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For over a century, UK inheritance tax operated on a domicile-based principle. Your domicile, not your residence, determined whether you owed UK IHT on worldwide assets. This system was designed to protect British expats who had left and established domicile overseas. A person could live abroad for decades and, if they acquired a new domicile, would owe UK IHT only on UK-situated assets.
The Finance Act 2025 abolished this framework entirely. From 6 April 2025, domicile ceased to be the connecting factor for IHT. A residence-based system now applies.
This is the most significant change to UK inheritance tax in decades. Where expats previously had the advantage of a generous domicile framework, they now face automatic IHT exposure once they cross a residence threshold.
For British expats, the practical effect is stark. The old system, under which 15 years of non-residence could sever your IHT liability, no longer exists. Instead, a tighter test applies, a longer tail period extends your exposure after departure, and your spouse's residency status now affects whether you can transfer assets freely within your marriage.
From 6 April 2025, the Finance Act 2025 applies to all chargeable events occurring on or after that date.
The new system hinges on a single test: are you a long-term resident?
You are a long-term resident if you have been resident in the UK for at least 10 of the 20 tax years immediately preceding a chargeable event (such as death or a transfer into trust). If you meet this threshold, you are liable for UK IHT on your worldwide assets, regardless of location, domicile, or where you have established a home overseas.
This is materially tighter than the previous regime. Until 5 April 2025, the test was 15 years of the previous 20. The reduction from 15 to 10 years means more people, faster, enter the IHT net. An expat who moved to the UAE in 2012 would have exited the old domicile system by 2027 (15 years later). Under the new rules, they entered the long-term resident category in 2022 (10 years earlier).
The test is backward-looking, measured at the chargeable event. If you died on 6 July 2025, HMRC would look back 20 tax years and ask: were you UK resident for 10 of those 20 years? If yes, your worldwide estate is in scope. If no, you are outside the IHT net (subject to the tail period rules below).
For expats who left many years ago, the backward look can be a problem. An expat who departed in 1998 may still be caught by this test if they satisfy the 10/20 test at the point of death. Conversely, an expat who has been overseas for 15 of the last 20 years will not be caught.
The test creates sharp planning windows. An expat resident in the UAE for 15 years knows they are outside the long-term resident definition. But if they return to the UK, the clock resets. A single year of UK residence could trigger the long-term resident test within a decade if they continue living in the UK.
Exiting the long-term resident category does not immediately free you from UK IHT. The Finance Act 2025 introduces a 'tail period' during which you continue to be treated as a long-term resident after you cease to be UK resident.
The tail length depends on your years of UK residence:
An expat who departed in 2022 after 16 years of UK residence would remain exposed to UK IHT on worldwide assets until 2026. If they had 20 years of residence, the tail extends to 2032.
The tail period is measured from the end of the tax year in which the person ceases to be UK resident. It runs automatically; there is no escape mechanism other than waiting for expiry.
For departing expats, the tail period is both a risk and an opportunity. An expat who dies in the tail period will have their worldwide assets exposed to the 40% IHT rate if they exceed the nil-rate band. However, if you plan during the tail period—by making gifts or restructuring trust arrangements—you can achieve significant savings.
For expats with 20 years of UK residence, the 10-year tail is substantial. An expat who departed in 2025 after 20 years of residence would not fully exit until 2035, remaining exposed on worldwide assets despite having no UK presence.
Your first line of defence against UK IHT is the nil-rate band: GBP 325,000. Assets passing to spouses, civil partners, or registered charities fall within this threshold free of tax. Assets passing to other beneficiaries are taxed at 40% on the amount above the nil-rate band.
The nil-rate band has been frozen since 2009 and will remain frozen until 5 April 2031 at the earliest. Inflation has eroded its real value significantly. For expats, the nil-rate band is the threshold beneath which UK IHT does not apply. If your worldwide estate is below GBP 325,000 and you are a long-term resident (or within the tail period), you are entirely outside the UK IHT system.
If you own a UK home and leave it to your children or grandchildren, you may also benefit from the residence nil-rate band (RNRB), an additional allowance of GBP 175,000 per person, also frozen until 5 April 2031.
The RNRB applies only if:
For a married couple, both spouses can claim the RNRB, meaning a combined allowance of GBP 350,000 on top of two nil-rate bands (GBP 650,000 in total). A UK home worth GBP 800,000 could pass to children with nil tax if combined allowances are fully used.
