UK IHT 2025: The 10-Year Rule Taxing British Expats in Saudi Arabia on Worldwide Assets

The Death of Domicile: Understanding the Residence-Based Regime

For decades, UK inheritance tax relied on the concept of domicile. If you were not domiciled in the UK, you could structure your affairs to avoid tax on non-UK assets. That era is over. From 6 April 2025, the UK replaced domicile with a new test: long-term residence. This change was embedded in the Spring Budget 2024 and represents one of the most significant IHT reforms since the system's creation. The old domicile rules, which allowed considerable planning flexibility for expats, have been swept away. In their place stands a clearer, more enforceable regime based on actual time spent in the UK.

• Domicile as a connecting factor for IHT purposes is abolished from 6 April 2025
• The new long-term resident definition applies to both UK and non-UK assets
• UK assets remain subject to IHT regardless of residence status
• Non-UK assets are now caught if you are a long-term resident
• The change applies automatically - no notification or transition period required

What is a Long-Term Resident Under the New Rules

A long-term resident is defined with mathematical precision: you are a long-term resident if you are resident in the UK for at least ten of the twenty tax years immediately preceding the chargeable event - typically your death. This triggers IHT liability on worldwide assets. Critically, residence is determined using the statutory residence test (SRT) that applies for income tax and capital gains tax purposes. If HMRC has already assessed you as UK resident under the SRT, you will automatically fall within the IHT net as a long-term resident once ten years have elapsed. There is no grace period and no exemptions once the threshold is crossed. This is where many expats have underestimated the risk. Even if you have left the UK and established a life elsewhere - including in Saudi Arabia - your prior time in the UK still counts towards the ten-year qualifying period.

• Ten out of the last twenty tax years of UK residence triggers long-term resident status
• Residence is determined using the statutory residence test (SRT)
• A single day in a tax year counts as that year of residence
• The qualifying period is assessed at the point of the chargeable event (typically death)
• Once you become a long-term resident, you remain liable even if you leave the UK

The Tail Provisions: How Long After Leaving the UK Are You Still Liable

When you leave the UK, you do not immediately escape IHT. Instead, you enter a 'tail' period during which non-UK assets remain exposed to UK inheritance tax charges. The length of this tail depends on how long you were UK resident. The calculation is straightforward: you retain a tail of three years if you were resident for 10 to 13 years in the twenty years prior to departure. The tail increases by one year for each additional year of residence. If you were resident for 20 years or more, the maximum tail of ten years applies. This creates genuine complexity for expats in Saudi Arabia. If you spent 15 years in the UK and left a decade ago, you are still within the tail. Your non-UK assets, including Saudi property and investments, remain within the scope of UK IHT. This is not theoretical - it is a live compliance obligation that affects your estate planning decisions and your will structure today.

• Tail period ranges from three years (for 10-13 years residence) to ten years maximum
• Tail increases by one year for each year of UK residence above 13 years
• Tail period runs from your date of departure from the UK
• Non-UK assets are in scope of UK IHT during the tail period
• The tail can interact with other tax regimes - Saudi succession law being crucial
• Tail expiration does not reduce existing IHT liability for a long-term resident who is still alive

Non-UK Assets and the Scope of IHT - The Saudi Arabia Question

The inclusion of non-UK assets within the IHT net is the headline-grabbing change for expats. Previously, if you were not domiciled in the UK, your Saudi Arabian property, investments, and bank accounts could sit outside the IHT system. Under the new rules, if you are a long-term resident, these assets are fully subject to IHT at your death. This applies to real property in Riyadh or the Eastern Province, investments held in Saudi banks, shares in Saudi private companies, and any other assets you own in Saudi Arabia. The nil-rate band of GBP 325,000 provides some relief, but once you exceed that threshold, tax at 40 percent applies to the excess. For many expats, particularly those who have built substantial wealth over decades of residence in Saudi Arabia, this is a significant change. A property portfolio worth SAR 2 million, or a long-standing investment portfolio, will breach the nil-rate band and trigger substantial UK tax at death. This tax will fall on your estate and reduce what passes to your beneficiaries under UK law - which may conflict with Saudi succession law requirements.

• Non-UK assets are in scope if you are a long-term resident
• Saudi real property is treated as a non-UK asset for IHT purposes
• Investments, bank accounts, and business interests held in Saudi Arabia are caught
• The nil-rate band of GBP 325,000 provides a threshold - excess assets face 40 percent tax
• No exemption for assets in a particular jurisdiction, even if those assets are illiquid
• The interaction with Saudi succession law creates potential double-taxation risk

{{INSET-CTA-1}}

The Nil-Rate Band and Residence Nil-Rate Band in 2025

The nil-rate band (NRB) remains frozen at GBP 325,000. The residence nil-rate band (RNRB), which applies to property left to direct descendants, remains at GBP 175,000 per person. These allowances have not increased since 2009 and will remain frozen until April 2031. For a married couple with two children, the combined NRB allowance reaches GBP 650,000 (two spouses times GBP 325,000), plus GBP 350,000 of RNRB if UK residential property is left to direct descendants. However, these thresholds are measured in sterling. If you have substantial assets denominated in Saudi Riyals, the exchange rate fluctuation between GBP and SAR becomes a material planning variable. A portfolio valued at SAR 2 million translates to approximately GBP 425,000 at current exchange rates - easily exceeding the individual NRB. Planning to utilise the RNRB for assets in Saudi Arabia is not possible, because Saudi real property does not qualify. The RNRB is a UK-focused relief. This creates an immediate problem: if your wealth is concentrated in Saudi Arabia, you will exceed the NRB and face a 40 percent IHT charge on the excess, with no RNRB relief available.

