UK Inheritance Tax (IHT) was significantly reformed for expats from 6 April 2025, with the historic concept of UK domicile replaced for IHT purposes by a new “long-term residence” (LTR) test based on years of UK tax residence. The change matters for every British expat with significant non-UK assets: it overhauled the framework that had governed inheritance tax exposure since 1975. This guide explains how the new long-term residence test works, what it means for assets inside and outside the UK, the IHT position on UK assets regardless of LTR status, and the practical points to discuss with a regulated tax specialist.
Inheritance tax planning is highly individual and the rules are detailed. This guide is intended to help you understand the framework and the right questions to ask — not to replace specialist tax guidance. For country-specific tax interaction with the UK, see our country relocation guides for Spain, France, Italy and Dubai. For the related residency framework, see our guide on UK tax residency for expats.
What Changed in April 2025
Before 6 April 2025, UK Inheritance Tax exposure for individuals was determined primarily by domicile — a common-law concept distinct from tax residence. UK-domiciled individuals were subject to IHT on their worldwide estate; non-domiciled individuals were subject to IHT only on their UK-situated assets, with deemed-domicile rules bringing long-term UK residents into the worldwide net.
From 6 April 2025, domicile is no longer the test for IHT. The new framework uses a long-term residence (LTR) test, defined by your number of UK tax years in a rolling lookback period.
- You are a long-term resident for IHT purposes if you were UK tax resident in at least 10 of the previous 20 UK tax years (broadly).
- If you are a long-term resident, your worldwide estate is within the scope of UK IHT.
- If you are not a long-term resident, only your UK-situated assets are within the scope of UK IHT (the same position as the historic non-dom rule for UK assets).
- Once a long-term resident leaves the UK, IHT exposure on worldwide assets continues for a defined “tail” of years — typically up to 10 years after leaving, with the exact tail depending on prior UK residence history.
The reform is substantial. UK expats who established their non-domicile position years ago can no longer rely on it for IHT after April 2025; the new test measures something different and produces different outcomes. Some UK expats are better off under the new rules, some are materially worse off, and some are indifferent — it depends on residence history.
UK IHT Basics That Haven’t Changed
The headline IHT rate, allowances and reliefs continue largely as before — the change is who is in scope, not how the tax is calculated.
- Standard IHT rate — 40% on the value of the estate above the available allowances.
- Nil-Rate Band (NRB) — £325,000 per individual, frozen at this level since 2009 with the freeze extended into 2030.
- Residence Nil-Rate Band (RNRB) — up to £175,000 per individual where a qualifying residence is left to direct descendants. Tapered for estates over £2 million.
- Spouse exemption — transfers between spouses or civil partners are exempt from IHT, with conditions where one party is non-UK resident.
- Charity exemption — gifts to UK-registered charities are exempt; estates leaving 10% or more to charity benefit from a reduced 36% IHT rate on the chargeable estate.
- Seven-year rule on lifetime gifts — most lifetime gifts (Potentially Exempt Transfers) drop out of the IHT estate after seven years, with taper relief between three and seven years.
- Annual exemptions and small gift reliefs — £3,000 annual gift exemption, £250 small-gift exemption per recipient, exemptions for gifts on marriage and gifts out of normal income.
UK Assets Are Always in Scope — Even for Non-Long-Term Residents
One important point that catches UK expats out: regardless of long-term residence status, UK-situated assets remain within the scope of UK IHT. “UK-situated” covers:
- UK real estate (residential and commercial), including UK property held through offshore structures since the 2017 reforms.
- UK bank and savings accounts.
- UK shares and UK-quoted investments.
- UK pension assets where they form part of the estate (with the position evolving following the 2024 Autumn Budget changes that bring most defined contribution pension assets into the IHT estate from April 2027).
- UK partnership interests, UK business assets and UK intellectual property.
