Domicile and the Impact on Inheritance Tax
Many changes to Inheritance Tax (IHT) were proposed in last year’s Budget, generating a flurry of headlines and high-profile protests. Although most of these changes are still under consultation and yet to come into force, some have already been introduced at the start the current tax year (6 April 2025). These are also potentially far-reaching too and are about domicile…
In short, how far IHT applies to someone’s assets (UK vs worldwide) used to depend on domicile. Domicile is a nebulous concept with a particular meaning in English law and is not the same as nationality or residence. Whilst domicile will still be relevant for deaths (and indeed other IHT chargeable events) pre-6 April 2025, going forwards the key test will be Long Term Residence.
Long Term Residence is anchored to the Statutory Residence Test. Ultimately, whether or not someone is Long Term Resident in the UK will determine whether they pay IHT on just UK-based assets or on everything they own worldwide. For anyone who has assets in multiple jurisdictions or who has lived in both the UK and abroad during their lifetime, these new rules could have far-reaching consequences. The impact will be felt not just on estates on death but also in the ongoing administration of lifetime trusts and settlements too.
The rules about Long Term Residence (including the transitional arrangements over the next few years and deeming provisions) are complex. If you require any help navigating them, please feel free to contact one of our experienced team who would be happy to assist.