• Nil-rate band frozen at GBP 325,000 until April 2031
• Residence nil-rate band frozen at GBP 175,000 per person until April 2031
• Combined NRB for married couple is GBP 650,000 (plus GBP 350,000 of RNRB)
• RNRB does not apply to non-UK residential property
• Exchange rate movements between GBP and SAR affect the effective threshold
• No indexation or adjustment for inflation in the interim

Trusts, Excluded Property, and Transitional Rules

Trusts settled before 30 October 2024 with non-UK assets, where the settlor was not UK domiciled at that time, enjoy limited protection under transitional rules. These trusts can treat non-UK assets as 'excluded property' and avoid IHT charges on ten-year reviews and exit events - provided the settlor remains non-UK domiciled. However, once the settlor becomes a long-term resident (ten years of UK residence in the preceding twenty), this transitional protection is lost. The trust must then account for UK IHT on non-UK assets at periodic ten-year charges and on exit. For trusts settled after 30 October 2024, the position is different. If the settlor is a long-term resident at any point, non-UK assets will be subject to IHT. No transitional relief is available. This fundamentally changes the utility of offshore trusts for British expats planning their estates. A trust established before 30 October 2024 by a British expat in Saudi Arabia with non-UK assets can operate without IHT exposure only if the settlor avoids being classified as a long-term resident - which requires leaving the UK and satisfying the tail provisions. For trusts established after 30 October 2024, that option has closed. This is a crucial distinction that many advisers have overlooked. If you have an older trust, you may still have planning options. If you are considering a new trust structure, you must plan around the assumption that non-UK assets will be subject to IHT.

• Pre-30 October 2024 trusts can rely on excluded property treatment if settlor was non-domiciled
• Transitional relief is lost once the settlor becomes a long-term resident
• Post-30 October 2024 trusts are immediately subject to IHT on non-UK assets if settlor is a long-term resident
• Ten-year charges and exit charges apply to trusts in scope of IHT
• Offshore trust planning cannot avoid IHT if the settlor meets the long-term resident test
• Trusts settled before the cut-off date require careful monitoring to preserve excluded property treatment

Saudi Arabia Inheritance Law and Sharia Succession Rules

The 2025 UK reform does not exist in isolation. British expats in Saudi Arabia operate within two separate legal frameworks: UK inheritance tax law and Saudi succession law based on Islamic Sharia principles. Saudi Arabia does not apply English law to succession; instead, the kingdom applies the Hanbali interpretation of Sharia law as codified in the Personal Status Law. Under Saudi law, succession is not a matter of testamentary choice. The deceased's estate is automatically divided according to fixed shares prescribed by Sharia. A spouse receives one-eighth of the estate if there are children, or one-quarter if there are no children. Children inherit according to gender-differentiated shares: male children typically receive twice the share of female children. Parents and siblings have fixed entitlements. Crucially, only one-third of the estate can be disposed of by will. The remaining two-thirds falls under forced heirship provisions and must be distributed according to Sharia law regardless of the deceased's wishes. This creates a direct conflict with UK estate planning principles, where testamentary freedom is the norm. A British expat with a UK will and a will made under Saudi law may create conflicting instructions about how their estate should be distributed. The UK IHT system will calculate a charge on the worldwide estate. That charge must then be paid from the estate. But the Saudi succession law will determine how the remaining assets are divided among heirs. The interaction between these two systems is not seamless.

• Saudi Arabia applies Islamic Sharia law to all inheritance matters
• Succession is automatic according to fixed shares - not testamentary choice
• Only one-third of the estate can be disposed of by will
• Two-thirds of the estate is subject to forced heirship under Sharia law
• Gender-differentiated shares apply to beneficiaries (male heirs receive twice the share of female heirs in many cases)
• Spouses are entitled to one-eighth of the estate if there are children, one-quarter if not
• The Personal Status Courts issue a declaratory deed confirming rightful heirs
• No probate process exists - succession is determined by court order

The Interaction Between UK IHT and Saudi Succession Law

For an expat with assets in both the UK and Saudi Arabia, the practical outcome at death is this: the UK IHT system calculates a charge on worldwide assets (including Saudi property and investments) based on the UK nil-rate band. That IHT liability must be paid from the estate. Simultaneously, Saudi courts will order that the remaining assets be distributed according to Sharia law. The two systems operate independently. A UK will does not control the distribution of Saudi assets under Saudi law. Instead, Saudi courts apply their own succession rules. This creates two significant risks. First, double taxation: you may pay UK IHT on Saudi assets, then find that Saudi law requires those assets to be distributed to different beneficiaries than those named in your UK will. Second, timing issues: UK probate may take months to finalise, during which Saudi courts may have already distributed assets under Sharia law without waiting for IHT clearance. For expats with substantial assets in Saudi Arabia, this is not theoretical. It is a live, material risk. The solution requires parallel wills - one under UK law governing UK assets, and another under Saudi law governing Saudi assets. Both documents must be carefully drafted to avoid contradiction and to optimise the tax position across both jurisdictions. This is also why understanding your long-term resident status is critical. If you are a long-term resident, UK IHT applies to your Saudi assets automatically. You cannot contract out of this liability by making a Saudi will alone. Your estate will face both UK IHT and Saudi succession law simultaneously.

