UK Tax Planning Opportunities: for UK expats living in the US

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Not everyone stands to benefit from the proposed changes to the UK tax regime which are due to take effect from 6 April 2025. However, the proposed changes may present a welcome change and herald some helpful new UK tax planning opportunities for some UK expats.

 

Abandoning the concept of ‘domicile’

Historically, UK expats have been concerned about their ‘domicile’ for UK tax purposes which involved consideration of an individual’s personal facts and circumstances to determine in which jurisdiction they had their ‘permanent home’.

This was particularly onerous for UK expats as a person could retain a UK ‘domicile’, even if they expatriated from the UK many years ago, and, if they did, would remain subject to UK inheritance tax (IHT) on their worldwide assets.

However, from 6 April 2025, the concept of ‘domicile’ for UK tax purposes will be abolished. Under the new rules, anyone who has been non-UK resident for 10 consecutive UK tax years will not be subject to IHT on their non-UK assets (subject to some exceptions regarding interests in UK residential property and loans related to UK residential property) regardless of their ‘domicile’ status.

 

Planning opportunities

For those UK expats who have been non-UK resident for 10 consecutive UK tax years:

  1. Personal estate – all non-UK assets held by them personally will remain outside the scope of IHT (unless and until they return to the UK and have been UK resident for 10 years).
  2. Trusts – they will be able to settle non-UK assets into trust without an IHT charge and non-UK assets in trust will remain outside the scope of IHT (unless and until the settlor returns to the UK and has been UK resident for 10 years).
  3. Gifts – they will be able to make gifts of their non-UK assets to their loved ones without a charge to IHT without having to survive the gift by 7 years.
  4. UK connections – provided they remain non-UK resident, they will be able to take a more relaxed approach in relation to their connections to the UK without compromising their IHT position. For example, they could re-acquire a home in the UK, re-establish links with UK charities and organisations.
  5. Returning to the UK – following a period of 10 years of non-UK residence, if an individual wanted to become UK resident again, they will be able to benefit from the new 4-year FIG (foreign income and gains) exemption regime being introduced from 6 April 2025. Under the FIG regime, for the first four years of UK residence, they will be able to claim exemption from UK tax on any foreign income and gains arising to them personally or to any trust settled by them.

 

Words by Rachel Davison, Partner, and Sophie Aitmehdi, Associate, from Taylor Wessing’s Private Wealth group in London.

Taylor Wessing is a full-service law firm that is globally recognised as a leading international law firm in the technology and life sciences sectors. Its understanding of tech and life sciences businesses, and the challenges and opportunities they face, runs throughout the firm, across jurisdictions and specialist teams. Taylor Wessing has also been recognised as a market leader in Private Wealth for many years and is one of the few international law firms able to provide a fully integrated legal service in this area. Taylor Wessing’s Private Wealth group [link] advises global entrepreneurs, venture capitalists, wealthy individuals and multi-jurisdictional trading families and their family offices on all aspects of their business, investment and personal interests.