Inheritance tax is now residence-based, not domicile-based

For decades, UK inheritance tax used 'domicile' as its key test: a concept rooted in your long-term home and intentions, and in some cases inherited from a parent at birth. Domicile decided whether you were taxed on UK assets only, or on your worldwide estate. From 6 April 2025, that test is gone. UK inheritance tax is now based on tax residence.

If you live in the UK, have lived here in the past, or are thinking about returning, the new rules change the planning picture in ways that are easy to miss until it is too late.

What changed on 6 April 2025

Before April 2025, individuals domiciled in the UK were liable to inheritance tax on their worldwide assets. Those domiciled elsewhere were only liable on their UK assets, with a 'deemed domicile' rule that kicked in after a long period of UK residence.

From 6 April 2025, domicile is replaced for IHT purposes by a residence-based test. Whether your worldwide estate falls into UK inheritance tax now turns on how long you have been UK-resident, not where you consider your permanent home to be.

The 'long-term resident' rule

Under the new rules, an individual is broadly a 'long-term resident' if they have been UK tax-resident for at least 10 out of the previous 20 tax years. Long-term residents are within scope of UK inheritance tax on their worldwide assets.

Anyone who has lived in the UK for a decade or more, even if they always considered another country home, is now in the same IHT position as someone born and raised here. The old 'I am a non-dom, my non-UK assets are outside UK IHT' position is no longer available just by virtue of an overseas domicile.

The leaver 'tail'

Leaving the UK does not immediately put your worldwide estate outside IHT. There is a tail: a period after departure during which long-term resident status continues to apply, with the length depending on how long you were UK-resident before leaving.

• Between 10 and 13 years of recent UK residence: a 3-year tail
• 14 years: a 4-year tail, rising by one year for each additional year of residence
• Up to a maximum of around 10 years for those who were UK-resident for 20 years or more

The exact tail length is set by the rules and depends on the years of UK residence in the run-up to leaving. The longer you were here, the longer your worldwide estate remains in IHT scope after you go.

Who this affects

The change is most relevant for:

• Long-standing UK residents who held a non-UK domicile and relied on it for IHT protection on overseas assets
• Expats who are about to leave the UK and assumed their worldwide estate would fall out of IHT immediately on departure
• Returners who lived in the UK earlier in life, left, and are now thinking about coming back
• Internationally mobile families with assets, trusts or property in more than one jurisdiction

Why timing matters

Because the test counts UK-resident years in a moving 20-year window, the date of any move (in or out) can have an outsized effect. A planned departure that crosses one tax year rather than another may change the leaver tail. A planned arrival that triggers an extra UK-resident year may change how soon you become a long-term resident.

These are not decisions to handle on assumptions or rough memory of the rules. The mechanics of when you became, or stopped being, UK tax-resident depend on the statutory residence test, days in the UK, ties, and in some cases treaty provisions.

Trusts settled before 6 April 2025

The treatment of offshore trusts settled by individuals who were non-doms under the old rules has its own transitional provisions. Some protected positions remain; others have changed. The detail goes well beyond a single blog post.

If you settled, or are a beneficiary of, an offshore trust, the safe working assumption is that the rules have moved under it and a fresh review is sensible.

This is specialist territory

Cross-border IHT is one of the few areas of personal tax where the cost of getting it wrong is large, the rules are intricate, and the right answer depends on details a general adviser may not be looking for. Treaty relief, foreign tax credits, residence start and end dates, and the interaction with the country you are moving to or from all matter.

If you have significant assets outside the UK, or have spent years moving between countries, a specialist who handles cross-border estates regularly is worth the upfront fee.

Simply Estate is an estate planning firm. Our cross-border team can map your residence history against the new rules and coordinate with your in-country advisers. Visit our cross-border tax page to book your free review.