UK Domicile Reform 2025 Explained: The New 10-Year IHT Rules Every British Expat Must Know

The End of Domicile: Welcome to Long-Term Residency

Domicile was a legal concept of a person's permanent home. You were 'domiciled' in the UK if it was your permanent home, even if you lived abroad for decades. Non-UK domiciliaries ('non-doms') could shield all non-UK assets from UK inheritance tax.

That system has been abolished.

From 6 April 2025, inheritance tax now depends on whether you are a 'long-term resident'. A long-term resident is someone who has been UK tax-resident for 10 or more years out of the preceding 20 years.

Once you become a long-term resident:

• All your worldwide assets become subject to UK inheritance tax, including overseas property, foreign bank accounts, and assets held in offshore trusts.
• The rate remains at 40% on death (or 20% on lifetime gifts for most trusts), but the scope of assets caught is much broader.
• The 'tail' for departed expats lasts 3-10 years, meaning if you leave the UK, you remain exposed to UK IHT for several years after departure.

Calculating Your Long-Term Resident Status

You are a long-term resident if you have been UK tax-resident (under the SRT) for at least 10 of the 20 years immediately prior to the tax year in which a chargeable event occurs (death or a gift in trust).

Example: If you die in the tax year 2035/36, HMRC looks back at your UK tax residence in the 20 years from 2015/16 to 2034/35. If you were resident for 10 or more of those years, you are a long-term resident and your worldwide assets are in scope.

For individuals under age 20, the test is modified: you are a long-term resident if you have been UK tax-resident during at least 50% of the tax years since your birth.

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The Critical Deadline: 30 October 2024

One key date in the reform is 30 October 2024. If you were non-UK domiciled on this date and are non-UK resident in 2025/26, you benefit from a transitional rule: your IHT status continues to be determined under the old domicile rules, even after April 2025.

This is a significant relief if you were caught by the old 'deemed domicile' rules (non-doms who had been UK-resident for 17 of the preceding 20 years). However, if you subsequently return to the UK or become resident again, the new long-term resident test will apply.

The 'Tail' for Expats: How Long Are You Exposed?

If you leave the UK and become non-resident, you don't immediately escape UK inheritance tax. There is a 'tail' of continued exposure.

The length of this tail depends on how long you have been a UK resident:

• Resident for 10-13 of the last 20 years: 3-year tail after departure.
• Resident for 14 of the last 20 years: 4-year tail.
• Resident for 17 of the last 20 years: 7-year tail.
• Resident for 18-20 of the last 20 years: 10-year tail.

Example: You leave the UK in April 2026 after being resident for 18 of the last 20 years. You remain exposed to UK IHT for 10 years after departure, until April 2036. If you die in April 2035, your worldwide assets are in scope for UK IHT. If you die in April 2036, they are not.

The 10-Year Escape Window

If you leave the UK and remain abroad for 10 consecutive years without returning to UK residence, you will not be classified as a long-term resident until you return to the UK. Once you return, the 10-year clock resets.

This is the key planning point: if you can remain outside the UK for 10+ years, you can reset your IHT exposure and avoid the long-term resident classification.

The FIG Regime and Income Tax (Not Inheritance Tax)

It's important to distinguish between the FIG regime (which affects income tax) and the long-term resident test (which affects inheritance tax).

The FIG regime replaced the remittance basis from April 2025 and allows newly-arrived UK residents a four-year relief on foreign income and gains. The FIG regime applies to income tax.

The long-term resident test applies only to inheritance tax. They are separate rules with different tests and thresholds.

Excluded Property and Transitional Rules

Not all overseas assets are caught by the new rules. There are some exceptions:

• Excluded property trusts: Trusts set up with excluded property (property you owned before becoming a long-term resident) may retain some shelter, though the rules are complex and many old trusts have been caught by the reforms.
• Transitional rules: If you were non-UK domiciled on 30 October 2024 and remain non-resident, your excluded property status may be protected until you return to the UK. However, this protection is limited, and you should review any trusts with your adviser urgently.

Rebasing and Opportunity

One silver lining: the reform introduced a rebasing opportunity. On 6 April 2025, many assets held in trusts and some personal holdings are being 'rebased' to their market value on that date. This means gains accrued up to April 2025 are largely sheltered from IHT.

If you have trusts or significant holdings that may be affected, discuss the rebasing opportunity with your adviser before April 2025 passes.

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What This Means for Long-Term Expats

If you have been outside the UK for many years, this reform is a wake-up call:

• If you were a non-dom: You are no longer protected. Review your IHT exposure immediately, especially if you have accumulated overseas wealth that was previously sheltered.
• If you have trusts: Existing trusts may no longer provide the shelter they once did. Review your trust documentation and structures urgently with a specialist.
• If you are considering returning to the UK: Factor in the long-term resident test and the tail of exposure. A one-year return followed by a 10-year departure may be a more tax-efficient structure than a permanent return, depending on your assets.

The New Planning Approach

Under the old rules, the planning goal was to avoid UK domicile. Under the new rules, the goal shifts: if you have substantial overseas assets, aim to spend 10 consecutive years abroad to avoid the long-term resident classification, or structure your returns to the UK carefully.

For those already in the UK or unable to leave for extended periods, the focus becomes lifetime gifts (which are potentially exempt under IHT at 40%), use of the nil-rate band, and spousal exemptions. The urgency is much higher now.

Your Action List

Immediately: If you were a non-dom before April 2025, review your IHT exposure under the new rules. Understand whether you are already a long-term resident.

If you have trusts: Have them reviewed by a specialist. Excluded property trusts may need restructuring or have lost their intended effect.

If you plan to return to the UK: Model the IHT consequences of different return dates. Returning for one year and leaving again may be cheaper than a permanent return.

If you are abroad indefinitely: Confirm you can remain outside the UK for 10+ years without UK residence. If not, plan lifetime gifts and trust structures now while you still have flexibility.

The Bottom Line

The April 2025 domicile reform is a fundamental shift in UK inheritance tax. The concept of 'non-doms' is extinct. If you have substantial assets, your IHT exposure has almost certainly increased.

The good news: you still have planning tools. The bad news: many of them require action now. The window to restructure trusts, make lifetime gifts, and plan your UK return timing is narrowing. Delay, and you'll lose opportunities that won't come back.