There have been many changes since my article on the U.K. Inheritance tax (“IHT“) applying to a Canadian resident. Indeed, we’ve seen a Spring U.K. budget introducing an overhaul of the U.K. resident non-domiciled individuals (“non-doms“) regime, a U.K. election bringing a new government and another Autumn budget.

It has been an exhausting few months keeping up with the U.K. tax changes. What does it mean to Canadians?

IHT Moving to a Resident Regime

The IHT regime is moving from a non-domicile regime to a resident-based system starting on April 6, 2025.  IHT will now apply to “long-term residents.” An individual will be considered a long-term resident if they have been resident in the U.K. for at least 10 out of the last 20 tax years immediately preceding the tax year in which the chargeable event (notably death) arises.

It is worth noting the nil rate band of £325,000 and the residence nil rate band of £175,000 remain unchanged (until 2029/30 tax year). This is relevant to U.K. citizens living in Canada for whom their estate may be subject to U.K. IHT on their U.K. assets.

The change of regime for IHT is likely welcome news to U.K. citizens living in Canada as there was always some uncertainty as to whether IHT could apply to their estate if their domicile was at issue. However, Canadian estate and tax practitioners will need to review and understand the complexity of the transitional rules, in the context of IHT, from the non-dom regime to the long-term resident regime to properly advise their clients.

Also, a settlor of a trust who meets the definition of a long-term resident needs to be mindful that the IHT may also apply to non-U.K. assets that were settled in a trust. This will require clients and their advisors to delve into more detail during the discovery stage to properly identify if and when the IHT may apply to trust’s assets.

U.K. Pension & IHT

Pension in the U.K. is a complex affair.  U.K. pension was not much of a concern in estate planning since it was exempt from IHT.  That is changing. The Chancellor announced that “unused” pension funds will be taxed at death as well as death benefits payable from a pension scheme. Canadians with a U.K. pension may need to review these rules and seek professional advice from cross-border tax and estate practitioners.

U.K. Capital Gain

U.K. capital gain tax rates are increasing to a standard rate of 18% (from 10%) and a higher rate of 24% (from 20%), effective on or after October 30, 2024.  The recent budget also includes an announcement regarding the Business Asset Disposal Relief and the Investors’ Relief which includes measures with a lower capital gain tax rate (10%) for entrepreneurs disposing of business assets.

Therefore, Canadians with capital assets situated in the U.K. or entrepreneurs doing business in the U.K. should seek professional tax advice from their cross-border tax advisors.

Conclusion

There are many more changes to U.K. tax laws but the changes to the IHT and the capital gain tax rates are likely the main measures relevant to Canadian residents with links to the U.K.

Cross-border tax and estate advisors will need to review these tax changes and possibly amend some of their clients’ tax and estate plans. There is never a dull moment in the tax and estate world.