New tax regime for 2025
Can expats look forward to some benefits? The new Labour government is making headlines once again. Determined to "turn the page" on the economic crisis, they are considering inheritance tax exemptions for expats in the UK. However, this is still speculative, as no official details have been released yet. Proposals are still being discussed. On July 29, the government proposed a "verification test" to determine if non-British assets will be subject to inheritance tax starting April 6, 2025.
In the spring of 2024, the previous government had begun significant tax reforms, particularly affecting expats. One major change is the rebranding and restructuring: foreigners living in the UK but not tax residents will no longer be referred to as "non-domiciled" (non-dom). Instead, from April 6, 2025, a new tax regime will be introduced: the Foreign Income and Gains (FIG) tax regime. This new system targets the first four years of tax residency and also applies to inheritance rights.
Inheritance: Should expats expect tax relief?
The key question is whether a foreigner who has lived in the UK for at least 10 years before the taxable event will still be subject to inheritance tax even 10 years after leaving. The new tax regime is based on residence. Expats can benefit from the FIG if they can show they have been non-tax residents in the UK for at least 10 consecutive years. The government's first "test" will be followed by further studies and a consultation, likely to happen on October 30, the date of the new budget vote.
Should it be considered a "gift" to expats? The tax exemption would cover all foreign income, allowing eligible foreigners to repatriate their funds without fees or with adjustments based on their situation. However, this relief would be limited to the first four fiscal years. The reform also significantly impacts inheritance rights.
Currently, inheritance tax is based on tax domicile and the location of the assets involved. From April 6, 2025, the regime will be based on the expat's residence. Foreigners currently residing in the UK should check if they can benefit from the FIG and if switching to the new regime will be advantageous for them. Potential expats should verify their tax residency status, and the same advice applies to foreign residents planning to leave the country. Consulting a British tax expert is highly recommended, as experts generally advise against moving abroad solely for tax reasons. Each country has its own definition and understanding of inheritance tax and other taxes that expats may face.
A challenging context for tax benefits
Does the Labor Party have the means to achieve its ambitions? Rumors are swirling as the "huge hole" in state finances alarms public opinion. On July 29, the government uncovered a £22 billion "hole" in public finances from the previous administration.
How can a tax break for foreigners be considered in this context, even if limited? Finance Minister Rachel Reeves has announced a period of austerity. Several major projects, including rail construction, are temporarily halted. The government urgently needs to fill the deficit and reassure citizens. The Labor Party has very little room for maneuver and is transparent about the tough times ahead, even if it means disappointing a part of their electorate.
Starmer's immigration strategy
Starmer envisions the new immigration policy with firmness and reassurance. While the tone is less aggressive, the plan remains firm. Unlike Sunak, Starmer refuses to set specific targets but aims to reduce net immigration. The Labour vision is far from traditional left-wing views. Expats and potential expats should not expect changes to the successive increases voted by the conservatives (visa fees, health surcharge, minimum thresholds for student, work, or family sponsorship visas). Nor should they expect a reversal of the recent restrictions on foreigners (ending family reunification for many students, etc.).
The new British government also intends to prioritize employment for British citizens. Starmer has promised a "policy serving the British people." So far, there have been few announcements regarding Britons living abroad. Many pro-Europeans know that the Prime Minister will not reverse Brexit. Despite being a staunch European, Starmer confirmed he would not undo Brexit. However, he hopes to negotiate more favorable agreements with Brussels and other European countries, particularly with France.
Other countries are watching the British proposal with interest, seeing the tax reform (inherited from the conservatives) as a strategy to attract foreign nationals. Perhaps this is Starmer's hidden goal: to attract wealthy expats through tax relief. It remains to be seen if this measure will be included in the new budget.
