What does the pledge mean? 

‘Non-dom’ tax status refers to the rules around tax for UK residents whose permanent home or “domicile” (for tax purposes) is outside the UK.

Offshore trusts (or non-resident trusts) are trusts outside the UK. Currently, inheritance tax generally only has to be paid on assets situated outside the UK if the person who placed the assets in the trust was domiciled in the UK when the assets were put into the trust, regardless of whether the person inheriting the assets is domiciled in the UK.

Labour’s manifesto pledged to “end the use of offshore trusts to avoid inheritance tax so that everyone who makes their home here in the UK pays their taxes here”.

The party did not set out a timeframe for this commitment in its manifesto, and did not specify exactly what changes would be made to the inheritance tax system for assets held in offshore trusts.

It’s worth noting that the previous government had already announced its own plans to replace the existing inheritance tax rules for offshore trusts ahead of the election, but these changes would not have been due to come into force until 6 April 2025.

What progress has been made?

This pledge is expected to be achieved at the start of the next financial year.

The 2024 Autumn Budget set out that: “From 6 April 2025 the government will introduce a new residence-based system for Inheritance Tax (IHT), ending the use of offshore trusts to shelter assets from IHT.” The new system is to replace the existing domicile-based system.

A government policy paper states that the new changes mean: “An individual is long-term resident (and in scope for Inheritance Tax on their non-UK assets) when they have been resident in the UK for at least 10 out of the last 20 tax years and then remain in scope for between 3 and 10 years after leaving the UK. 

“Subject to transitional points, any non-UK assets a person put into a settlement will be subject to Inheritance Tax charges at times when the settlor is long-term resident.”

These changes are set out in the Finance Bill, which was introduced to the House of Commons on 6 November 2024.

It’s been reported that the changes set out by the government could mean that some people who retire abroad and live overseas for at least 10 years prior to their death will now not face inheritance tax on non-UK assets when they previously would have done.