Domicile is a concept that is unique to the UK tax system. It determines which assets are liable to UK inheritance tax (IHT) and whether someone who is resident in the UK can benefit from a system (the remittance basis) that only taxes overseas income and gains that are brought to the UK.
With effect from 6 April 2025 the concept of domicile has been replaced with a residency-based system of determining how someone is taxed.
In the first of this two-part blog, I will cover the impact of the changes on inheritance tax (IHT).
The first point to make is that the changes make no difference to UK assets which are always within the scope of IHT, regardless of where a person is resident. There are very few exceptions to this rule.
Overseas assets will be within the scope of IHT where they are owned by someone that is a “long term resident”.
You will be a long term resident when you have been resident in the UK for 10 out of the last 20 years.
So, if you are a long term resident what does this mean for you? It means that you will be subject to UK IHT on your worldwide assets.
If you have been resident in the UK for less than 10 years you are only subject to UK IHT on assets that are sited in the UK.
If you decide that IHT is a double tax, which some people do, and want to leave the UK for pastures new, you have to bear in mind that you will remain subject to UK IHT on your worldwide assets for up to 10 years after leaving the UK. The number of years you remain subject to UK IHT on your worldwide assets depends on the number of years you have been a UK tax resident.
If you want to know more or think you may be affected by these changes, please get in touch.