Major Reforms to the UK Inheritance Tax System

Many wealthy individuals and high-net-worth persons choose to immigrate to the UK, partly because its tax system is relatively attractive compared to other developed countries. One of the key draws is the "non-domiciled" tax regime: as long as an individual is not domiciled in the UK, their overseas assets are not subject to inheritance tax (IHT), and foreign income is only taxed if it is remitted to the UK. However, the UK tax system is now facing significant changes, which could reduce its overall appeal.

The UK government plans to reform its tax laws in 2025, abolishing the "non-domiciled" tax regime and instead taxing individuals based on their tax residency. In other words, anyone who is a UK tax resident may be subject to inheritance tax on their global assets and income tax on their worldwide earnings. However, the government has assured that the current IHT exemptions will remain unaffected until the new laws take effect next year. This means that individuals who act before the law changes can still benefit from the existing IHT exemptions under the new rules.

In this article, we will discuss the current trust-related provisions under the UK Inheritance Tax Act 1984, existing tax avoidance strategies, the potential impact of future reforms, and how the wealthy may respond.