If you’re planning to chase the sun and retire overseas, there is some good news in the UK’s autumn budget. Under the new rules, if you’ve spent enough time abroad, you won’t pay any inheritance tax on your overseas assets.
While the budget saw tax rises for many, the unexpected ray of sunshine comes from the Labour Party’s plans to scrap the much talked about non-dom status. Under the new, simplified system, you can save your overseas property and income for your loved ones.
An arcane, unfair system
Under the current system, when an overseas retiree dies, HMRC claims 40% inheritance tax on all their foreign assets over the £325,000 threshold.
Property prices across Europe have increased in recent years, with Portugal seeing an average increase of 69.2%. These rises mean more and more properties are now over this £325,000 threshold.
Previously, the only people who escaped this tax were non-doms, or non-domiciled residents. These were people who had claimed tax residency in another country and paid tax on their assets and income in that country instead of the UK.
The non-dom system was complicated and difficult to navigate. For example, if you retired abroad, while it was possible to change your tax domiciled status to your new country, it wasn’t enough to get a residency visa. It wasn’t even enough to become a citizen of your new home country.
This system could become a nightmare when dealing with someone’s estate
Naturally, this complicated system could become a nightmare when it came to dealing with someone’s overseas estate. Even when someone had spent decades living abroad, HMRC could stake a claim on their assets.
Retirees could see the overseas nest egg they had prepared to pass onto their families cut down significantly by all the different taxes.
The straightforward solution
The UK government is moving to a residence-based system, which determines whether someone pays tax to the UK based on where they live and for how long they’ve lived there.
“The government is committed to addressing unfairness in the tax system, so that everyone who is long-term resident in the UK pays their taxes here,” the government said in its announcement. “The government will therefore remove the outdated concept of domicile status from the tax system and implement a new residence-based regime which is internationally competitive and focused on attracting the best talent and investment to the UK.”
You can be safe in the knowledge that your estate will go directly to your family
Put simply, after you’ve spent ten years living abroad, the UK government will make no claim on any of your foreign assets.
If you plan to retire abroad, you can be safe in the knowledge that your estate will go directly to your family, without HMRC applying inheritance tax.
The new rules, which come into effect on 6 April 2025, apply retroactively. If you have already been abroad for 10 years or more, your overseas assets and earnings will already be safe.
With many countries rolling out the red carpet to international residents and a currently strong pound, these new tax rules make retiring abroad an even more attractive option.
Benefits to coming home
If you choose to return to the UK after more than a decade abroad, there’s another benefit, too: you don’t immediately become a tax-paying UK resident.
You won’t pay full inheritance tax on your overseas assets until you’ve been back in the UK for ten years. You also get 100% relief on your foreign income and capital gains tax for the first four years of being back in the UK. These changes make it easier to manage your transition home.
These rules ensure you can set up your family for the future
You could, for example, keep your overseas home as a rental property. For those first four years, your income would be protected. We have some helpful tips on how to make money from a property abroad as well as a guide on returning to the UK after living abroad.
The new simpler rules give you much more control over your retirement plans and how and where you choose to spend your years. It also ensures you can set up your family for the future.
To further protect your retirement money, register with Smart Currency Exchange today. We can help you navigate the volatile markets, keeping your money save from rapidly changing exchange rates.
