What accountants need to know about non-dom inheritance tax changes

The Labour Government's plan to extend inheritance tax to global assets of UK residents, including overseas domiciles, may prompt a flurry of relocations ahead of the Budget changes.

by | 17 Oct, 2024

An elderly couple facing each other

The Labour Government has sweeping plans to impose inheritance tax (IHT) on the global assets of UK residents claiming overseas domicile, which may drive many to relocate. With the Autumn Budget likely to clarify some of the changes, we examine the potential IHT changes and what tax advisers need to know. 


Key points

  • The Labour Government is likely to roll out a raft of inheritance tax changes for non-doms 
  • This could lead to an exodus of wealthy individuals from the UK 
  • Tax advisers give advice to accountants on dealing with the changes for clients 

Current rules for IHT focus on the concept of domicile instead of residence at the date of death. In general, if a person is not UK-domiciled when they die, then IHT is only payable on their UK assets.  

However, the Labour Government recently published a paper setting out its broad plans for changes to non-doms’ taxation. We spoke to some tax experts about these potential changes and their implications for accountants. 

Introduction of a time-specific residence test 

From 6 April 2025, the government plans to shift IHT to a residence-based system, through replacing the current domicile test for IHT purposes with a time-specific residence test. 

Richard Marshall, Legal Director at Hill Dickinson, says: “Clarity and simplification of the rules, with a purely residence-based test could help to bring some certainty to how the IHT rules will apply. However, the IHT regime is a complex nexus of rules, interlinked with capital gains tax (CGT), and applies to assets held at the date of death, lifetime gifts, and trusts.”  

Marshall says it’s important to understand the nature of the assets held in the different jurisdictions within which clients operate, and the various structures which may hold such assets.  

With suggestions of a possible exit tax being introduced too, accountants will need to ensure that client decisions are not made in isolation, “Any changes to the non-dom regime must be fully considered in the context of clients’ goals, including those that extend beyond simple tax mitigation.” 

Capital gains tax updates 

Edward Hayes, director of Burges Salmon
Edward Hayes, Director, Burges Salmon

Edward Hayes, Director at Burges Salmon, says that distributions from non-UK resident trusts made now may take advantage of existing CGT rates.

However, if CGT rates are increased in the upcoming Budget, distributions made afterwards could face higher taxes. As a result, he observes that trustees are contemplating winding up these trusts before the Budget. 

Hayes says that the possible expansion of the temporary repatriation facility to trusts is one reason to consider deferring such moves. He says, “For many clients, the choice will be between acting quickly, which might offer greater certainty, or waiting, which holds at least a possibility of a more favourable tax outcome but also carries its own risks.” 

Changes to the headline rate 

Stefan Fielding, Tax Director at Sapphire, says that the problem for the Government is that many of the changes they could make to bring in greater revenue would simply drag more estates into the scope of IHT. 

The headline tax-free allowance of £325,000 has been frozen since 2009, meaning that more estates have been getting dragged into the orbit of IHT.

Fielding says, “From a policy perspective, I’m not sure it makes a great deal of sense to reduce the tax-free allowance and simply drag even more estates, many of which you wouldn’t describe as particularly abundant, into the reach of IHT.” 

Stefan Fielding, Tax Director at Sapphire
Stefan Fielding, Tax Director, Sapphire

Fielding says the headline rate is likely to be raised to collect more revenue from wealthy estates. However, he warns the government to proceed cautiously, as the wealthy can quickly relocate. He adds, “If measures are introduced that appear to be too punitive, we may well see a similar exodus of wealthy individuals who seek refuge in territories with more preferential tax regimes in order to protect their wealth.” 

Reduction of the exclusion period for overseas estates 

Ingrid McCleave, Partner at DMH Stallard, feels that the Chancellor, Rachel Reeves, is likely to reduce the exemption period for overseas estates from IHT to 10 years, down from the current 15 years. 

McCleave adds that apart from that, however, she expects Reeves to continue the current position, “To do otherwise would be a costly mistake for the Treasury and will only serve to add fuel to the fire for non-doms who may be rethinking their relocation to the UK.” 

For McCleave, it’s a relief that chancellor Rachel Reeves is now re-evaluating the situation and seems to have realised the huge loss to the Treasury this policy is and the confusion it has created. “In my experience, the prospect for UK resident non-domiciles paying IHT on not only their worldwide estates but also on the offshore trusts they settled whilst non-resident years ago has created a tsunami of non-doms exiting the UK.” 

She adds, “Given the indications so far, tax advisers will likely still recommend that non-doms place their overseas assets into an offshore trust structure before the Budget.” 

What do accountants need to do? 

Fielding encourages advisers to be in dialogue with their clients ahead of the Budget, so that they can understand what options are available and viable so that swift action can be taken following the announcement on 30th October. 

Fielding says that while changes to the IHT regime have been rumoured for some time, previous governments have shied away from pulling the trigger on significant reforms in this arena. However, he adds that, “There is a different feel to the Starmer/Reeves Government, and changes are now more likely than they have ever been.” 

There is some uncertainty about how these measures would work in practice. However, non-dom clients will inevitably need to consider their options following the Budget.  


The IFA International Conference Online will be held on 7 November. More information HERE.  

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