Author: Saadia Javed, Senior Associate
Understanding the new long-term UK resident rules
With the UK domicile rules now replaced with the long-term UK resident test for inheritance tax purposes, clients need to ensure that they are not pinned by the inheritance tax tail that follows. Put simply if an individual has been resident for tax in the UK for 10 years and then decides to become a non-UK resident, their worldwide assets will remain within the UK IHT net for three years after they leave the UK.
The inheritance tax tail explained
This inheritance tax tail increases by a year for every additional year over 13 years that the individual was a UK resident, to a maximum of ten years. Meaning an individual who has been resident in the UK for 20 plus years must remain outside of the UK for a period of at least 10 years before they can escape the grasp of the UK inheritance tax net.
Why leaving the UK is no longer enough
Merely leaving the UK to make another country your permanent home is no longer enough but the rule change now dictates that the inheritance tax tail can only be shed with time and with correct application of the UK residence test. If someone was to leave the UK permanently in 2026, their worldwide assets would still be subject to UK Inheritance tax until 2036, even if they never set foot in the UK again.
The impact of the 20-year lookback
It must also be remembered that the long-term residence test is not just based on sequential years of residence in the UK. The test looks back over the last 20 years and if the individual was resident for any 10 of them then they are counted as UK long-term resident.
News for returning expats
But for those who are not currently long-term resident in the UK, the rule change is good news. Take for example a couple who were domiciled and born in the UK, but early in their careers decided to move to the Caribbean for work. Fast forward 40 years and they have settled there and had their children there who are now adults themselves and have decided to move to the UK.
Before the rule change if the couple were tax resident in the UK for just 1 year, their domicile of origin would come back into play, and they would be taxed on their worldwide assets. Since the rule change, they could be UK tax resident for up to 9 years before their worldwide estate would be subject to UK inheritance tax.
Planning ahead
If you are considering moving to the UK or relocating abroad to sunnier climes, it is essential to obtain advice before doing so, to avoid missing any tax-planning opportunities. The team at Kuits regularly advise clients moving between the UK and various jurisdictions.
