Some UK non-doms will pay exit costs to trusts after budget changes.

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Some non-domes will have to pay departure fees on their holding trusts if they leave the UK under measures set out in Rachel Reeves' first Budget, despite concessions made by the Prime Minister to stem the outflow of wealthy foreigners.

A fee of up to 6% may apply to trusts of non-national residents who have lived in the UK for more than 10 of the last 20 years, according to a technical document published by the Treasury.

However, Reeves decided not to impose estate tax at the top rate of 40% on trusts set up before October 30 due to the death of a tenant. She also reduced the period during which non-class people leaving the UK would be exposed to UK inheritance tax, reducing the period from 10 years to at least three years.

Many non-domestic, wealthy expats who live in the UK but claim their permanent home is abroad are considering leaving or emigrating the UK after Reeves promised to end a loophole that indefinitely exempts overseas assets held in trust from UK inheritance tax. I did it.

Ministers this week also outlined temporary repatriation facilities for foreign-owned income and income held by individuals or held in trust, with a flat tax of 12% and 15%, compared to a maximum of 45%.

Rachel de Souza, a partner at accountancy firm RSM, said the government's relaxed stance on inheritance tax compared to the budget transfer should reduce the number of bidome leavers, but the measures were not perfect. These trusts are now subject to regular 10-year IHT charges. This is generally more palatable than the 40 per cent death charge, but inevitably some families will leave to escape the repercussions, she added.

Inheritance tax exit charges do not generally apply to trusts set up by non-doms containing tens or hundreds of millions of pounds. But they already exist in other parts of the trust regime.

From April, the existing rules, known as the relevant property regime, apply inheritance tax departure charges if non-state foreign trust assets are not long-term resident, meaning they have been out of the UK for around a year. To avoid inheritance tax.

Under these regulations, trust companies will pay inheritance tax at a rate of up to 6% every 10 years. The exit fee charged is based on the time that has elapsed since the last 10 years of trust fees.

For example, if 5 years have passed since your last 10-year claim, the trust will pay a 3% exit fee.

Edward Hayes, director at law firm Burges Salmon, said most non-domes who left the UK in the 2024-25 or 2025-26 tax years would pay a departure fee on the trust but would be entitled to a three-year inheritance tax arrears benefit.

He said clients' reactions to the budget were varied, with some relieved not to face a 40% inheritance tax rate on foreign assets held in trusts and others upset by facing exit costs.

In one sentence, Hayes added, it's not as favorable as some had hoped, but it's not as bad as some had feared.

Robert Broddrick, chairman of law firm Payne Hicks Beach, said the trust liquidation charges would come as a surprise to many.

Both Labor and the Conservatives have pledged to phase out anarchy at the July general election. But unlike the Conservatives, Labor has pledged to tighten the rules further by removing the ability of non-doms to use trusts to shield overseas assets from UK inheritance tax.

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Only 1,200 of the 74,000 people currently claiming non-dom status are likely to leave the UK due to a change in government, according to government analysis. The reforms are expected to raise $12.7 billion over the next five years.

But this week the Office for Budget Responsibility, a fiscal watchdog, described these forecasts as highly uncertain, noting that they depend on a relatively small number of wealthy individuals.

“The 10th anniversary fee and withdrawal fee already apply to trusts held by people living in the UK,” the Treasury said in a statement. The new system creates fairness by applying these rates to non-doms who are long-term UK residents.

Dominic Lawrance, partner at Charles Russell Speechlys, said while the concessions were welcome, they were lipstick on a pig. The real question, he added, is how effective the new system will prove to be in preventing current non-doms from leaving and attracting new arrivals.

Additional reporting by Harriet Agnew in London

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