Expat inheritance tax UK 2026: domicile, deemed domicile and what changes in April 2025

Expat Finance

TL;DR

The UK inheritance tax (IHT) rules for non-UK domiciliaries changed fundamentally in April 2025. The old domicile-based system has been replaced with a residence-based test: individuals who have been UK resident for at least 10 of the last 20 tax years are treated as "long-term residents" and subject to IHT on their worldwide assets. Foreign assets of non-residents and shorter-term residents remain within the scope of IHT only where UK-sited assets are involved. These are significant reforms with substantial planning implications; take specialist advice promptly.

UK inheritance tax is charged at 40 percent on the taxable value of an estate above the nil-rate band (£325,000 in 2025/26) and above the residence nil-rate band (£175,000 in 2025/26, where applicable). Until April 2025, the scope of IHT depended primarily on the concept of domicile - a legal concept broadly meaning the country a person considers their permanent home. The Finance Act 2025 replaced the deemed domicile rules with a residence-based long-term resident test, fundamentally changing the position for many expats, returning UK nationals and foreign nationals living in the UK.

This is a complex and rapidly evolving area of law. The guide below sets out the key structural changes, the transitional provisions, and the implications for expats with assets in multiple jurisdictions. It is not a substitute for specialist advice, which is essential given the scale of potential liability involved.

Key facts (2026)

From 6 April 2025, the IHT long-term resident (LTR) test replaces deemed domicile: UK residents for 10 or more of the last 20 tax years are LTRs and subject to IHT on worldwide assets (Finance Act 2025).
Non-LTR individuals (UK or foreign nationals) remain subject to IHT only on UK-sited assets at the date of death or gift; foreign assets are outside the scope of UK IHT entirely (HMRC, IHT manual updated April 2025).
The nil-rate band remains at £325,000 and the residence nil-rate band at £175,000 for 2025/26, frozen until at least 2030 (HM Treasury, Autumn Budget 2024).
Excluded property trusts - previously a widely used planning vehicle for non-UK domiciliaries - were significantly restricted from April 2025; assets settled in trust before April 2025 may be grandfathered under transitional provisions (Finance Act 2025 Schedule).
A "tail" period applies to former LTRs who leave the UK: departing residents remain subject to LTR IHT treatment for a number of years proportionate to how long they were resident, up to a maximum of 10 years (Finance Act 2025, Schedule 1).

The shift from domicile to residence: what changed in April 2025

Before April 2025, UK IHT applied to individuals domiciled in the UK and, under the old deemed domicile rules, to individuals who had been UK resident for 15 of the last 20 tax years (the "17-out-of-20" rule that had already been reformed from the original position). From 6 April 2025, the Finance Act 2025 replaced this framework with the long-term resident test. A person is an LTR if they have been UK tax resident for at least 10 of the preceding 20 tax years. Once LTR status is acquired, worldwide assets - wherever situated - fall within the scope of UK IHT. The shift from a domicile to a residence threshold is legally significant: domicile is a common law concept requiring substantive connection to a country; residence under the Statutory Residence Test is an objective, largely mechanical calculation. An individual can become subject to worldwide IHT simply by spending enough days in the UK, even if they have always considered another country their permanent home.

UK-sited assets: what remains within scope for non-LTRs

Individuals who are not LTRs - whether UK nationals living abroad or foreign nationals who have not been long-term UK residents - remain subject to UK IHT on UK-sited assets only. UK-sited assets include: UK land and property; shares in UK-incorporated companies registered at Companies House; UK bank accounts (though the situs rules for debt are complex); and certain UK-registered intellectual property. Foreign-incorporated company shares are generally not UK-sited even if the company's assets are predominantly UK property, which has historically made property holding structures attractive for non-domiciliaries. However, from April 2025 structures designed to hold UK residential property through offshore vehicles are treated as if the underlying UK property is directly held for IHT purposes, a provision first introduced in 2017 and maintained in the 2025 reforms.

The LTR tail: IHT exposure after leaving the UK

One of the most significant practical implications of the 2025 reforms is the "tail" provision for departing LTRs. Under the Finance Act 2025, an individual who was an LTR and subsequently leaves the UK does not immediately exit the scope of worldwide IHT. The tail period is broadly calculated by reference to the number of years of residence in excess of the 10-year LTR threshold, up to a maximum of 10 additional years of IHT exposure after departure. An individual who was UK resident for 20 continuous years and then leaves would remain subject to worldwide IHT for up to 10 years after their last year of residence. This has profound planning implications for anyone intending to relocate abroad; they may need to plan their departure timing carefully in relation to the start of the tail period and the expected timing of any material disposals or deaths in the family.

Excluded property trusts: the position after April 2025

Before April 2025, non-UK domiciliaries could settle overseas assets into trust, which then held those assets as "excluded property" outside the scope of UK IHT permanently - even if the settlor later acquired deemed domicile. This was a widely used estate planning tool for internationally mobile high-net-worth individuals. From April 2025, the excluded property treatment no longer protects trust assets from IHT where the settlor is an LTR at the time of the relevant IHT charge event (ten-year anniversary charges, exit charges, death of the settlor). Trusts settled before 6 April 2025 may benefit from transitional provisions set out in Finance Act 2025 Schedule 1, but the scope and application of those provisions require specialist analysis specific to each trust's facts. Individuals with existing excluded property structures should take urgent advice to understand their revised IHT exposure.

