UK Law and Practice Contributed by: Ros Bever, Claire-Marie Cornford, Helen Clarke and Ashley Hill, Irwin Mitchell
1. Tax 1.1 Tax Regimes
Those who come to live in the UK for ten years or more are now liable for IHT as “long-term residents” on their worldwide wealth rather than only on UK- situated assets, and remain liable for between three and ten years after they leave (see again 1.5 Stability of Tax Laws ). 1.2 Exemptions IHT exemptions, NRBs and reliefs include the follow - ing. • Non-UK-situated assets of those not long-term- resident in the UK are excluded from the scope of IHT. • Individuals have a general NRB, currently GBP325,000 per person (2025/6). • An additional “residence nil-rate band” (RNRB) may be available when the value of the family home is inherited by the deceased’s children or others who qualify as “lineal descendants”: (a) the RNRB is currently GBP175,000 per person (2025/6); and (b) there is rapid tapered withdrawal of the RNRB for estates over GBP2 million. • The IHT regime favours couples who are married or in a registered civil partnership: (a) gifts between spouses and civil partners are exempt; (b) an uplift may apply to NRB and RNRB avail - able in the survivor’s estate by reference to any proportion of the NRB and RNRB unused on first death; and (c) with appropriately structured wills, it is usually possible to defer IHT until after the lifetime of both spouses/civil partners. • The IHT exemption between spouses and civil partners is restricted when only one of them is a long-term UK resident. A surviving spouse or civil partner may elect to be treated as if a long-term UK resident to claim the full exemption. • Exemptions apply for certain types of gifts. The exemptions most widely relied on are: (a) annual exemption of GBP3,000 (with carry- forward of unused exemption for one year); (b) any number of small gifts of up to GBP250 (to any one individual) during a tax year; (c) gifts on marriage or civil partnership up to a certain amount depending on the relationship
The main UK taxes and top rates relevant for indi - vidual clients and wealth planning structures are: • income tax – 45% (48% in Scotland); • capital gains tax (CGT) – 24% (32% on carried interest); • inheritance tax (IHT) – 40%; • corporation tax – 25%; and • stamp duty land tax (see 1.4 Taxation of Real Estate Owned by Non-Residents ). Distinct rules apply to individuals, trusts and other structures such as companies. The tax system focuses on taxing the accrual of income and gains as well as specific transfers of wealth, particularly on death (with certain lifetime gifts taken into consideration). Subject to certain IHT exemptions and an available NRB, the following applies. • Lifetime gifts into most types of trust or to a company are chargeable lifetime transfers (CLTs) charged at 20%. Further IHT may be charged on a CLT that the donor fails to survive by seven years. • Other gifts are potentially exempt transfers (PETs) becoming chargeable to IHT if the donor dies with - in seven years of the gift (the “seven-year rule”). • Taper relief may apply to reduce IHT arising when a donor fails to survive CLTs or PETs by the full seven years (to the extent that the gifts are not within the NRB available on death). Most types of trust are subject to an IHT regime of ten- year anniversary charges, at a maximum rate of 6% on value in excess of the NRB available to the trust, and with a proportionate charge levied when capital is distributed between ten-year anniversaries. UK residents are subject to income tax and CGT on worldwide income and on gains subject to certain exceptions for those arriving from overseas to live in the UK (see 1.3 Income Tax Planning and 1.5 Stability of Tax Laws ).
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