The RNRB is deeply misunderstood by expats. It applies only if the property is inherited; gifts do not trigger it. And it applies only to lineal descendants, not spouses or other beneficiaries. For expats with multi-jurisdictional property holdings, planning which property to designate as the qualifying residence is critical. Only one property can be designated.
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One of the most significant changes in the Finance Act 2025 concerns spousal exemptions. Under the old domicile system, transfers between spouses were entirely exempt from IHT, regardless of where either was domiciled. A UK domiciled person could transfer unlimited assets to a spouse domiciled overseas with no tax consequence.
The new rules are far stricter. From 6 April 2025, the unlimited spousal exemption applies only if both spouses are long-term residents. If one spouse is a long-term resident and the other is not, transfers are limited to the nil-rate band-GBP 325,000-cumulatively across lifetime gifts and transfers on death.
Consider a British expat in the USA married to an American citizen resident in the USA. Neither is a long-term resident. They can transfer no more than GBP 325,000 between them without triggering IHT. A transfer of GBP 1,000,000 would incur IHT of GBP 270,000 on the excess.
For a British couple, both with 10+ years of UK residence (both long-term residents), the spouse exemption applies in full. They can transfer unlimited assets between them.
The most complex situation is mixed-status couples: one spouse is a long-term resident, the other is not. This is common among British expats married to overseas nationals. Both are caught by UK IHT, but the unlimited exemption does not apply between them.
Expats in this situation often restructure affairs to avoid triggering the GBP 325,000 limit. Common approaches include ensuring assets are held in the name of the long-term resident spouse only, or making early lifetime gifts to bypass the limit.
For expats who are separated or divorced, the spousal exemption ceases at decree absolute. A widow or widower who remarries after exiting long-term resident status but within the tail period may lose exemptions on subsequent transfers.
The non-resident spouse exemption cap is one of the most underestimated risks in the post-2025 regime. It affects cross-border marriages disproportionately. Expats must review wills and trust structures immediately to ensure they do not inadvertently trigger unnecessary tax.
The Finance Act 2025 fundamentally rewrote trust rules under UK IHT. Previously, the IHT status of assets in trust depended on the settlor's domicile. Non-UK situs assets in a trust established by a non-UK domiciled person were excluded property.
From 6 April 2025, excluded property status depends on whether the settlor is a long-term resident on the date of the relevant IHT charge, not by domicile.
This has profound implications for expats with overseas trusts. An expat who settled a trust in the Cayman Islands 15 years ago, while UK resident, may have assumed the trust was outside UK IHT. Under the old rules, this was correct. Under the new rules, it is not.
If the settlor was resident in the UK for 10 of the 20 years preceding the relevant IHT charge, the trust assets are caught by UK IHT even though held overseas and the settlor is no longer UK domiciled.
Conversely, an expat who establishes a trust while resident overseas and never UK resident can legitimately establish an excluded property trust.
The key implications are:
For expats in UAE, Singapore and Cayman Islands, trust planning is critical. Trusts previously outside the IHT net must be reviewed and often restructured.
One mitigation strategy is establishing a new trust after the tail period expires, with a settlor who is not a long-term resident. Another is using foreign law trusts not recognised by UK law (though this brings other UK tax consequences).
The excluded property trust rules are among the most technically complex changes in the Finance Act 2025. Expats with significant trust holdings must seek specialist advice immediately.
The Finance Act 2025 does not exist in isolation. Expats live in jurisdictions with their own estate tax regimes. The new UK rules create double taxation risks, though relief mechanisms exist.
Consider an expat in the UAE. The UAE has no inheritance or estate tax. However, under the new UK IHT rules, worldwide assets fall within UK IHT scope if the person meets the long-term resident test. On death, the executor must calculate UK IHT, even if beneficiaries have no UK presence.
Consider an expat in Spain. Spain has a succession tax (impuesto sobre sucesiones). An expat resident in Spain for more than 10 years may face Spanish estate tax on worldwide assets. If also a long-term UK resident, they face UK IHT on the same estate. Double taxation may arise unless a relief mechanism applies.
The UK has tax treaties with many countries providing IHT relief, though extent varies. Generally, these treaties limit IHT to UK-situs assets. But treaty existence varies by country.
