Changes to UK inheritance tax laws could boost open market

The details of Labour’s proposed move from its first Budget in power are not expected until the end of the month, but the potential for change is being heavily trailed, raising concerns but also the possibility of opportunity for the island to attract people into open market property.

Mandy Connolly, head of tax technical at LTS Tax, said the main issue would be the proposed change from a domicile-based system to one based on residency.

‘People who have been UK resident for 10 years or more would be in scope of IHT on their worldwide assets and, if they decide to leave the UK, they would remain in scope for 10 years after leaving,’ she said.

‘This 10-year “run-off” period has been strongly criticised for being too long and we may see a reduction to this in the Budget.’

Labour might also be looking at restricting or cutting reliefs that are available for certain business assets and agricultural assets, she said. The government could also reduce the number of ‘nil rate bands’, which would lead to more people having to pay the tax.

However, bringing assets under the scope of IHT that are held in a trust from a UK resident who was not living there when it was settled, could lead to wealthy ‘non-doms’ leaving the UK, so such rules might be softened, she said.

Mrs Connolly said there were several aspects of Guernsey’s tax system that could be attractive to potential UK residents looking to relocate, including the absence of inheritance tax.

‘This could be a particular draw for more mature UK residents, who want to be able to pass on their wealth to the next generation without the burden of IHT, especially if the run-off period for those leaving the UK does prove to be shorter than 10 years.’

What happens depends on what becomes the new law, she said.

‘For those who are not yet long- term UK residents, leaving the UK before they have completed 10 years of residence is likely to be most advantageous, so the timing of a move could be key.’

Locate Guernsey was in London earlier this month with its annual big event in the capital aimed at encouraging people to move to the island.