The UK inheritance tax (IHT) reforms under the non-dom tax overhaul present a transformative moment for wealthy families, particularly UHNWIs and family offices.

By shifting to a residency-based taxation system, these changes extend IHT to include global assets of non-doms residing in the UK for over ten years.

For many families, this marks a critical juncture in re-evaluating estate planning and wealth transfer strategies.

Overview of Proposed Inheritance Tax Changes

The new IHT framework replaces the traditional domicile-based system, bringing global assets into scope for taxation at a 40% rate after 10 years of UK residency.

Furthermore, a 10-year “IHT tail” applies to individuals leaving the UK, ensuring they remain liable for foreign asset taxes during this period.

While intended to address fairness, these provisions significantly increase tax exposure for wealthy families, compelling them to reconsider wealth management approaches.

Challenges for Wealthy Families

1. Estate Planning Complexities:
   The inclusion of worldwide assets under IHT expands the administrative and financial burden of estate planning. Wealthy families must now account for diverse asset portfolios spanning multiple jurisdictions.
2. Impact on Philanthropy:
   Many UHNWIs utilise philanthropic giving as part of their legacy planning. With higher tax burdens, families may reduce charitable contributions, potentially affecting funding for key social initiatives.
3. Succession Concerns:
   The reforms complicate multigenerational wealth transfer, especially for families with extensive overseas holdings. Without proper planning, heirs could face diminished inheritances and prolonged legal disputes.

Strategic Adjustments

1. Gifting and Lifetime Transfers:
   Families can mitigate IHT exposure by leveraging exemptions like the seven-year rule, which allows tax-free gifting, provided the donor survives beyond this period. Regular gifts out of surplus income also provide immediate tax advantages.
2. Offshore Trusts and Jurisdictions:
   Shifting assets to offshore trusts in tax-friendly jurisdictions like Jersey or Switzerland can shield wealth from UK IHT, but compliance with tightening regulations is critical.
3. Investment in IHT-Exempt Vehicles:
   Assets held in business relief-qualifying investments, such as unquoted companies or AIM-listed shares, remain exempt from IHT after two years. These options align tax efficiency with economic contributions.
4. Charitable Donations:
   Families donating at least 10% of their net estate to charity can lower their IHT rate from 40% to 36%, combining philanthropy with tax savings.

The Role of the Advisor

The UK inheritance tax reforms necessitate proactive and customised planning to balance fiscal obligations with wealth preservation.

Family offices, tax advisors, and wealth managers must collaborate to implement strategies that safeguard family legacies while supporting philanthropic goals.

By aligning long-term tax strategies with socio-economic contributions, wealthy families can navigate this crossroads with resilience and foresight.

Cover image by Freepik

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