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Australians with UK investment portfolios could be at risk of inheritance tax, Pitcher Partners warns.
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UK tax changes a 'nightmare' for Aussies with UK investments: Pitcher Partners
31 October 2024
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Pitcher Partners has cautioned Australians with investment portfolios in the UK to be aware of upcoming changes to its inheritance tax regime.
The firm said the UK regime was set to change and would be the “stuff of nightmares” for Australians who had lived, worked and accumulated wealth in the UK.
According to Pitcher Partners, inheritance tax in the UK could claim 40 per cent of estates worth £325,000 or more, which would leave less estate to distribute than beneficiaries previously believed.
Pitcher Partners Sydney partner Alison Wood said the decision to make these changes could inflict a “chilling effect” on the transfer of professionals between the two countries.
“The expansion of the UK’s inheritance tax is designed to simplify the complex UK tax system,” she said.
“But to wealthy Australians who regularly live and work in the UK, it could lay waste to property and investment portfolios, exposing assets held in trusts that were formerly excluded from the death tax.”
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The changes to the regime would impact a non-domiciled person (non-dom), a UK tax status referring to an individual born in another country but working or spending extensive time in the UK.
Currently, non-dom tax residents pay tax in the UK on their UK income if it is £2,000 or more, or if they have brought foreign income or gains into the country.
However, this was set to change in April 2025 as the UK planned to remove the non-dom status which had previously protected Australians or non-doms from UK tax.
The firm warned that from April next year, the UK government planned to impose inheritance tax on all non-UK assets held in excluded property trusts.
This would apply to non-UK assets in trusts established by individuals not domiciled in the UK and previously excluded from estates, regardless of when the trusts were formed.
Wood said tax residents would now either pay UK tax on those gains or income or claim the ‘remittance basis.’
This meant non-doms only paid UK tax on income or gains they had brought into the UK, which would change.
“In the upcoming UK Budget, the government is proposing to eliminate domicile status and concentrate on residency, meaning non-doms would no longer exist and the protection from UK taxes would be gone,” Wood said.
“Inheritance tax would be applied to an individual on their worldwide assets once they have been a resident in the UK for 10 years- much sooner than the previous 15/20-year deemed domiciled position.”
“That person would remain within the inheritance tax scope for a further 10 years even if they later become a non-UK resident, which is being referred to as the ’10-year tail’.”
According to the firm, if a settlor had been a UK resident for over 10 years, the trustee’s non-UK assets could fall within the scope of inheritance tax alongside existing assets.
However, if the settlor had not resided in the UK for over 10 years, the trustee’s non-UK assets would not be subject to the death tax, depending on the 10-year tail application.
Wood said some individuals such as UK domiciles who had not resided in the UK for several years would benefit, yet the majority would be negatively impacted.
“The key takeaway here for UK non-doms is don’t die, and if that’s not an option and you want to avoid the death tax, don’t go back to the UK,” Wood said.
“Given the uncertainty surrounding the October 30 Budget, it’s wise for everyone to get expert legal and financial advice on their financial and trust arrangements.”
“Without proper estate planning, unwanted taxes may surprise the unprepared.”
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