I didn’t intend on starting this E-zine with information about the house and country life talk, but this morning I awoke to the most beautiful sunny day, the first for a while, and whilst the man is at work doing the ‘potatura’ of the olives, I just couldn’t resist taking a photo of the beautiful daises which have popped up on the land. It’s like a fresh spring meadow!
New UK inheritance tax rules
By Gareth Horsfall
This article is published on: 10th March 2025
The grass is starting to grow again and I was thinking about cutting it, at least outside the front of the property, but then I thought to myself why would I want to spoil such a beautiful thing? So, for now the grass can grow and the wild flowers can enjoy their moment in the sun. As mentioned, the man is now here doing the potatura of the olive trees and thinks it will take him about 20 days! He is on his own, but seems to have a passion for it. I daren’t go and stay too close to him otherwise, I keep him chatting and I don’t want him to have to take more then 20 days given the amount of work that is required for his sake more than mine.
Anyway, that’s a short update on the property and land. I have also just returned from a short trip to the Big Apple, NYC. My son was performing in a piano competition and got invited to play at Carnegie Hall and also the Italian Cultural Institute of NYC. What an experience for a 15 year old….and he won his age group competition! We are, quite frankly, in shock. Onwards and upwards I guess.
One thing I noticed in NYC was the cost of living. Now, I will caveat the following comments with the fact that we were staying near Times Square so I imagine there is a certain % you can add to the price of goods and services for being in such a touristic spot, but the price of basic goods in America now is very high. One day I went to the 7 Eleven and bought 2 bottles of water, a container with about 20 grapes in it, a banana, 2 cups of tea and a box of biscuits and left the shop $40 (€37) less in my pocket. Compare that to a shop at the local grocery shop in Amelia this morning and I got about 3 kgs of oranges, 2 kgs of apples, 2 fennels , 2 lettuces, 1/2kg of green olives, a pineapple, some tomatoes and about 2 kgs of lemons and it cost €21 ($22). A huge difference! We also met some American family members for a day in NYC and they confirmed that it is almost more expensive to buy fresh produce and cook at home than it is to eat at a diner.
I have made reference to this in a few videos which I have on my YouTube channel, (https://www.youtube.com/@Gareth-Spectrum) but to experience it first hand was quite something. Needless to say we gorged ourselves at the diners!
My last comments before I go onto the main subject of this E-zine are on President Trump.
It is certainly an interesting time and a few people have called/messaged to ask what I think.
Firstly, the debacle at the White House with President Zelensky was quite the scene!!
I watched the whole meeting after initially seeing a few short video clips and it was quite difficult to watch, if I am honest, but to be fair to President Trump he was hammering home the message about peace and stopping the deaths on both sides. I am not exactly sure what President Zelensky’s objective was but it certainly didn’t sit well with the Trump team. In the end I presume that America will get what it wants. It’s doubtful it won’t and if Pres. Zelensky has managed to garner support in the UK and France and the wider but it remains to be seen how they can spport Ukraine either financially or militarily without the US.
Whilst I don’t like Donald Trump in the slightest, if he manages to stop the wars, killing (on both sides) and find some sort of peace deal, then that has to be good for everyone, in my opinion.
There is also the tariff war which appears to be now in full swing; I saw that he announced the other day that the Taiwan Semiconductor Manufacturing Company had committed to investing $160 billion in a new production facility in the US. Also, Trump reiterated in his recent address to Congress that if companies want to avoid tariffs on goods into the US then all they need do is relocate production to the US itself. Therefore, it would seem like the message is clear and I expect more businesses to relocate production /invest in the US as a result. It will likely stimulate US small and mid sized companies and US consumers are more likely to turn to home produced products than those more expensive products brought in from abroad.
So, moving on from my travels, country experiences and President Trump , in this E-zine I am dedicating it to the new rules on inheritance tax which were introduced by the UK government in October 2024. (Please accept my apologies that it has not been sent until now, but there have been a number of clarifications which we have been waiting for, but which are yet to transpire. The UK government is seeming more like the Italian one every year with announcements which have not been fully thought through and which then get slowly modified and tweaked as the years go by, only for there to be numerous potential pitfalls which could lead to legal cases, until matters are clarified).
However, despite this we have a fair idea of what the new rules entail and of which I will detail below.
(thanks to Jessica Zama at Russell Cooke solicitors in the UK and Barry Davys, my colleague in Spain, who provided their summaries of the changes as well).
I come bearing gifts!
Writing the words ‘ bearing gifts from the tax man’ is not something which I am very used to. In fact, 99.9% of the time it is quite the opposite. However, in this case it might just be that, as Brits’ living abroad or anyone with UK citizenship living outside the UK for more than 10 consecutive years, you may be able to reduce inheritance tax liabilities significantly with some careful planning.
It could be as easy as following a few basic steps.
BACKGROUND
The UK has an Inheritance Tax system where the estate of the deceased is assessed based on worldwide assets if they were considered ‘domiciled’ in the UK at the time of death. The term domicile and its meaning has been the important factor to consider up to now, and in the UK it has a different meaning to “resident” or “residency”.
Domicile in the UK is different from the Italian “domicilio”, which is akin residence. The test of where one is tax-domiciled is to establish the jurisdiction in which an individual is most connected to, and would be very much influenced by where that person intended to live the rest of their life. If, upon a death, a person was considered “deemed domiciled” in England by the HMRC, inheritance taxes in England (“IHT”) would be applicable on that individual’s worldwide assets. This would be regardless of where the deceased was physically resident at the date of their death.
