The CIOT has issued a memorandum addressing some of the technical issues that would arise on the adoption of proposed changes to the domicile rules for IHT purposes from 6 April 2025.
The CIOT would support a change to a residence-based test from a domicile-based test, but considers that ten years’ residence for arrivers to the UK is too short a period for full exposure to IHT on their worldwide assets. A ten-year tail for leavers is too long and should be related to the length of residence in the UK.
Other issues that will need clarification include whether the ten years will include the current year, whether the ten years’ residence needs to be continuous, whether the SRT can be used to determine residence prior to 2013/14 and whether years of non-residence under a treaty tie breaker clause will count in the ten-year calculation.
Consideration will need to be given to treaties and treaty relief; in particular, whether domicile in a tax treaty should be interpreted as residence.
Many transitional issues will need careful thought including provisions surrounding different types of leavers and arrivers.
The treatment of settlements will be key. The CIOT supports the idea that their chargeability should be governed by the residence status of the settlor. In respect of existing settlements, the CIOT supports the rules which were proposed at Budget 2024 to allow settlements existing before that date to retain their existing IHT treatment (but not for assets settled on or after 6 March 2024 (Budget day) unless made by will).
The CIOT has issued a memorandum addressing some of the technical issues that would arise on the adoption of proposed changes to the domicile rules for IHT purposes from 6 April 2025.
The CIOT would support a change to a residence-based test from a domicile-based test, but considers that ten years’ residence for arrivers to the UK is too short a period for full exposure to IHT on their worldwide assets. A ten-year tail for leavers is too long and should be related to the length of residence in the UK.
Other issues that will need clarification include whether the ten years will include the current year, whether the ten years’ residence needs to be continuous, whether the SRT can be used to determine residence prior to 2013/14 and whether years of non-residence under a treaty tie breaker clause will count in the ten-year calculation.
Consideration will need to be given to treaties and treaty relief; in particular, whether domicile in a tax treaty should be interpreted as residence.
Many transitional issues will need careful thought including provisions surrounding different types of leavers and arrivers.
The treatment of settlements will be key. The CIOT supports the idea that their chargeability should be governed by the residence status of the settlor. In respect of existing settlements, the CIOT supports the rules which were proposed at Budget 2024 to allow settlements existing before that date to retain their existing IHT treatment (but not for assets settled on or after 6 March 2024 (Budget day) unless made by will).
