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For most people, moving countries once in a lifetime is enough. For a small group of the wealthy who want to avoid the UK’s inheritance tax, moving countries once every 10 years is starting to look appealing.
Changes made by chancellor Rachel Reeves to inheritance tax in the Budget last year means expat Britons are no longer liable for inheritance tax after spending a decade abroad. They then can live in the UK for the following nine years before death duties apply again.
This can involve some morbid calculations about how long leavers would expect to live on returning to the UK.
Catrin Harrison, partner at law firm Charles Russell Speechlys, said such planning could be seen as “macabre” with “people working out ‘If I come back when I’m 90 I might have died within nine years’”.
Anthony Whatling, managing director at consultancy Alvarez & Marsal, said the prospect of falling back into the IHT net, having already escaped it with a decade abroad, might prompt those affected to make a second departure.
“We anticipate many will proactively manage their residency status, potentially leaving again after nine years,” he said.
Stephen Kenny, partner at accountants PKF Littlejohn, said the out-in-out approach was “a practical strategy in the right circumstance for the right clients”.
Among those looking overseas, Milan has proved a popular destination because Italy offers a €200,000 annual charge on bringing onshore unlimited foreign income. The emerging financial centres of the United Arab Emirates have also become draws.
Christopher Groves, partner at law firm Withers, said a series of moves by the rich would become more common. “As more governments are getting interested in putting [tax-attractive residencies] forward, they come with finite time horizons. Unless you want to go to Switzerland or Monaco, then you’re having to plan for a fixed number of years,” he noted.
The UK’s new foreign income and gains (FIG) regime means these sources of wealth are fully exempt from UK taxation for four years, for individuals who have been non-resident for 10 years. The Italian flat-tax scheme is valid for 15 years, and Spain’s lasts for six years.
Groves said some of his clients, both non-doms and UK-domiciled business owners, had left Britain with a “10-year horizon”, although without a specific intention of returning.
“They will likely look to move again, possibly back to the UK, because it would be an option again, but equally likely to the US or elsewhere,” he said.
Reeves encouraged shorter-term arrivals by replacing the old non-dom regime, which was available for 15 years, with a system available to new arrivals for four years. They would also have to leave after nine years to avoid death duties.
Nimesh Shah, chief executive of advisory firm Blick Rothenberg, said the FIG regime had drawn back some British people who had lived outside the UK for more than a decade.
“Some returning Brits are planning to stay for a short period to take advantage of this regime and then leave within the four-to-10 year window” before IHT kicked in again, he added.
Groves said any long-term planning was undermined by “a general feeling of mistrust of government . . . The chances of the current regime still being in place for 20 years are small.”
But Kenny warned against about planning around these strategies: “People shouldn’t let the tax tail wag the dog.”