South African expats in the UK weighing their options

Magda Wierzycka. Image: FACEBOOK/MAGDA WIERZYCKA

Wierzycka’s comments come in light of sweeping UK tax changes. With as many as half a million South Africans thought to be living in the United Kingdom, this evolving landscape could have consequences for many.

The reforms are not just regulatory – they are proving to be catalysts that are prompting individuals and families originally from South Africa to re-evaluate their residency, investment strategy and risk appetite regarding the future they thought they were building in the UK.

Capital Legacy national manager of Succession Planning, Ken Newport, looks at the UK Inheritance Tax changes and their possible impact.

The current regime

“Inheritance tax is paid on assets (property, possessions, money) after a person passes away and is taxed at 40% above the nil rate band threshold that is currently set at £325,000 (about R7.8m) for individuals in the UK. The consequences of the changes in IHT could be significant for non-UK domiciled (‘non-dom’) individuals who have established or benefited from Excluded Property Trusts,” Newport explains.

Under the current IHT regime in the UK, non-doms can establish an Excluded Property Trust (EPT) to keep their non-UK assets outside the scope of IHT in the UK, even if they later become UK domiciled or are deemed to be UK domiciled.

“An EPT allows you to ring-fence non-UK assets from IHT provided the trust was set up while you were non-UK domiciled, and no UK property is added later. Once formed, the trust remains IHT exempt, even if you become UK domiciled,” says Newport. Proposals to change the scope of IHT from domicile-based to a residency-based were announced in March 2024 by the previous British government.

The 10-year tail

“The intention is to charge an individual to IHT on their worldwide assets once they have been resident in the UK for 10 years. They must then remain within the scope of IHT for a further 10 years if they later become non-UK resident – the so-called ‘10-year tail’. The idea is that all non-UK assets held in EPTs will become subject to IHT, regardless of when the trust was settled,” says Newport.

Deceased estate liability

“Wierzycka has said that the IHT changes are compelling her to consider returning to SA because of the immediate liability her estate would incur upon her death under the new rules, even if her substantial assets (she’s estimated to be worth $250m, roughly R4.5bn) are held in a trust,” says Newport.

This is why analysts are anticipating relocations and investment shifts due to the IHT changes and their impact on non-doms. While not many expats are worth as much as Wierzycka, she will not be the only wealthy South African living in the UK who is looking at cross-border tax and trust restructuring, incorporating these latest IHT rules. In her television interview, she admits to thinking about accessing alternative investment jurisdictions with favourable tax regimes, including returning to South Africa.

The local landscape

“South Africa’s appeal as an investment destination, especially considering our sophisticated financial infrastructure, and the provisions contained in our Estate Duty Act and Trust Property Control Act, could work in SA’s favour when compared with other jurisdictions’ legislative environments,” Newport says.