Our private wealth and succession team is very experienced in helping individuals plan their UK inheritance tax exposure.

A fundamental part of this is an understanding around an individual’s, and their family’s, domicile position, with “domicile” being a key concept in determining how much of an individual’s worldwide estate might be subject to UK inheritance tax.  Domicile has always been a tricky concept to nail down, and much of the guidance around it is based on caselaw and determined by specifics of each circumstance.

Nevertheless, there are changes coming.  From 6 April 2025, it has been announced that a Finance Act will make changes which will alter the position in relation to the application of UK inheritance tax for many individuals who have assets located around the world.

In very broad terms, assets located outside of the UK will be subject to inheritance tax in the UK if the owner of them has been UK resident for at least 10 out of the last 20 years (defined as a “long term tax resident”) prior to their death. For these purposes, residence will be determined by reference to the statutory residence test, which in and of itself is complex.

Once an individual has become a UK long term tax resident, and therefore UK inheritance tax is potentially applicable to all of their worldwide assets, an individual would need to be non-UK tax resident for a period before they “lose” their long term UK tax resident status and their non-UK assets fall outside of the UK inheritance tax net.  The period applicable here, sometimes referred to as a “tax tail”, depends on the period of UK residence by the individual.

As there are restrictions on certain exemptions which apply where one of a married couple or civil partners are UK domiciled (or the equivalent moving forwards) and one is not, it will still be possible for a spouse or civil partner to elect to be treated as long term UK resident, with that election ceasing to have effect after 10 consecutive tax years of non-UK residence.  It is very important that individuals carefully consider the potential tax implications of taking such a step before they do so.

The rule changes also have an impact in relation to certain trusts and other structures, particularly those holding UK assets (including UK residential property).  Whilst some trusts will be unaffected, certain assets held in certain types of trusts will be subject to UK inheritance tax moving forward if the settlor, the person who set up the trust, is a UK long term tax resident at the time any inheritance tax charge arises (which will not just be when the trust was created, but on other occasions etc.).

We are well placed and experienced to provide advice from a UK perspective for clients affected in this area.  If you would like to speak to us about these points, please get in touch.