From 6 April 2025, domicile status will no longer determine Inheritance Tax (IHT) liability. Instead, tax will be based on long-term UK residence, affecting how wealth and assets are taxed. If you hold overseas property or trusts, these changes could significantly impact your estate planning.
What’s Changing?
- Domicile is irrelevant – IHT will now apply based on UK residency.
- Excluded property remains – Assets outside the UK, authorised unit trusts (AUTs) and OEICs remain outside IHT, but only if the owner is not a long-term UK resident.
- New residency test – A person is a long-term UK resident if they lived in the UK for 10+ of the last 20 tax years.
- Spouse exemption limited – Transfers to a non-UK resident spouse will now have a lifetime limit equal to the Nil Rate Band.
- Transitional rules apply – Some non-domiciled individuals may get relief if they were non-domiciled on 30 October 2024 and leave the UK before April 2026.
How to Get Ready?
- Review your estate plan – Ensure assets are structured efficiently under the new rules.
- Consider residency status – Leaving the UK for 10+ years may remove future IHT exposure.
- Check your spouse’s tax position – If your spouse is non-UK resident, new rules may impact wealth transfers.
- Understand trust changes – Offshore trusts may no longer protect assets if the settlor is a long-term UK resident.
These changes fundamentally reshape estate planning for UK residents, particularly those with international assets. With April 2025 approaching, taking action now can help mitigate risks and ensure your estate is structured as tax-efficiently as possible.