the UK to be liable for IHT on their global assets for 10 years after they leave the country.

However, as a concession to non-owners, Reeves has cut this timeframe to between three and 10 years, depending on how long they have lived in the UK.

The decision to give those leaving before April next year a countdown of three rather than a maximum of 10 years is a further attempt to compromise with non-sovereigns.

Emma Chamberlain, a professional lawyer, said the April deadline was encouraging people in their sixties and older to leave earlier. She added that younger people are less worried about long-term exposure to IHT and more likely to take out insurance to cover the risk of death obligations.

Under the old system, people could leave the UK without being liable for IHT on their worldwide assets for up to 15 years during which they could maintain non-domestic status. this family.

If they stay in the UK for more than 15 years, they will lose their non-owner status and if they then move abroad, they will have to wait three years before being exempt from IHT on non-UK assets .

Alexandra Britton-Davis, partner at accountancy firm Saffery, said the exodus of non-international companies this tax year could have a direct impact on the government’s expected revenue.

“We will definitely see people leaving accelerated before April 2025, who may stay for a few more years to pay taxes on all their profits and worldwide income,” she said. .

Reeves said in the Budget that non-fiscal reforms are expected to raise £12.7bn over the next five years, although the Office for Budget Responsibility, the finance watchdog independent, has labeled the estimates as “highly uncertain”.

This £12.7 billion figure is in addition to the £21 billion in new revenue predicted by the previous Conservative government when it announced the abolition of the de facto regime in March.

The Treasury said: “These arrangements strike the right balance, ensuring that those who choose to settle in the UK pay tax on the same basis as other long-term UK residents, at the same time. provided to those who have planned their work based on the current set of regulations.” provides for a short period of adjustment.”