The UK government expects to grab approximately £2.35 billion annually from changes to the taxation of non-domiciled individuals, particularly through far reaching reforms to inheritance tax (IHT), and it puts Kiwi Expats in the UK firmly in its sights.
Up to now the thousands of Kiwis that each year headed off to the UK to work enjoyed being considered resident but non-domicile for UK tax purposes. Generally, this meant assets held offshore were not considered for UK taxes and IHT unless the assets or income were brought into the UK. The non-domicile exemption lasted until they had been resident in the UK for 15 years. Under the exemption when they came back to New Zealand or Australia their non-UK assets would not be subject to UK IHT. Any assets they left in the UK over £325,000 would still subject to UK IHT, this is regardless of whether you live in the UK or not. In the UK IHT is 40% of the value of the assets above the threshold.
But its all changing and for the worse for Kiwi’s based in the UK, from 6 April 2025, the UK will:
- Replace its long-standing domicile-based inheritance tax (IHT) system with a residence-based approach
- Shorten the length of time you need to be in the UK to qualify for paying inheritance taxes on your worldwide assets
- Expand the amount of time that you need to be outside of the UK before you are outside of the scope of the UK IHT regime
The new residence-based system will catch a lot more people
Under the new rules, an individual will be considered a "long-term resident" and subject to IHT on their worldwide assets if they have been UK tax-resident for at least 10 out of the last 20 tax years. That means all your worldwide assets will be included in your UK IHT even if you acquired these assets before arriving in the UK.
If caught under the residence based system, you’ll be liable for IHT for a long time after leaving the UK
Previously, non-domiciled individuals could leave the UK and avoid IHT on non-UK assets as discussed above. Additionally, UK domiciled individuals (Brits) could leave the UK and after 3 years have no IHT on non-UK assets. This meant that if you transferred all your assets outside of the UK you would have no UK IHT once outside these time frames.
The new 6 April 2025 rules introduce a longer tail provision. Long-term residents will be liable for UK IHT on worldwide assets for up to 10 years after leaving the UK.
There is no protection in New Zealand under the double tax treaty
New Zealand does not have inheritance taxes, and there are no specific carve outs in the double tax treaty between the UK and NZ for inheritance taxes. This means it is only covered by general double tax treaty principles, and therefore the full amount of UK IHT will be payable as there are no offsets in New Zealand.
Setting up or having a trust in New Zealand will not necessarily help you
Non-UK assets, previously outside the scope of IHT for non-domiciled individuals, will now be included for long-term residents. New Zealand trusts settled by UK long-term residents will become subject to IHT charges, including periodic charges of up to 6% on the value of non-UK trust assets.
Things get worse from 2027 when pensions are counted for IHT in the UK
At present pensions are excluded from IHT in the UK. This has led to people piling significant amounts of funds into their pension schemes to allow for these assets to be passed IHT free. However, from 6 April 2027 the exclusion for pensions will be removed.
These changes necessitate careful planning for New Zealanders and Australians in the UK, especially those approaching or exceeding the 10-year long-term residence threshold. It's crucial to review and potentially restructure existing estate plans and offshore arrangements, particularly now with the.
The UK government has announced a consultation to refine the operation of these new residence-based IHT rules, particularly regarding transitional arrangements and trust treatment.
Conclusion
The abolition of non-domicile tax status in the UK represents a seismic shift in tax policy, with significant implications for inheritance planning. Kiwis living in or considering a move to the UK must be aware of these changes and seek professional advice to navigate the new tax landscape effectively. As the implementation date approaches, staying informed about any further developments or clarifications in the rules will be crucial for effective estate planning.
Simon Swallow is a director of Charter Square. You can contact him here.
5 Comments
"Will you accidently become one of the top 2%?"
So, what is the relevance of the headline "top 2%" which isnt explained? Apparently this immoral state enabled theft applies to everyone who accrues a modest amount of lifetime savings to pass on to their children.
Or have the UKs entitled hereditary overlords so crippled their economy, enabling institutions & citizens earnings opportunity during the last century's attempts to achieve the lowest common denominator of voter state dependence that 98% of people will remain impoverished serfs throughout their lives?
kiwikidsnz,
You do talk a lot of ill-informed rubbish and this is no exception. I used to deal with IT planning for clients in the UK and while nobody was thrilled about paying some tax on the capital passing to their family on death, almost all accepted that this was a legitimate part of a rounded tax system; one which spread the tax burden between both income and capital. Our system is grossly unfair, placing almost the entire burden on income, while leaving almost all capital untaxed.
To me, people like you are just selfish. You of course want all the benefits of a civilised society; good infrastructure, education, health and so on, while paying as little towards these benefits as you can get away with.
What surprises me about this extension to their Inheritance Tax base is how little they expect to raise, while actually collecting the tax will require additional staffing and admin costs.
You & your UK clients may very well think that, not knowing any different / better. You choose to ignore the fact that capital can accrue in savings from tax paid income & that tax is also paid on capital investment income
NZ had death duties (= inheritance taxes) for a century, in craven copy of the UKs archaic regimes. Getting rid of them was part of the electoral quid pro quo for the original introduction of GST.
Govts don't spend our money well enough to also give them our children's inheritance .
kiwikidsnz,
Now more of Trump's billionaire backers are having second thoughts about what they funded. And about-to-retire Warren Buffett issued his shareholder letter over the weekend, with some clear criticisms of Trump and his tax-avoiding accomplices. Buffett said paying taxes is patriotic and essential for a functioning society, and his companies paid US$26.8 bln in 2024, alone 5% of all corporate taxes in the US - and far more than all the tech companies combined. Trump is going into bat to ensure those tech companies don't have to pay any taxes in the foreign countries they operate in.
As i said, you and those who think like you, are just greedy, selfish blood-suckers.
I'm sure there'll be a way to wriggle out of this. Have a UK Will for UK assets and an NZ Will for NZ assets
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