For expats in the UAE, specialist IHT planning under the post-2025 rules has become essential, as the UAE's zero tax rate means UK IHT becomes the sole tax drag on estates. Expats must either be outside the long-term resident definition or structure affairs to mitigate IHT through gifts, trusts and property planning.
Expats in Spain must coordinate UK and Spanish planning to avoid double taxation. This requires careful analysis of the Spain-UK treaty and, frequently, advice from advisers qualified in both jurisdictions.
Expats in Saudi Arabia, Singapore and other jurisdictions must review circumstances against both UK IHT rules and local estate tax regimes. The ability to migrate structures-via cross-border estate planning and trust restructuring-is essential.
The new UK IHT regime means expats can no longer rely on UK domicile planning alone. Multi-jurisdictional advice is now mandatory.
The Finance Act 2025 has closed many planning opportunities from the domicile regime. However, strategies remain. The key is to act promptly, before the tail period expires or before you enter the long-term resident definition.
First, establish your residency status. You must know whether you are a long-term resident and, if departed, how long your tail extends. HMRC applies a complex multi-factor test considering days in the UK, ties to the UK, and centre of vital interests.
If you are outside the long-term resident definition and not within the tail period, you have no UK IHT exposure on non-UK assets.
If you are within the long-term resident definition or tail period, here are key strategies:
Lifetime Gifting: Make gifts to reduce estate value. Annual exemptions (GBP 3,000) and regular gifts from income are exempt. Larger gifts follow a seven-year survival rule: survive seven years and the gift falls outside your estate. For expats in the tail period, urgency is high. Gift during the remaining tail window so the gift falls outside the tail period effect.
Trust Planning: Establish trusts to remove assets from your personal estate. However, post-Finance Act 2025 trust planning is complex due to the settlor residence rule. Any new trust must be established with careful attention to the settlor's residency status.
Spousal Planning: Mixed-status couples must plan to avoid triggering the GBP 325,000 cap. Hold assets in the long-term resident spouse's name only, or equalise estates so each spouse's death is taxable within the nil-rate band.
Property Planning: If you own a UK property for your children, consider the residence nil-rate band. Ensure it is properly designated in your will and drafted to utilise the RNRB. For expats with multiple properties, decide which should be designated as the qualifying residence.
Debt Planning: Debts and liabilities reduce estate value. Consider whether legitimate borrowings can be incurred and left in place.
Charity Donations: Donations to registered charities are exempt. If leaving money to charity, consider a higher proportion. A reduced IHT rate (36% instead of 40%) applies if 10% of the net estate passes to charity.
Each strategy has technical requirements. Expats must work with advisers understanding both UK rules and their jurisdiction of residence.
The Finance Act 2025 applies to chargeable events on or after 6 April 2025. This date is the critical watershed.
For deaths before 6 April 2025, the old domicile-based rules apply entirely. There is no transitional relief. A death on 5 April 2025 uses the domicile rule; 6 April 2025 uses the residence-based rule.
For trusts, the changes apply to all IHT charges on or after 6 April 2025. A trust hitting its 10-year anniversary on 6 April 2025 or later uses the new settlor residence rule. A trust hitting its anniversary on 5 April 2025 uses the old domicile rule.
Expats should take care with the timing of trust administration. A distribution timed for late March 2025 uses old rules; late April 2025 triggers new rules. For large trusts, the difference is material.
No relief is available for expats who inadvertently lose planning opportunities. There is no mechanism to unwind a death on the wrong side of the line.
Expats with deaths in the pipeline-elderly parents or relatives with terminal diagnoses-may have a narrow window to act under old rules. Professional advisers should flag this with clients who have vulnerable older relatives.
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The Finance Act 2025 creates multiple traps for unwary expats. Here are the most common mistakes:
Backward-looking test: If you were UK resident for 10 years at any point in the previous 20 years, you are caught by the long-term resident test, regardless of how long you have been abroad.
Tail period applies after departure: The tail period applies to all expats who departed after 6 April 2025, even if they left many years ago. Returning and departing again resets the clock.
Worldwide assets are in scope: If you are a long-term resident or in the tail period, all worldwide assets, including UK properties, are within IHT scope. Property location is irrelevant.
Trust location does not protect: The settlor's residency status, not trust location, determines IHT scope. A trust settled by a long-term resident is within UK IHT even if held in the Cayman Islands.
Seven-year survival rule: A gift must survive seven years after it is made to fall outside your estate. Gifts made near death trigger full IHT.