This meant that even if you left the UK 30 years ago to live in Italy, if HMRC for any reason considered that you were most closely connected to the UK and therefore “deemed domiciled” in that country, your estate would not only be taxed on your worldwide assets in Italy, or in whichever country you are resident at the time of death, but also in the UK, where inheritance taxes are far higher.
This concept has caused much confusion over the years and not least caused issues for professionals who could not give their clients a straight answer when providing estate planning advice, as to whether they would be considered deemed domiciled upon death. HMRC could not provide any guarantees as to what the final decision would be upon death.
Residency basis
Fortunately, the 2024 Budget has changed these rules, which will provide more clarity as to whether a person’s beneficiaries are going to have to pay IHT on the deceased’s worldwide assets.
The concept of “deemed domiciled” will disappear, and a new residence-based system will take its place. An individual will be considered a “long term resident” if they have lived in England for 10 out of the past 20 years; these years do not have to have been consecutive, and one will simply have to add up all the years that the individual has lived in the UK in the past 20 years, to see whether they are considered long-term resident. If they have, then their estates will be subject to IHT.
Generally speaking, that individual will continue to be considered long-term resident in the UK for ten years after they have left the UK, as there is a “tail”, this is a tapering, and this ‘tail’ is shortened if you lived in the UK for less than 20 years. The length of his tail will depend on the years actually lived there.
But , if you have lived outside the UK for more than 10 CONSECUTIVE years, your non UK-assets will not be liable to UK IHT. The rule is as follows :
- From 6 April 2025, the test to determine whether non-UK assets are within the scope of IHT will be whether an individual has been resident in the UK for at least 10 out of the last 20 tax years immediately preceding the tax year in which the chargeable event (including death) occur
How beneficial is the change to ‘Residency Basis’ of assessment?
The benefit will depend on our personal circumstances, where your assets are based, where, potentially, they are being managed from, and the value of your assets.
The case study below illustrates:
Mr & Mrs Bloggs
- More than 10 consecutive years out of the UK in the last 20 years
Assets outside the UK include Italian compliant bonds, bank accounts, QROPS pension and a property, all jointly owned, as follows:
| Italian bank accounts | €33,000 |
| Italian compliant bonds | €580,000 |
| House (mortgage free) | €525,000 |
| QROPS pension | €345,000 |
| TOTAL | €1,483,000 |
- UK based assets £325,000 jointly owned (ISA’s, investment accounts)
Under the new rules, Mr and Mrs Bloggs can return to the UK and if death occurs within 10 years of the return the following will apply.
- UK assets assessed for UK IHT fall within the UK nil rate band. Tax due £0
- Assets outside the UK NOT ASSESSED under the residency basis €1,483,000
The savings from NOT having these assets taxed in the UK would be a whopping £593, 200. (£1,483,000 * 40%)
And here is the icing on the cake
Complete more than 10 consecutive years outside the UK, then return to the UK and be unfortunate enough to pass away in the next 10 years and your estate will get the following additional benefits (on top of being IHT exempt on non-UK assets):
- If you and your spouse were both long term non-resident, you will receive the spousal allowance – 100% IHT free transfer of your assets to your spouse, if directed by your Will
- Each spouse receives an IHT allowance of £325,000 with only UK assets above this amount being taxed
- If you have a main residence and your total individual wealth is less than £ 2 Million you will get the main residence relief of £175,000
If you pass away outside of the UK and your beneficiaries are in the UK, they will pay no UK IHT if you have met the long term non-resident criteria. This is because your non-UK assets will not be taxed in the UK. As the UK government taxes your estate, not the beneficiary receiving the bequest, no IHT will be payable.
And because you live in Italy, your UK based beneficiaries will be assessed on their residency and as they are outside Italy they will not have to pay Italian IHT on non-Italian assets.
How to save UK IHT when living in Italy – top six tips
1. Take professional advice
2. Don’t move back to the UK until you have more than ten consecutive years out of the UK.
3. Keep your investments outside the UK outside if you qualify under the new residency test.
4. If you are planning on making Italy your home for more than 10 consecutive years then plan to move your assets away from the UK financial system and plan like a European, for example ISA’s, which are not tax free in Italy anyway. There is now merit in disposing of them in favour of non- UK situated assets.
5. Pensions in the UK are liable to IHT from April 2027 and it is therefore doubly important to keep non-UK pensions beyond the scope of IHT.
Unfortunately, the possibility of moving pension assets away from the UK has now finished as the UK government also imposed, in the same budget, a 25% tax surcharge on pensions transfers outside the UK. However, not having the pension managed by a UK financial adviser (who shouldn’t anyway due to regulatory issues), and also the assets managed by an EU based manager and/or invested in non UK domiciled assets, should prove that links to the UK have been separated as much as possible.
6. When drawing income or capital from your investments and pensions, take advice on the manner and order in which you do this, as it makes a difference to your IHT exposure and also how long your savings will last.
*** An additional note about invested assets is probably worth a mention here. One of the criteria for determining UK deemed residency for IHT purposes under the new rules is something called UK-situs assets. i.e those assets which you hold in the UK. The obvious asset to mention here is property. Owning UK property could mean you fall within the scope of the new residency rules as UK resident for IHT purposes. However, less obvious things could also fall under this rule, i.e having assets managed in the UK by a UK based financial adviser and/or asset manager or even having an active bank account in the UK.
Whilst we are waiting for further clarification on these points it is thought that these could fall into the realm of ‘grey area’ awaiting a legal judgement. Hence, for this reason we would recommend that wherever possible you start to move your banking and/or invested monies across to EU licensed and authorised financial professionals to be managed, if you are intending on a long-term or permanent move away from the UK.