• UK IHT applies to worldwide assets if you are a long-term resident
• Saudi succession law applies only to distribution - it does not exempt assets from UK IHT
• A UK will does not control how Saudi assets are distributed under Saudi law
• Saudi courts apply Sharia law to distribution regardless of UK estate planning
• IHT must be paid from the estate before Sharia law distribution occurs
• Double-taxation risk arises if UK IHT claims reduce assets available for Sharia distribution
• Parallel wills are essential to manage both jurisdictions effectively

{{INSET-CTA-2}}

Practical Steps for Expats Based in Saudi Arabia

Given the 2025 reforms and the complexity of dual jurisdiction planning, several practical steps are now essential. First, establish your long-term resident status. Count the number of tax years you have been UK resident in the previous twenty. If you have ten or more, you are a long-term resident now - or will become one if you remain in the UK beyond the qualifying period. This determination drives all subsequent planning. If you are a long-term resident, you cannot eliminate UK IHT on worldwide assets through offshore planning. That door has closed. Instead, you must plan around the nil-rate band and the RNRB. One approach is gifting. The annual exemption of GBP 3,000 and the exemption for gifts on marriage still apply. Making planned gifts during your lifetime reduces your taxable estate. However, gifts must be made at least three years before death to escape IHT entirely (with a potentially reduced charge during years three to seven). For expats in Saudi Arabia, international gifting carries practical challenges - Saudi authorities may not recognise UK gifting rules and may tax the recipient. Seek professional advice before executing a large gift strategy across borders.

Second, examine your trust structures carefully. If you established a trust before 30 October 2024 with non-UK assets and you were not UK domiciled then, the trust may still benefit from excluded property treatment - provided you avoid long-term resident status. This requires leaving the UK and managing your residence carefully. If you are planning a new trust, understand that non-UK assets will be in scope of UK IHT if you are a long-term resident.

Third, draft parallel wills covering both UK and Saudi assets. Your UK will should address UK assets and express your general wishes. Your Saudi will should address Saudi assets and comply with local law requirements. Both must be coordinated to avoid contradiction. A single will attempting to govern both UK and Saudi assets will be ineffective in Saudi Arabia and will not satisfy local legal requirements. Finally, consider the implications of your future residence. If you are approaching long-term resident status and you plan to leave the UK eventually, the timing of departure affects your tail period. Leaving now versus leaving in five years materially affects when you exit the IHT net. This is a strategic decision that deserves careful analysis.

The Role of Statutory Wills and Succession Agreements

In some cases, expats with significant assets in Saudi Arabia find it beneficial to execute a succession agreement or statutory will in Saudi Arabia that complies with local law and explicitly addresses the distribution of assets under Sharia principles. This document can be registered with the Saudi courts and can provide certainty about how assets will be handled upon death. Such a document does not exempt assets from UK IHT, but it does provide clarity on how the remainder of the estate (after UK IHT is settled) will be distributed under Saudi law. For expats with business interests or property portfolios in Saudi Arabia, a statutory will can prevent disputes among heirs and can provide a clear framework for succession planning. However, the document must be drafted by someone with expertise in both UK and Saudi law. This is not a DIY exercise. The cost of professional drafting is material, but it pales in comparison to the cost of disputes, double-taxation, or inadvertent violations of Saudi law. Many expats underestimate the importance of this step. They assume that a UK will is sufficient. It is not. Under Saudi law, a UK will carries no force. You must comply with local legal requirements to ensure that your wishes are respected (or at least that the distribution reflects the law accurately).

Recent Changes to Business Property Relief and Agricultural Property Relief

From April 2026, the scope of Business Property Relief (BPR) and Agricultural Property Relief (APR) is being restricted. Previously, these reliefs provided 100 percent exemption from IHT for qualifying business and farm assets. From April 2026, relief is limited to the first GBP 1 million of qualifying assets per person per lifetime. Relief above that threshold is reduced to 50 percent. This change affects expats with business interests in Saudi Arabia. If you own a stake in a UK business, hold agricultural land, or maintain any other qualifying asset within the definition of 'business property', you should review your position now. The relief available to you may be less than you assumed. For some expats, this change has triggered a reassessment of their entire estate plan. If a business interest represented a significant part of your wealth and was previously fully relieved from IHT, the 2026 change means that above GBP 1 million of value, you face a 40 percent tax charge. This is a material liability that should influence your planning in 2025 and 2026.