Residence-Based Inheritance Tax: The New UK Rules from 6 April 2025

On 6 April 2025 the UK abolished domicile as the connecting factor for Inheritance Tax and replaced it with a residence test. Before that date your IHT exposure depended on your domicile or deemed domicile: a UK-domiciled person was taxed on their worldwide estate, while a non-domiciled person was generally taxed only on UK situated assets. That distinction is now gone, and the question is simply how long you have been UK tax resident.

This is a structural change, not a rate change. The standard 40% IHT rate, the nil-rate band (GOV.UK) and the usual reliefs all continue unchanged. What has shifted is the gateway: who is exposed to tax on their non-UK assets, and from when. That gateway is now the long-term UK resident test.

You are a long-term UK resident if you were UK tax resident in at least 10 of the last 20 tax years immediately before the chargeable event, such as death or a chargeable transfer. Hit that 10-of-20 threshold and your worldwide estate is within UK IHT; fall short of it, and broadly only your UK situated assets are in scope.

Residence for this test is decided under the Statutory Residence Test (SRT), the same framework used for income tax and capital gains. The day-count rules, ties tests and split-year provisions that govern your Self Assessment (GOV.UK) residence position, reported on the SA109 residence pages, therefore drive your IHT status too. Accurate travel records and a clear residence history are central, not optional.

• Count UK tax-resident years in the 20 tax years before the chargeable event.
• 10 or more resident years means you are an LTR with worldwide IHT exposure.
• Fewer than 10 resident years means, broadly, only UK situated assets are exposed.
• Residence in each year is settled under the SRT, not by intention or domicile.

Once you are a long-term UK resident, your entire worldwide estate is potentially chargeable to UK Inheritance Tax. That covers overseas property, foreign bank and investment accounts, shares in non-UK companies and other assets situated outside the UK, on top of everything held here.

Before you are an LTR, the position is far narrower: generally only UK situated assets are within charge, for example a UK home, UK bank accounts or shares in UK companies. This is why the first decade of UK residence matters so much for new arrivals, and why the precise year you cross the 10-of-20 line should be tracked deliberately.

Leaving the UK (GOV.UK) does not switch off worldwide IHT exposure straight away. If you were a long-term UK resident and then become non-resident, you stay within the LTR net for a tail of between 3 and 10 years, set by how many of the prior 20 years you were resident. The longer you were here, the longer the tail.

The tail starts at 3 years for anyone resident in 13 or fewer of the last 20 years, then lengthens by one year for each additional resident year, up to a 10-year maximum:

Worked example: Priya was UK tax resident for 16 of the last 20 tax years and then emigrates. On the ladder, 16 resident years gives a 6-year tail, so for 6 UK tax years after she leaves her worldwide estate stays within UK IHT, and only after that does she fall back to UK situated assets only (assuming she does not return and resume residence). Had she been resident for all 20 years, her tail would be the maximum 10 years.

Two separate clocks run for a new arrival, and confusing them is the most common mistake. The Foreign Income and Gains (FIG) regime relieves your foreign income and gains for up to your first four UK tax years of residence. Worldwide IHT exposure is a different and longer question: it does not switch on until you become a long-term UK resident at the 10-of-20 threshold, roughly your first decade in the UK. The 4-year FIG relief and the 10-year IHT gateway run for very different lengths.

For IHT specifically, a fresh arrival is broadly outside worldwide UK IHT during the early years of residence, because the LTR test needs 10 of the last 20 years of UK residence and that history has not built up yet. Your non-UK assets generally stay outside the UK IHT net through those years, even after the separate 4-year FIG relief on foreign income and gains has ended at year four.

The IHT watch point is the approach of the 10-year threshold, when worldwide exposure switches on. Plan around that crossover before it arrives rather than discover it after the fact. Do not assume that because FIG relief has run out your estate is already within worldwide UK IHT, nor that because your estate is still outside IHT your foreign income and gains are still relieved.

We cover the income-tax side in our FIG regime guide and the related cleanup mechanism in our Temporary Repatriation Facility guide. The IHT exposure runs on the same residence record but is a separate, longer test.

Trusts and excluded property are directly affected by the move to a residence basis and should be reviewed individually. Under the old rules, the IHT treatment of trust assets often turned on the settlor's domicile when the trust was created. The new regime ties protection to the settlor's long-term UK resident status instead, which can change whether non-UK trust assets are treated as excluded property going forward.

Outcomes depend on when a settlement was made, who the settlor is, their residence history and the assets held, so this is fact-specific and cannot be read off general rules. If you settled an offshore or excluded property trust under the previous domicile-based regime, or you are a settlor approaching long-term resident status, take advice before any addition, distribution or restructuring.