A UK expat who has been overseas for decades, who is clearly not a long-term resident under the new test, can still face UK IHT at 40% on their UK property and UK savings above the available NRB. The expat planning question often boils down to the structure of UK assets, not the global estate.
Pensions and the April 2027 Change
The October 2024 Autumn Budget announced that most unused defined contribution pension assets will be brought into the IHT estate from April 2027. This is a structural change — prior to this, defined contribution pensions could pass to nominated beneficiaries outside the IHT estate, making them a major tool in IHT planning.
For UK expats, the change is particularly material because UK pensions are typically a large component of the estate. The interaction between LTR status, the new pension IHT treatment, double taxation treaties and the country-of-residence pension tax position will need careful review with a UK-qualified pension and tax specialist for anyone whose UK pension exceeds the available IHT allowances.
The Double Taxation Position
UK IHT can interact with the inheritance, estate or succession tax of your country of residence. The UK has a small number of dedicated estate tax double taxation treaties (with countries including France, the Netherlands, Sweden, Switzerland, the USA, India, Pakistan, Ireland and South Africa). For other countries, unilateral relief in the UK or the destination country may be available, but the framework is less structured.
Common pitfalls in the international IHT picture:
- Double taxation without treaty cover. Estates with assets in countries that don’t have a UK estate-tax treaty can face inheritance tax in both jurisdictions, with limited unilateral relief.
- Forced heirship rules. Many civil law countries (France, Spain, Italy, Greece, Germany) apply forced heirship rules that can override UK testamentary intentions for assets located there. The EU Succession Regulation (Brussels IV) allows UK nationals to elect for the law of nationality to apply, but with detailed conditions and tax consequences.
- Different tax bases. The UK taxes the estate (the deceased’s assets); many other countries tax the recipient (the heir), with rates varying by relationship to the deceased.
- Mismatched valuation rules and deadlines. Probate, valuation and tax payment deadlines differ between jurisdictions, with practical implications for cash flow at the worst possible time.
Common Country-Specific IHT Considerations for UK Expats
The detail varies materially by destination, but a few examples illustrate the range:
- Spain — inheritance tax is regional. Some autonomous communities offer near-100% relief for spouses and children; others apply substantial tax. The interaction with UK IHT depends on residence and asset location.
- France — a UK–France estate tax treaty exists. France applies forced heirship to French assets and taxes inheritance in the hands of the recipient on a sliding scale by relationship.
- Portugal — no general inheritance tax, but a 10% stamp duty on inheritances received by non-direct relatives. The post-2024 IFICI tax regime affects related planning.
- Italy — inheritance tax applies with rates varying by relationship (4–8%) and substantial allowances. UK–Italy estate tax treaty does not exist; unilateral relief mechanisms apply.
- Dubai (UAE) — no UAE personal inheritance tax. UK IHT exposure depends on LTR status and UK-situated assets.
- Australia — no Australian inheritance tax (abolished decades ago). UK IHT continues to apply per UK rules.
- Switzerland — inheritance tax is cantonal. Spouses are typically exempt; rates for other heirs vary by canton and relationship.
- Ireland — Capital Acquisitions Tax (CAT) applies in the hands of the recipient with substantial relationship-based thresholds.
This is a high-level summary only. Each jurisdiction has detailed rules, exemptions and interactions with the UK system that materially affect outcomes. The right specialist combination is typically a UK tax adviser working alongside a tax adviser in your country of residence — either alone is rarely enough on a meaningful estate.
Practical Areas to Discuss With a Specialist
The following are the areas a UK expat with material non-UK assets typically reviews with a regulated tax specialist following the April 2025 reform:
- Long-term residence status — confirm whether you are an LTR under the new test now and how that may change as further years pass.
- Asset audit — inventory of UK-situated and non-UK-situated assets, with valuations and beneficial ownership.
- UK pension position — the April 2027 IHT inclusion materially changes pension planning. Death benefit nominations and structuring should be reviewed.
