On 6 March 2024, the UK’s Conservative Government announced major changes to the way in which UK IHT is calculation for persons who are not from the UK.
These changes are set to effect Australians and other foreign nationals residing in the UK. Following the Labour Government winning the UK election on 4 July 2024, the new UK Labour Government have confirmed that the IHT rules for non-UK domiciled individuals will be replace by a new residence-based system.
The exact wording of the legislation has not been released yet, however the proposals put forward are as follows:
- A person’s worldwide estate will be liable to UK IHT if they die and have been a UK tax resident for a period of ten years. It is yet to be determined if this will mean the “last ten years” or “the years out of the last X years”.
- Current proposals suggest that people who have been UK tax residents for ten years would then have to be non-UK tax residents continuously for the next ten years. This is of particular concern for Australians who relocate to the UK if their intention is to remain in the UK for ten years or more.
- After April 6, 2025, trusts set up outside the UK may not be effective for UK Inheritance Tax (IHT) planning if the trustor has been a UK tax resident for ten years. Historically, people from Australia and other countries outside the UK have created non-UK trusts to avoid UK IHT.
In addition, assets can be subject to both UK IHT and Australian Capital Gains Tax on a person’s death.^ The instances of estates being subject to both Australian CGT and UK IHT upon an individual’s passing will likely become more frequent if these proposed changes to UK IHT laws are legislated.
Next steps
If you reside in the UK or plan to relocate there, contact us below to discuss what UK IHT planning strategies are available to you before these changes take effect from 6 April 2025.
At Nexia Australia, we are your personal tax advisers with the resources and expertise to help you navigate these complex tax issues so you can get back to what matters most.
^Hyperlink to updated version Australian and United Kingdom (UK) estate planning and the 85% tax rate).