The most valuable planning window is the period before you reach 10 of 20 resident years, while your non-UK estate is still outside worldwide UK IHT. Decisions taken in this window are generally far more straightforward than trying to unwind exposure later.

• Map your residence history year by year under the SRT, so you know exactly when the 10-of-20 line is crossed.
• Review the situs of major assets: which holdings are UK situated and already in charge, and which are non-UK and only exposed once you become an LTR.
• Consider the timing of any non-UK trust or structuring decisions before LTR status begins, with specific advice.
• Keep precise travel and day-count records; the SA109 residence pages and your IHT position rely on the same facts.
• If you may leave the UK, model the leaver tail so you understand how many years of worldwide exposure continue after departure.
• Coordinate with double-tax treaty positions where another country also taxes your estate or assets.

None of this should rest on assumptions about your residence position. Because the LTR test, the FIG relief and the leaver tail all run on SRT residence, a single mis-counted year can change the answer. We model the residence history first, then the IHT exposure that follows from it.

Your IHT residence status is built from the same residence position you report each year for income tax and capital gains. UK residence and any split-year treatment go on the SA109 (GOV.UK) residence pages of your SA100 Self Assessment return, foreign income on the SA106 foreign pages, and your departure is notified to HMRC on form P85 where relevant. Those filings create the year-by-year residence record that determines whether you are a long-term UK resident.

So good Self Assessment hygiene is also IHT planning. Where the SRT day counts are borderline, the difference between a resident and a non-resident year can move your LTR count, your FIG eligibility and your leaver tail. We treat residence as a single thread running through income tax, CGT and now Inheritance Tax.

The next big extension of the residence-based system is already law. For deaths on or after 6 April 2027, most unused pension funds and pension death benefits will be included in the value of the estate for inheritance tax (GOV.UK technical note). The change was enacted in Finance Act 2026 and covers registered pension schemes, qualifying non-UK pension schemes and section 615(3) schemes, although death in service benefits paid from a registered scheme are excluded. In practice, an untouched defined-contribution pot that today usually passes free of IHT will from that date be counted alongside everything else you leave, and taxed at up to 40% once the nil-rate bands are used up.

For leavers, the trap is that shedding long-term resident status does not move your pension out of the net. Once your tail ends, only your UK assets remain within UK IHT, but HMRC's guidance is explicit that someone who is not a long-term UK resident is still charged on pension funds held in schemes established in the UK; only schemes established outside the UK fall out of scope. A UK-registered SIPP or personal pension is established in the UK, so it counts as a UK asset for this purpose wherever you live and however long you have been gone. Outlasting the tail frees your foreign estate from 6 April 2027 onwards, but not your SIPP. What this means in practice, including the position of a surviving spouse who is not a long-term UK resident and the options worth weighing before April 2027, is covered in our dedicated guide, UK Pensions and Inheritance Tax When You Live Abroad.

Outlasting the tail does not empty the net. Once you stop being a long-term UK resident, inheritance tax is still paid on your UK assets, and gov.uk gives property and bank accounts in the UK as its examples (GOV.UK). HMRC's manual places land where it physically sits and a registered shareholding where the title has to be registered, so a London flat, a sterling current account and shares in your own UK company stay chargeable at 40% above the £325,000 threshold however long you have been gone. The spouse exemption has a timing trap of its own. It is capped at the nil-rate band at the date of transfer only while you are still a long-term UK resident and your spouse is not, so a death inside the tail is the danger; once you have outlasted the tail yourself, HMRC's manual gives the exemption in full (HMRC manual).

From 6 April 2027 the list grows. For deaths on or after that date, unused funds in a registered pension scheme established in the UK are counted in the estate even where the member is not a long-term UK resident; schemes established outside the UK are outside that charge (HMRC technical note). From that date a SIPP left behind in the UK is one more asset that outlasting the tail does not free. The mechanics, and the capped spouse exemption that goes with them, are in UK Pensions and IHT From Abroad.

Some UK-held assets drop out. For someone based abroad, gov.uk lists foreign currency accounts with a bank or the Post Office, overseas pensions, and holdings in authorised unit trusts and open-ended investment companies as excluded assets, so a dollar account at a UK bank or an OEIC holding is treated differently from a sterling deposit or a direct shareholding. Which side of that line each holding sits on, and whether a double taxation treaty lets the executor reclaim tax charged by both countries, is the work.

Run your own dates through our IHT tail calculator to see when your worldwide estate drops out of charge. Then book a free clarity call if what stays behind in the UK is worth planning around. We map the residence history, mark which assets remain chargeable and which are excluded, and price any advice as a fixed total agreed before we start, from £550.