Inheritance tax rules for non-UK residents

We have previously covered the tax implications for Non-UK residents, in respect of Income Tax and Capital Gains, but the 6 April 2025 also saw the introduction of the “Long Term Residency” (LTR) regime.

Before this date, non-UK domiciled individuals were only subject to UK Inheritance Tax (IHT) on their UK situs assets, such as properties, bank accounts and investment portfolios. Any non-UK situs assets were outside the scope of UK IHT.

Once an individual had been UK tax resident for 17 of the last 20 years, they became “deemed domicile” and so subject to UK IHT on their worldwide estate.

The 6 April 2025 changes removed the concept of ‘domicile’ and instead introduced the LTR rules.

Under these new rules an individual would be subject to UK IHT on their worldwide estate once they become a long-term resident. An individual would be long-term resident for a tax year if their residency period spans:

• The previous 10 consecutive tax years; or
• A total of 10 years or more within the previous 20 tax years

Therefore, an individual arriving to the UK for the first time could spend a total of 9 tax years in the UK before becoming subject to UK IHT on their worldwide estate.

In contrast, a departing individual would need to spend several years outside of the UK before they escape the UK IHT regime and would still be subject to UK IHT on their worldwide estate.

The following scenarios illustrate how long an individual must remain outside the UK before losing long‑term resident status:

• Resided in the UK for 10 to 13 years – would need to spend three years outside of the UK before losing long-term resident status
• Resided in the UK for 14 years – would need to spend four years outside of the UK before losing long-term resident status
• Resided in the UK for 15 years – would need to spend five years outside of the UK before losing long-term resident status

Ultimately, the new LTR rules favour individuals arriving to the UK, but less so individuals departing the UK in that they remain within scope of UK IHT for an extended period.

Inheritance Tax planning for new UK residents

This shift from a domicile-based approach to a residency-based approach can be an advantage for certain UK domiciled individuals who have already resided outside of the UK for a number of years and so may now be outside of the scope of UK IHT, but for others who are considering leaving the UK to reside overseas, it can create significant planning challenges.

Individuals who are arriving to the UK should consider the following planning points:

• Determine how many years are you intending to stay in the UK; if in excess of nine years, sophisticated IHT planning may be required
• Assess whether your affairs be restructured before becoming UK long-term resident – the Foreign Income and Gains (FIG) regime coupled with the IHT exemption for the first nine years in respect of UK-situs assets can present a good opportunity for detailed restructuring to maximise tax-efficiency
• Consider making gifts of offshore assets before becoming long-term resident, to mitigate the risk of UK IHT on those gifts

Here to help: Inheritance Tax planning for Non-UK residents

Individuals considering UK residency should speak to a tax adviser before coming to the UK, to ensure a proactive and efficient tax plan is in place upon arrival.

There are additional complexities to consider in certain circumstances, such as the use of Trusts, companies, non-resident spouses and children, for example, so bespoke, tailored advice is crucial.

With the UK IHT rate currently at 40% and UK income tax rates up to 45%, the savings to be obtained as a result of the right advice can be substantial for individuals with a high asset base offshore.

To discuss your plans for long-term UK residency and the associated IHT implications, please contact us today.