Expert Says Picture For UK Expats Is Positive In Terms Of Planning Opportunities

Ahead of the new tax year on 6 April 2025 and the changes coming into force following last year’s Budget, a leading adviser to high-net-worth individuals, has highlighted some of the significant estate planning opportunities for UK returners and expats.

The UK has introduced new tax rules, several of which, have a favourable impact for long-term expats, including the introduction of the Foreign Income and Gains (FIG) regime, offering 100% relief on foreign income and gains for the first four years of UK tax residence for certain returning expats. The new residence-based test for Inheritance Tax (IHT) also brings planning opportunities for UK expats and returners.

Expert Opinion

“The overall picture for current UK expats is generally a positive one which will provide a variety of significant planning opportunities.

"Under the current rules, many expats may still potentially be UK domiciled despite having lived outside the UK for many years. In contrast, the new residence-based system operates in a much more clear-cut manner, so many expats will be able to determine conclusively that they are non-long-term residents (non-LTRs).

“This provides an opportunity for lifetime estate planning by non-LTR expats who might previously have been hesitant due to possible IHT charges if they were considered UK-domiciled, for example by making lifetime gifts to individuals or trusts which will not now qualify as potentially exempt transfers (PETS) or chargeable lifetime transfers (CLTs). Non-LTR expats can also be confident that their non-UK assets are excluded property for IHT purposes and will remain that way unless they become LTRs again.

“The greater clarity of the new rules will also allow some expats to re-establish links with the UK which they previously given up. Although care must be taken with regard to the Statutory Residence Test (SRT), it will generally be simpler for expats to plan how much time they can spend in the UK and what assets etc they can possess here without becoming UK resident under the formulaic requirements of the SRT.

“One downside of the new rules is that there is a greater risk that spouses may not have matching residence statuses, as it is relatively easy to align domiciles based on common intentions whereas the SRT operates in a much more prescribed way. This means that LTR elections will be more common, however these only lapse after 10 years or, if made on death, are apparently irrevocable according to the current draft legislation. There is therefore a planning opportunity to assist clients in aligning their tax residence statuses as far as possible to avoid having to rely on elections. This is important for clients considering estate planning and who were hoping to rely on spouse exemption on death. Their wills should be revisited together with the overall succession plan.

“For non-LTR expats who return to the UK after 6 April 2025, the FIG regime is a valuable opportunity to bring an unlimited amount of income and capital into the UK with no UK taxation.”
Helen Clarke, a High Net Worth & International Partner at Irwin Mitchell