Question proposed, That the clause stand part of the Bill.

With this it will be convenient to discuss the following:

Clauses 45 and 46 stand part.

Government amendments 62 to 65.

Schedule 13.

Clauses 44 to 46 and schedule 13 make changes to replace the current domicile-based system of inheritance tax with the new residence-based system. Currently, an individual’s domicile status determines whether their non-UK assets are in scope of inheritance tax. The non-domiciled individual’s personal non-UK assets are not in scope until they become deemed domiciled. However, if such assets are placed into a trust they will remain out of scope in perpetuity, even if an individual later settles in the UK.

The changes made by clause 44 will mean that from April this year, an individual will be in scope for inheritance tax on their personal, non-UK assets if they have been resident in the UK for at least 10 out of the least 20 tax years. An individual will then remain in scope for between three and 10 years after leaving the UK, depending on how long they were resident in the UK.

The changes made by clause 45 will mean that, subject to transitional points, any non-UK assets that an individual places in a trust will be liable for inheritance tax charges when the settlor is a long-term resident. This will also apply to such assets treated as owned by a beneficiary who is a long-term UK resident. Although non-UK assets in existing protected trusts will be in the 10-yearly inheritance tax charging regime when the settlor is a long-term resident, it is important to note that those non-UK assets in existing protected trusts will be kept out of the settlor’s or beneficiary’s death estate. Any new assets put into trust will be fully in scope for trust charges or charges on a death whenever the settlor is a long-term UK resident. This matches the current treatment of people with UK domicile.

Clause 46 and schedule 13 make changes to the remaining inheritance tax areas to depend on a person’s long-term UK residence instead of their domicile, and to provide for commencement. For example, a surviving spouse or civil partner can elect to be treated as a long-term UK resident instead of electing to be treated as a UK domicile. This will have effect for 10 years.

Four minor amendments, 62 to 65, have been made to schedule 13 to insert a missing word, to correct cross-references to the new definition of excluded property in a settlement, and to ensure that all fiscal domicile definitions are removed unless they are needed for a double taxation convention to work.

The Government are committed to making the tax system fairer, so that everyone who is a long-term resident in the UK pays their taxes here. The new regime therefore ensures that individuals, in the future, will not be able to keep their assets out of scope of inheritance tax indefinitely. At the same time, our approach ensures that non-UK assets in existing protected trusts will be kept out of the settlor’s or beneficiary’s death estate. I therefore commend clauses 44 to 46 and schedule 13, alongside Government amendments 62 to 65, to the Committee.

As the Minister set out, clauses 44 to 46 and schedule 13 bring inheritance tax into the residence-based system so that it applies to non-UK assets owned outright or held in trusts. This was our stated intention in March 2024, subject to consultation.

As the Minister set out, non-UK assets will now be in scope for inheritance tax where an individual is considered a long-term resident—that is, if they have been resident in the UK for at least 10 of the last 20 tax years that immediately precede the chargeable event. This is subject to a tapered 10-year tail where a person who was resident in the UK for 20 years or more would no longer be considered long-term resident after 10 consecutive tax years of absence, whereas a person with 19 years of UK residence in the last 20 years would no longer be considered a long-term resident after nine years, and so on down to a minimum of three years for those with between 13 and 10 years of residence in the last 20 years.

As far as I am aware, there are no details of consultations which have taken place and nothing has been published on this. I am told by the likes of the Chartered Institute of Taxation that certain provisions such as the tapering of the 10-year tail were put forward during that process. I would be grateful if the Minister could confirm to the Committee the nature and extent of the consultation that has taken place by the Government to inform the creation of these clauses.

One point made by the Chartered Institute of Taxation is that there is now an anomaly whereby individuals who leave the UK before the new regime begins on 6 April are considered long-term residents when the legislation comes into effect, meaning they will incur an inheritance tax exit charge for trusts they have settled when their long-term resident status ends. As the Chartered Institute of Taxation points out, it seems unfair that a person who has already left the UK should face an exit charge due to legislation that comes into effect after their departure. I would be grateful if the Minister could explain that anomaly, which seems a little unfair. According to the Office for Budget Responsibility, these clauses raise very little revenue—I think it is in the range of £100 million a year on average—so the Government can afford to get this right. I would really appreciate a fuller explanation.

I thank the shadow Minister for his remarks. He asked about the consultation and how we developed these policies. It is worth pointing out that there has been quite extensive discussion about the legislation on non-domicile status. The Government published a technical note at the autumn Budget in October 2024 explaining the proposed changes to provide certainty ahead of the rules coming into force in April 2025. Officials have engaged extensively with interested specialists and individuals over the summer and throughout the development of this policy. Many elements, such as the tapered tail and the transitional arrangements, were proposed by representative bodies. Those representative bodies also told us that people want certainty about the proposed new rules as early as possible, which is why we published information ahead of the Finance Bill and discussed it with people who might be affected and have views to add.

I will write to the shadow Minister with details on the very specific question he asked, so he has that information for reference. The objective with this policy is to achieve our aim of making the tax system fairer while making the new regime as attractive as possible and internationally competitive to encourage people to come to the UK to invest here, work here, create jobs and wealth, and grow our economy. That is the balance that we seek to strike. We have done that in close consultation and discussion with those affected to get the legislation to the best possible place.

Question put and agreed to.

Clause 44 accordingly ordered to stand part of the Bill.

Clauses 45 and 46 ordered to stand part of the Bill.