Wealthy Brits retiring abroad could now avoid inheritance tax altogether thanks to a loophole in the no-dom rules revealed by Labor in the Budget.

Current rules state that anyone with a UK “domicile” must pay inheritance tax (IHR) on their global wealth, even if they live and die abroad.

But the new system replaces domicile with residence, meaning the majority of people who have lived abroad for more than 10 years will not pay IHT on their foreign assets.

This could allow them to avoid a 40 per cent fee – a huge boon for wealthy expats at a time when other groups, such as UK-based farmers, are set to lose out.

Sir Richard Branson has lived on Necker Island in the British Virgin Islands for almost 20 years.

“If someone is considering retiring overseas, this can give them the boost they need,” said Chris Etherington, partner at RSM Accounting Group. flight.

Changes to the non-dom regime will come into force in April and will mean tens of thousands of Britons already based abroad will be immediately relieved of the threat of paying IHT when they die.

Among them is Virgin founder Richard Branson, who has lived on Necker Island in the British Virgin Islands for almost 20 years.

“A lot of expats don’t really appreciate what happened and may not pay much attention to the non-dominance rules, and therefore don’t realize that they are the unexpected beneficiaries,” said Mr. Etherington.

Non-dom, short for non-domiciled, refers to a person who lives in Britain but whose permanent tax residence is registered overseas. People with this status do not have to pay UK tax on their foreign income and assets.

Currently, an individual’s domicile is where they consider their permanent home to be.

It is possible to change your UK domicile status by acquiring a ‘domicile of choice’ in another country, but this is a complicated process.

Experts have warned that Rachel Reeves’ decision to abolish non-dom status in her budget would trigger an exodus of wealth creators.

Maxwell Marlow, of the Adam Smith Institute, said: “Abolishing the non-domicile regime will drive away highly mobile wealth creators, their tax contribution will fall and they will invest less in our economy.”

The new system replaces domicile with residence, meaning the majority of people who have lived abroad for more than 10 years will not pay IHT on their foreign assets.

Nigel Green, chief executive of financial consultancy DeVere Group, warned the exodus would leave “lasting scars on the UK economy”. He added: “The UK has long benefited from the economic contributions of non-Domes, whose direct and indirect investment and business activities are an integral part of the nation’s prosperity.

“The appeal of non-domicile tax status has been a key factor in attracting international talent and creating a dynamic business environment. Its removal is likely to signal a shift in the global perception of the UK as a favorable destination for wealth creation and business development.

Former Conservative chancellor Jeremy Hunt outlined plans to scrap the scheme in his Budget earlier this year. But Ms Reeves went further by closing a so-called loophole that allowed people with tax status to protect their assets in an offshore trust.

She unveiled a replacement scheme aimed at encouraging wealthy foreigners and foreign investors to come to Britain temporarily.

But official estimates predict more non-domicilers will leave the country under Ms Reeves’ plan than Mr Hunt announced in March.

Rachel Reeves pictured earlier this month during a visit to Tokamak Energy in Milton, Abingdon

The Office for Budget Responsibility said its decision would “slightly increase migration” compared to changes announced by Hunt earlier this year. It estimates that 12 per cent of non-dominants who are not eligible for the new regime will leave the country – compared to 10 per cent under Mr Hunt’s plan.

Marcelo Goulart, of the Première Alliance group, said the reform was a “colossal error of judgment”. He added: “(It has) exacerbated the damage already done to the UK’s reputation as a preferred jurisdiction for the international wealthy.”

A UK Treasury spokesperson said: “Replacing the outdated non-domiciled tax regime with a new internationally competitive system based on residency addresses the unfairness of our tax system, attracting the best talent and investment to the United Kingdom and guarantees to all those who are long standing. Temporary residents in the UK pay their taxes here.

“This was a one-off parliamentary budget designed to wipe the slate clean, and our package of changes to this scheme in the Autumn Budget is set to raise £12.7 billion over the next five years to help plug the £22 billion budget hole and rebuild our public services.