- Will structure — a UK will alongside a country-of-residence will is often the cleanest structure, with cross-references to avoid revoking each other. Brussels IV elections should be considered for EU country assets.
- Lifetime gifts and the seven-year rule — the gift framework is unchanged but its value relative to LTR status has shifted.
- Trust structures — the historic role of excluded property trusts has changed materially under the new rules. Existing trusts should be reviewed.
- Spouse and partner exemptions — the rules around spouses with different LTR status have specific conditions.
- Country-of-residence interaction — forced heirship, destination inheritance tax rates, recipient-based versus estate-based tax systems.
The Currency Side of UK Estate Planning Abroad
Estate transfers across borders are typically large, lumpy transactions where currency timing materially affects what beneficiaries actually receive. A UK estate paying out to overseas beneficiaries, or an overseas estate paying out to UK beneficiaries, sits exactly in the rate-risk window currency specialists are designed for.
Three practical points:
- Probate and estate administration timelines (typically 9–18 months for a UK estate of any complexity) create a long exchange rate exposure window. A forward contract can lock in today’s rate for a future distribution date.
- Multiple beneficiaries in different countries usually means multiple FX legs. Consolidating execution through a single specialist eliminates the per-transfer bank margin.
- Currency planning around the estate should be coordinated with the executor and the country-of-residence tax adviser, not bolted on at the end.
Cambridge Currencies works exclusively with FCA-authorised payment partners (Currencycloud and ScioPay). Client funds are held in fully safeguarded segregated client accounts. See our companion guides on keeping a UK bank account while living abroad and the UK pension abroad currency guide for the supporting infrastructure.
Frequently Asked Questions
What changed for UK Inheritance Tax in April 2025?
The historic concept of UK domicile was replaced for IHT purposes by a new long-term residence (LTR) test based on years of UK tax residence. Long-term residents are within scope of UK IHT on their worldwide estate; non-LTRs are within scope only on their UK-situated assets.
How is long-term residence defined?
Broadly, you are a long-term resident if you were UK tax resident in at least 10 of the previous 20 UK tax years. The exact application has detailed conditions and the position evolves as years pass.
If I leave the UK, when does my IHT exposure on worldwide assets end?
Under the new framework, IHT exposure on worldwide assets continues for a defined “tail” after departure — typically up to 10 years, with the exact length depending on prior UK residence history. Specialist guidance is essential.
Does becoming non-UK resident remove UK IHT exposure on UK assets?
No. UK-situated assets (UK property, UK savings, UK shares, UK pension assets where applicable) remain within the scope of UK IHT regardless of your residence or LTR status.
What is the standard UK IHT rate and allowance?
40% on the value of the estate above the available allowances. The Nil-Rate Band is £325,000 per individual; the Residence Nil-Rate Band is up to £175,000 per individual where a qualifying residence is left to direct descendants.
Are UK pensions still outside the IHT estate?
Most defined contribution pension assets will be brought into the IHT estate from April 2027 (announced in the October 2024 Autumn Budget). This is a material change for UK expats whose pensions are a large component of their estate.
Do I need a UK will and a country-of-residence will?
Often yes — separate wills covering UK and non-UK assets are typically the cleanest structure, with careful drafting to avoid one revoking the other. EU country assets may also involve Brussels IV elections under the EU Succession Regulation.
Need to coordinate currency transfers around an international estate or large family transfer? Speak to a Cambridge Currencies specialist by phone — we’ll walk you through the best approach for executor distributions, beneficiary payments and multi-country estate flows. Request a free quote today. All transfers are completed by phone with a dedicated specialist. We work exclusively with FCA-authorised payment partners.
This guide is for informational purposes only and does not constitute financial, legal or tax guidance. UK Inheritance Tax involves detailed conditions and ongoing reform. The April 2025 long-term residence framework and the April 2027 pension IHT changes are particularly fact-sensitive. Always seek independent professional guidance from a qualified UK tax specialist, ideally working alongside a tax adviser in your country of residence.
