UK households can escape 40 per cent inheritance tax thanks to 10-year rule

People retiring abroad could avoid UK inheritance tax under new loophole. State pensioners can avoid an inheritance tax raid and legally avoid a 40 per cent charge using the trick which has remained in the wake of the Labour Party government Budget.

People planning to retire overseas and those already living abroad are the “unexpected beneficiaries” of changes to the non-dom rules outlined in the Budget from Chancellor Rachel Reeves hat could see them escape death duties of 40 per cent.

Currently, anyone with a British “domicile” faces inheritance tax, or IHT, on their global wealth even if they live and die overseas. Under the new system, which replaces “domicile” with residency, most people living overseas for more than 10 years will not face IHT on their foreign assets.

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The change could also convince people to retire internationally, if they are confident of living for another 10 years. “If as a Brit you’d been outside the UK for a long time, you were probably considered non-domiciled, but you wouldn’t be sure,” said Anthony Whatling, managing director at Alvarez & Marsal Tax.

“After your death, your executors might end up in a dispute with HMRC.” An HM Treasury spokesperson said: “Replacing the outdated non-dom tax regime with a new internationally competitive new residence-based system addresses unfairness in our tax system, attracts the best talent and investment to the UK, and ensures everyone who is a long-term resident in the UK pays their taxes here.”

BDO said: “The new rules will apply to IHT (inheritance tax) on chargeable events occurring on or after 6 April 2025 and the test for whether overseas assets are within the scope of IHT will be whether a person has been UK resident for 10 tax years prior to the year of the chargeable event.

“Once you meet this 10 year test, you stay within the UK IHT net for the next 10 years whether resident in the UK or not. Consequently, individuals would need to be non-UK tax resident for at least 10 years after leaving the UK to be outside of Inheritance Tax.”