Inheritance tax reforms are driving more wealthy individuals out of the UK, Utmost has warned.
According to the insurance-based wealth solutions provider, the UK is experiencing a second wave of wealthy individuals leaving the country as concerns over inheritance tax exposure continue to grow.
The first wave of departures followed the abolition of the non-dom regime and the inclusion of previously excluded property trusts within the scope of inheritance tax announced at the Autumn 2024 Budget. Utmost said the move made the UK an outlier internationally, as many competing jurisdictions apply significantly lower charges or nothing on death.
The UK is now experiencing a second exodus, encompassing long-term residents, entrepreneurs and business owners, driven by the application of inheritance tax to family businesses. Previously, assets could be passed down between generations free from inheritance tax under full Business Property Relief but those reliefs are now capped.
Despite a revised £2.5 million exemption threshold, business values above this level face a 20% effective IHT rate. Utmost said many business owners are unwilling to expose their businesses to this and are looking to exit before they crystallise any gains or trigger future inheritance tax liabilities.
Furthermore, the inclusion of unused pension pots and lump-sum death benefits within inheritance tax calculations from April 2027 is reshaping long-term succession planning. Historically treated as separate, tax-exempt vehicles, these accrued funds will now face the standard 40% inheritance tax rate if the total estate exceeds available thresholds.
As a result, more households will be brought into the scope of inheritance tax. Around one in 20 estates currently pay inheritance tax but the Office for Budget Responsibility expects this figure to rise to around one in 11 by 2030-31.
Marc Acheson, global wealth specialist at Utmost, said: “When we speak with clients, the principal reason they point to for reviewing their UK residency is the expanding scope of IHT. This is a tax that raises relatively little revenue compared to the challenges and disproportionate behavioural consequences it creates.
“Just recently it was reported that HMRC is consulting on the extension to the Uncertain Tax Treatment regime – introduced in 2022 for large businesses – to private individuals as part of efforts to reduce the tax gap. This is on top of further recent reports suggesting that the “Mansion Tax” may not generate the revenues projected.
“The cumulative impact of all this is that the UK is driving wealth creators away, both foreign and now domestic. This matters because the economy cannot afford to lose these individuals, who are the largest contributors to the tax base, and once this cohort leaves it is very hard to replace them.”
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