4 min read
Inheritance Tax for Long-Term UK Residents
If you've lived in the UK for many years but weren't originally domiciled here, new rules from 6 April 2025 mean your worldwide assets could be subject to Inheritance Tax. These "long-term UK resident" rules replace the previous deemed domicile system and determine whether your overseas assets fall...
If you've lived in the UK for many years but weren't originally domiciled here, new rules from 6 April 2025 mean your worldwide assets could be subject to Inheritance Tax. These "long-term UK resident" rules replace the previous deemed domicile system and determine whether your overseas assets fall within the UK's Inheritance Tax net. Understanding your status is essential for estate planning.
Who counts as a long-term UK resident?
From 6 April 2025, you are classified as a long-term UK resident if you meet either of these tests:
- You have been tax resident in the UK for the previous 10 consecutive years, or
- You have been tax resident in the UK for a total of 10 years or more within the previous 20 years
This is a significant change from the old deemed domicile rules, which looked at 15 out of 20 years.
Exception for certain individuals
You will not be treated as a long-term UK resident if all three of these conditions apply:
- On 30 October 2024 you did not have UK domicile or deemed domicile status
- For the tax year 6 April 2025 to 5 April 2026 (the current tax year), you are non-resident
- You do not return to the UK
This provides an exit route for some foreign domiciled individuals who left the UK before or during 2025/26.
What happens when you leave the UK?
The rules don't end immediately when you leave the UK. How long you remain a long-term UK resident after leaving depends on how long you lived here.
If you were a long-term UK resident (but not deemed domiciled)
Your long-term UK resident status can continue for up to 10 tax years after you leave, depending on how many years you lived in the UK:
- If you lived in the UK for 10 to 13 years: you stop being a long-term UK resident 3 years after you leave
- If you lived in the UK for 14 years: you stop being a long-term UK resident 4 years after you leave
- If you lived in the UK for 15 years: you stop being a long-term UK resident 5 years after you leave
- If you lived in the UK for longer periods: the tail can extend up to 10 years
If you return to the UK after 10 consecutive years of non-residence, the clock resets. Only the year you return and future years of residence count towards your UK residence for these purposes.
If you had deemed UK domicile status
If you had deemed UK domicile status on 30 October 2024, and you became non-resident for the 2025/26 tax year and don't return, you stop being a long-term UK resident after just 3 years of non-residence. This is a shorter tail period than for other long-term UK residents.
How Inheritance Tax applies to your overseas assets
Once you're classified as a long-term UK resident, Inheritance Tax applies to your worldwide estate, including:
- Overseas assets you own outright
- Transfers of overseas assets during your lifetime (potentially exempt transfers and chargeable lifetime transfers)
- Overseas assets passing on your death
Special rules for assets held in trust
The treatment of overseas assets in trusts is more nuanced:
Inheritance Tax will be charged on any overseas assets in a trust you set up or added to, even if you weren't a long-term UK resident when you created or funded the trust.
However, there is no Inheritance Tax to pay on your death on trust assets that meet all three of these conditions:
- They were placed in the trust while you were non-UK domiciled
- They were overseas on 30 October 2024
- They were overseas on the date of your death (or when your rights to the trust ended)
This protection preserves the position for certain assets settled into trust before the rule changes.
Important considerations for trust arrangements
If you have overseas trusts and your long-term UK residence status changes, you should inform the trustees promptly. There may be separate trust charges to pay at the point your status changes, independently of any charges on death.
These trust charges can arise at 10-year anniversaries and when assets leave the trust, so keeping trustees informed of your residence status is essential for proper tax planning.
Planning implications
The transition from deemed domicile to long-term UK residence represents a fundamental change in how Inheritance Tax applies to foreign nationals living in the UK. The 10-year threshold is more generous than the previous 15 out of 20 years test, but the "tail" provisions mean you can remain caught by UK Inheritance Tax for several years after leaving.
If you're approaching the 10-year threshold, or if you've already exceeded it, you should review your estate planning arrangements to understand how these rules affect your worldwide assets. For those with trust structures, the transitional protections for assets settled before 30 October 2024 may provide important reliefs.
Sources
This article provides general guidance based on current HMRC rules. For advice specific to your situation, speak to your accountant.
Related Articles
How Does Inheritance Tax Work?
Inheritance Tax can feel daunting, but the basic principles are straightforward. It's a tax on your estate when you die — but only if the value exceeds certain thresholds, and there are several reliefs and exemptions that can reduce or eliminate the bill. Understanding how it works is essential...
What Are the Inheritance Tax Thresholds and Allowances?
When someone dies, their estate may be subject to Inheritance Tax if its value exceeds certain thresholds. The main threshold is £325,000, but additional allowances can increase this to £500,000 or more in certain circumstances. Understanding these thresholds and allowances is...
What Tax Do I Pay on Property, Money and Shares I Inherit?
When you inherit property, money, or shares, you won't usually face an immediate tax bill. However, you may have tax obligations later on depending on what you do with those inherited assets — and in some situations, you might need to pay Inheritance Tax yourself.