From 6th April 2025, the inheritance tax regime (IHT) in the UK will move to a residency based system. Prior to this, IHT was linked to a person’s ‘domicile’ status. This allowed long term UK residents who were non-UK domiciled to protect foreign assets from UK IHT.
By Tom Annat – Senior Tax Manager
Long term resident
The new regime will mean that long term UK residents (resident for 10 of the previous 20 years) will be subject to UK IHT on worldwide assets. This will apply irrespective of domicile status.
Residence will be determined by using the statutory residence test (SRT) from 2013/14. For determining residence for years prior to 2013/14, the old (pre-SRT) rules will be used.
Where an individual is 20 years old or younger, the test will be whether they have been UK-resident for at least 50% of the tax years since their birth.
Remaining in scope of UK IHT after departure – the ‘tail’
Those individuals leaving the UK (after a residency period of at least 10 out of 20 years) will remain in scope of UK IHT after departure. For non-residents who do not return to the UK before a chargeable event, the IHT tail will be:
- For those who have been resident for between 10 and 13 years – 3 tax years
- This will then increase by one tax year for each additional year of residence
Therefore, an individual will not be treated as long-term resident for IHT purposes in the year following 10 consecutive years of non-residence
Tax planning is crucial
The above represents a significant change in the IHT regime and will bring previously excluded overseas assets into scope of UK IHT. For long term UK residents, particularly those who previously relied on their non dom status as protection, it is crucial to take early advice. Moreover, it will be necessary for those impacted to have good record keeping around their travel movements. As this will be crucial for determining residence status, potentially over a long period of time.
Do get in touch for guidance on IHT for non doms from our tax planning team.