Double taxation treaties and foreign IHT credits

The UK has inheritance tax treaties with a small number of countries, including the United States, the Republic of Ireland, France, Italy, the Netherlands, India, Pakistan, Sweden and South Africa. These treaties determine which country has primary taxing rights over specific assets and provide relief from double taxation where both countries would otherwise levy inheritance or estate tax on the same asset. Where no treaty exists, the UK provides unilateral credit for foreign inheritance or succession taxes paid on foreign assets that also fall within the UK IHT charge. The interaction between the 2025 residence-based test and existing treaties is not yet fully settled in all cases; HMRC has indicated it will publish further guidance on treaty interaction. Expats with assets in multiple treaty and non-treaty jurisdictions should map their exposure before assuming that foreign taxes paid will fully offset UK IHT liability.

Practical planning steps for expats in 2026

Given the April 2025 reforms, expats with any UK connection should review their position as a matter of priority. The key steps are: determine whether you are an LTR under the new 10-of-20-year test and, if so, quantify the worldwide IHT exposure on your estate; assess whether any existing trust structures have been affected by the loss of excluded property status and whether transitional provisions apply; review the position on any planned departure from the UK, including the timing of the departure in relation to the tail period; consider lifetime gifting strategies within the seven-year potentially exempt transfer rules; and ensure your will reflects your current asset distribution and domicile/residence position. All of these steps require input from a specialist UK tax adviser with expertise in cross-border estate planning.

Related guides

Frequently asked questions

I am a UK national living abroad. Does UK IHT still apply to my overseas assets?

It depends on whether you meet the long-term resident test. If you have been UK tax resident in 10 or more of the last 20 tax years, you are an LTR and your worldwide assets are within the UK IHT charge regardless of where you now live. If you do not meet the LTR test - for example, you left the UK many years ago and have been resident abroad since - only your UK-sited assets fall within UK IHT. UK nationals who have never been long-term UK residents are in the same position as non-UK nationals who are not LTRs.

My spouse is non-UK domiciled. Does the spouse exemption still apply?

The spouse exemption is available on transfers between spouses, but where the recipient spouse is not domiciled in the UK (under the old domicile rules) or is not an LTR (under the new residence rules), the IHT-free amount that can pass between spouses is capped. Under the 2025 rules, assets passing to a non-LTR surviving spouse are exempt up to an additional £325,000 on top of the standard nil-rate band. Assets above this threshold do not qualify for the full spouse exemption. Couples with mixed LTR and non-LTR status should review their wills and estate planning to optimise the use of exemptions available.

Can I avoid IHT on UK property by holding it through an offshore company?

Not for residential property. Since 2017, UK residential property held through offshore vehicles is treated as a UK-sited asset for IHT purposes regardless of the ownership structure. This provision was maintained and extended in the 2025 reforms. Commercial property and other UK assets held through offshore structures may have different treatment depending on the specific facts, but the general direction of HMRC's policy has been to close offshore holding structure advantages for UK property.

How do I count my years of UK residence for the LTR test?

Residence is determined under the Statutory Residence Test (SRT), introduced in 2013, which uses a combination of day-count tests and connection factors to establish tax residence for each tax year. You count the tax years (6 April to 5 April) in which you were UK resident under the SRT within the preceding 20 tax years. Split years - where part of a year is treated as UK residence and part as non-UK residence - count as a full year of residence for this purpose under the Finance Act 2025 transitional rules. Years before the SRT was introduced in 2013/14 are assessed under HMRC's predecessor residence rules.

What is the seven-year rule and does it still apply under the new system?

Yes. Potentially Exempt Transfers (PETs) - outright gifts between individuals - remain outside the scope of IHT if the donor survives for seven years after making the gift. Taper relief reduces the IHT charge on gifts made three to seven years before death. This seven-year rule applies to LTRs on worldwide gifts and to non-LTRs on gifts of UK-sited assets. The rule is unchanged by the 2025 reforms and remains a core element of IHT planning.

How we verified this guide

The April 2025 reform details were verified against the Finance Act 2025 and HMRC's updated IHT manual published post-Royal Assent. Nil-rate band and residence nil-rate band figures were confirmed from HMRC's 2025/26 published rates. Treaty information was cross-referenced with HMRC's published inheritance tax treaty schedule. Statutory Residence Test rules were confirmed against HMRC's RDR3 guidance. This guide was compiled in May 2026 and reflects the law as of that date.

Disclaimer: This guide is information only, not financial, legal or tax advice. The IHT reforms described are complex and fact-specific. Always take specialist advice from a qualified UK tax adviser or solicitor before making any estate planning decisions.

Primary sources

Last reviewed: May 2026.