Following the tax changes on 6 April 2025, the basis of exposure to UK IHT has moved from a domicile-based system to a residence-based system. This article provides an outline of the new rules and the transitional provisions.  

An individual’s exposure to IHT 

With effect from 6 April 2025, domicile will (in the vast majority of cases) no longer be relevant to your IHT position, and your liability to IHT on non-UK assets will be determined based on your UK tax residence. In this separate article, we explain how your UK tax residence will be determined: How is my UK tax residence status determined?.  

Your UK assets, including indirect holdings of UK residential property, will always remain in the scope of IHT regardless of your residence, as they did before these changes.  

Your non-UK assets will only be subject to UK IHT if you are a long-term resident (LTR). You will be considered an LTR if you were UK tax resident for 10 or more of the 20 tax years preceding the tax year in which the chargeable event (i.e. death or transfer to a trust) takes place. 

A split year (where you are only UK resident for a part of the tax year) will count as a full year of UK residence for IHT purposes.  

Implications for LTRs moving abroad   

As an LTR, your exposure to UK IHT on your non-UK assets can still remain even after you have moved abroad.  

This exposure will only be lost after a number of consecutive years of non-UK residence. The period in which you remain within the scope of IHT after leaving the UK is commonly referred to as the IHT ‘tail’.  

Where you have been UK resident for between 10 and 13 tax years out of the 20 years prior to the chargeable event, your non-UK assets will no longer be subject to UK IHT from the start of your fourth consecutive tax year of non-residence. This will increase by one year for each additional year of UK residence, up to a maximum ‘tail’ of 10 years for those who were UK resident for 20 or more years.  

For example, if you have been UK resident for 15 out of the previous 20 tax years, you would only cease to be an LTR from the start of your sixth consecutive year of non-UK residence.  

There are transitional provisions that can apply if you are non-UK domiciled and are non-UK resident in 2025/26. These help by capping the tail at three tax years following the year of departure. However, it is important to seek professional advice on which provisions you can take advantage of.  

Implications for arrivers to the UK 

Planning when coming to or leaving the UK is crucial as timing this properly can be important in managing the IHT exposure on your non-UK assets.  

You would not be treated as an LTR for IHT purposes following 10 consecutive years of non-residence, even if you return to the UK, as the test is effectively reset.  

Inheritance tax position of trusts you settle 

Before the changes came into effect, any non-UK property you settled into a trust before becoming UK domiciled or deemed UK domiciled could be considered outside of the scope of UK IHT indefinitely.  

However, following the changes, the position for non-UK assets you add to a trust will follow your long-term residence position at the date of the chargeable event. As such, entry charges need to be considered if you are transferring assets into trust while you are an LTR, even if you have left the UK to live overseas. If your LTR status ceases, there could be an IHT exit charge of up to 6% on any non-UK property in a trust. This point will not be when you physically leave the UK, but when your IHT tail ends, and so careful monitoring is needed. 

There could also be other IHT charges for the trust whilst you are LTR, such as those arising on the 10-year anniversary of the settlement, or on capital distributions.  

Estate tax treaties 

It has been confirmed that the concept of domicile in the estate tax treaties between the UK and some other jurisdictions (France, India, Ireland, Italy, Netherlands, Pakistan, South Africa, Sweden, Switzerland and the US) will continue to apply and may override the new rules that allow the UK to impose IHT on your estate. 

These treaties operate in different ways and so, if you may be considered domiciled in any of these jurisdictions, advice should be sought to confirm your position.