Changes to the IHT treatment of non-UK domiciled individuals and their worldwide assets have sparked concern amongst industry advisers and internationally mobile clients alike. Recent reports suggest that the Treasury may be reconsidering some of these measures, especially in light of the potential economic fallout.

At SRLV, we believe there is still time to make meaningful adjustments to the rules, which came into force on 6 April 2025, which will protect the UK’s competitiveness while ensuring fairness in the tax system.

The Risk: Wealth Flight and Reduced Tax Revenues

The IHT changes are leading to a significant number of wealthy individuals leaving the UK or choosing not to relocate here in the first place. According to a report published by New World Wealth and Henley & Partners, the rule changes were partly responsible for more than 10,000 millionaires leaving the UK in 2024 – an increase of 157% on the previous year.* Many of these individuals contribute substantially to the UK economy, not just through taxes, but also through investment, philanthropy, and job creation.

This is not just a theoretical concern. We are already seeing clients leaving the UK for countries like Italy and the UAE.

Who Is Affected by the Non-Dom Reforms?

The reforms primarily affect individuals who are not UK-domiciled but have chosen to live in the UK for extended periods. Under the new rules, these individuals could face a 40% IHT charge on their worldwide assets after 10 years of UK residence, even if they do not intend to die in the UK or have settled non-UK trusts with foreign assets long before becoming UK residents.

This group includes many high-net-worth individuals who are internationally mobile, often with homes in multiple countries. Many have retained properties in London and would prefer to remain UK tax residents, if the system were more predictable and proportionate.

What the Treasury Can Do to Fix the Problem

If the government is serious about retaining international talent and capital, it must act quickly and decisively. Here are four practical steps the Treasury could take:

1. Grandfather Existing Excluded Property Trusts: Trusts that qualify as excluded property as of Budget Day (30 October 2024) should retain that status. This would protect structures that were created in good faith under the existing rules and provide certainty to trustees and beneficiaries.
2. Abolish the 10-Year IHT Tail Rule: Under the current system, individuals who are deemed to be Long-Term Residents will remain in the UK’s IHT net for 10 years after they leave, which is both difficult to enforce and a major deterrent. Removing this rule would simplify compliance and reduce the administrative burden on HMRC.
3. Simplify Trust Taxation Rules: Under the new regime, trusts can fall in and out of the relevant property regime depending on the settlor’s residence status. This creates unnecessary complexity. A better approach would be to fix the trust’s status based on the settlor’s position when the property was added.
4. Introduce a New Investor Visa with Tax Incentives: To attract and retain international investors, the UK should consider launching a new investor visa that includes income tax and Capital Gains Tax (CGT) benefits – ideally with a remittance basis for a fixed period (e.g. 10 years). This would make the UK more competitive with countries like Italy and Greece, which offer favourable tax regimes for new residents. Although this is not an endorsement of the Reform UK party’s recent “Britannia Card” and accompanying tax proposals, it is encouraging that investor visas are getting some attention.

A Fairer, More Predictable Tax System

A reformed system should strike a balance between fairness and competitiveness. Taxing personal assets after 10 years of residence – and only while the individual remains UK tax resident – would be a clear and proportionate approach.

Allowing long-term residents to create relevant property trusts, while still enabling non-long-term residents to use excluded property trusts, would level the playing field without being overly punitive.

Why This Matters for the UK Economy

The UK has long been a destination of choice for global talent and investment. London, in particular, remains a hub for finance, culture and innovation, however, UK tax policy plays a crucial role in maintaining that status.

If the new tax rules are implemented without adjustment, the UK risks losing its appeal to the very individuals who contribute most to its economic dynamism. By making the changes outlined above, the Treasury can protect the integrity of the tax system while keeping the UK open for business

Final Thoughts

The Finance Act 2025 presents both a challenge and an opportunity. With thoughtful reform, the UK can modernise its tax regime without driving away the people and capital it needs to thrive.

At SRLV, we are closely monitoring developments and advising clients on how best to navigate the changes. If you have questions about how the new residency rules and Inheritance Tax changes may affect you or your clients, our Private Client team is here to help.

How we can help

For tailored advice on UK tax residence, Inheritance Tax, or international structuring, please get in touch with your usual SRLV advisor, or email our Partner, Kieron Clement-Smith.

This material is published for the information of clients and contacts. It provides only an overview of the regulations in force at the date of publication, and no action should be taken without consulting the detailed legislation or seeking professional advice. Therefore, no responsibility for loss occasioned by any person acting or refraining from action as a result of the material can be accepted by the authors or SRLV LLP.

 

* Source: London’s Exodus | Wealth Migration 2024 | Henley & Partners