Legal inheritance tax loophole means UK households can avoid 40 per cent charge

An inheritance tax loophole announced in the new Labour Party government's Autumn Statement and Budget could see thousands avoid a 40 per cent charge. People retiring overseas could escape the 40 per cent inheritance tax, it has been claimed.

Those who spend their retirement abroad will not have to pay inheritance tax on their foreign assets, as long as they live outside the UK for at least 10 years. Alexandra Britton-Davis, partner at accountancy firm Saffery, suggested it could influence retirement location choices between "the south of England or somewhere warmer where they don't have IHT."

Currently, anyone with a British “domicile” faces inheritance tax, or IHT, on their global wealth even if they live and die overseas. But under the new system from the new Labour Party government, 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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Tens of thousands of Brits already living abroad will be immediately exempt from IHT when they die as a result. “The abolition of the non-dom regime will drive away highly mobile wealth creators and so their tax contribution will decrease and they will invest less in our economy,” according to Maxwell Marlow at the Adam Smith Institute.

Philip Munro, partner at law firm Withers, said that UK émigrés in expat hotspots such as Dubai, Spain, Hong Kong and Singapore were “net winners” from the non-dom rule changes.“It was very hard to lose your UK domicile and acquire a non-UK domicile of choice,” he said.

“This change is great news for long-term UK expats because essentially it takes them out of the UK inheritance tax net in relation to their foreign assets. The change could also convince people to retire internationally, if they are confident of living for another 10 years."

“If someone was thinking of retiring overseas, this may give them the push they needed,” said Chris Etherington, partner at accountancy group RSM.