UK inheritance tax provision reforms have recently opened the floodgates for British expats to completely avoid or lessen taxes levied on their worldwide assets and possessions. Thus, this new system that shifted the basis of taxation from domicile to residency benefits all those people who have lived outside the United Kingdom for more than a decade.
The shift from Domicile to Residency
The IHT liability was hitherto applicable to all persons who were domiciled in the UK, even if they had left and then died overseas. Domicile status depends upon where the person is supposed to be permanently resident and it requires accurate documentation of that fact; otherwise, in the event of a change in domicile overseas, this has often entailed protracted court litigation.
Under the new regime, from April, residence replaces domicile as the determinant for IHT. That implies that the overseas assets for British expats who have been overseas for more than 10 years could be free of the IHT charge currently levied at a rate of 40 percent. It may save tens of thousands of resident Britons abroad from paying such taxes.
Implications for High-Net-Worth Expats
These changes come as a particular boon to wealthy retirees who have lived abroad. High-profile expatriates, such as Virgin Group founder Richard Branson-who has been based in the British Virgin Islands for nearly two decades-could find themselves exempt from inheritance taxes on their non-UK assets.
The experts said that may encourage the desire of wealthy people to retire abroad. Some have also illustrated that this could provide an incentive for better-off Britons to relocate. It can also make the UK more competitive on the international stage since its tax system will be in line with the residency-based model elsewhere.
Economic and Political Controversy
The reform has thus created a debate amongst policy thinkers and economic analysts. Some proponents believe the renovated residency-based system simplifies the tax obligations and is fairer. They further note that it might bring foreign investors and high-net-worth individuals to the UK temporarily.
However, critics argue that the abolition of the non-dom status would result in less contribution from those rich individuals who hitherto benefited from this regime in pursuit of tax breaks. Predictions of the exodus of wealth creators abound, with some going as far as saying it would tarnish the UK’s reputation as a friendly destination for international investment.
Putting these misgivings aside, official forecasts suggest the overall tax take will be higher. It is estimated to bring in £12.7 billion over the next five years. In turn, this has been earmarked to plug holes in the budget and improve public services.