Spousal exemption cap: Mixed-status couples often assume they can transfer assets freely. The GBP 325,000 cumulative cap is material and frequently exceeded inadvertently.
Domicile vs residence: Domicile is no longer relevant for IHT. HMRC uses its own definition of UK residence, which is complex and fact-specific.
Trust restructuring may be needed: Trusts established under old domicile rules may no longer be outside IHT if the settlor is a long-term resident.
Will drafting matters: If you die within the tail period, your estate is subject to IHT in full. Your will must be drafted to utilise nil-rate bands and reliefs.
The Finance Act 2025 is unforgiving of errors. Once a chargeable event occurs, the liability is crystallised. Expats must act now while they have time to implement effective strategies.
The Finance Act 2025 has made professional IHT planning non-negotiable for expats. The residence-based test is automatic, mechanical and unyielding.
If you are a British expat with a material estate-typically above GBP 400,000-and you have been resident in the UK for any period in the last 20 years, you must have professional advice on your IHT position.
Professional planning involves a review of your residency status, an assessment of your IHT liability (both now and in the tail period if departed), a review of existing structures (trusts, property holdings, beneficiary arrangements), and implementation of mitigation strategies.
For expats in UAE, Singapore, Spain, and Saudi Arabia, specialist firms with local presence and expertise in both UK and local tax law are essential.
The cost of professional advice-typically GBP 3,000 to 10,000 for a comprehensive review-is trivial against potential tax savings. An estate paying 40% IHT can save GBP 100,000 or more through effective planning. The ROI is invariably positive.
If you are a British expat anywhere in the world, the Finance Act 2025 changes your IHT position. Whether those changes are material depends on your residency history, estate size, spouse's status, trust structures and jurisdiction of residence.
The starting point is to establish your position. You need to know whether you are a long-term resident and, if departed, how long your tail period extends. You need someone with deep UK IHT expertise and, ideally, expertise in your specific jurisdiction.
The next step is a structured review of your existing arrangements. If you have a will, does it account for the new nil-rate bands and residence nil-rate band? If you have trusts, is the settlor a long-term resident? If you are married to a non-resident, have you accounted for the GBP 325,000 spousal cap? These determine whether your estate pays substantial tax or very little.
Once you have clarity, you can decide whether planning is necessary. For some expats, particularly those outside the long-term resident definition with estates below the nil-rate band, no planning may be needed. For others, particularly those with substantial estates or complex structures, planning is urgent.
The Finance Act 2025 creates a time-limited window. Expats within the tail period must act before it expires. Expats about to enter the long-term resident test should consider early action. Expats outside the definition can monitor their position, as a return to the UK can alter exposure.
The Finance Act 2025 marks the end of an era in UK IHT. For over a century, domicile was the key factor. Expats could plan around it, hope to acquire a new domicile and, in time, exit the IHT system. That comfort is gone.
The new residence-based test is tighter, quicker and less generous. You enter the IHT net after 10 years of UK residence, not 15. You remain exposed for up to 10 years after departure, not three. Your spouse's residency status now affects your own planning. Your trust structures are judged by your current residency, not your past domicile.
For some expats, these changes are merely inconvenient. For others, they are materially expensive. An expat with an estate of GBP 2 million, who was UK resident for 15 years and departed 20 years ago, has no IHT exposure under the new rules because they are outside the long-term resident test and the tail period has expired. But an expat with the same estate, who was UK resident for the same period but departed only five years ago, is firmly within the tail period and faces IHT on worldwide assets.
The critical imperative is to act now. Expats who take professional advice today can implement strategies that will save their estates substantially. Expats who wait until they are ill or until after a spouse has died have far fewer options.
The UK has fundamentally changed the way it taxes expat estates. You must change how you plan accordingly.
I help lawyers, globally mobile professionals, and expatriate families make better long-term decisions around pensions, retirement, estate planning, and cross-border wealth when life spans more than one country.
This article is for information purposes only and does not constitute financial advice. Financial planning outcomes depend on individual circumstances, residency, tax status and objectives. Professional advice should always be sought before making financial decisions.
For expats in the UAE, Singapore, Australia and other key destinations, the new rules demand immediate action on structure, beneficiary planning and asset location.
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A specialist review of your circumstances against the Finance Act 2025 can identify the strategies that save your estate money.
