For years, advisers explained inheritance tax (IHT) through the lens of domicile – a rather old-fashioned legal idea about the country you treat as “home”. Now, from 6 April 2025, the long-term residence (LTR) test has been introduced, which brings anyone who has spent 10 of the last 20 tax years in the UK into charge on their worldwide assets. The change matters to thousands of internationally mobile families who have spent significant time in the UK. At the same time the nil-rate band has been frozen at £325,000 until 5 April 2030 and IHT receipts hit £8.2bn in 2024/25, up 10% on the previous year (HMRC, 2025). The Office for Budget Responsibility (OBR) projects those receipts to reach £14.3bn by 2029/30 (OBR, 2025). Against that backdrop, failing to plan is an expensive decision. In this blog, we explain how UK inheritance tax for non-residents now works, outline the key thresholds and reliefs for 2025/26 and set out practical steps to keep your bill under control.
From domicile to long-term residence: What changed in April 2025?
- Abolition of domicile: The old deemed-domicile rules (15 years’ UK residence) have gone.
- New LTR test: You become long-term resident once you have been UK-resident for10 of the previous 20 tax years.
- Scope of charge: LTRs pay IHT on worldwide assets; non-LTRs pay IHT only on UK-sited property.
- Trust protections: Excluded-property trusts now lose their protection once the settlor becomes LTR.
Put simply, residence history – not domicile – decides when foreign assets fall into the net.
When does UK inheritance tax apply to non-residents?
IHT is charged on:
- death estates – the value of chargeable property at death
- certain lifetime transfers – mainly gifts to most trusts within seven years of death.
For people who are not LTR, only assets that are legally or physically in the UK are taxed. For LTRs, the global estate is taxable even if they die abroad.
The long-term residence test explained
An individual will be treated as a long-term resident once they have been resident in the UK for ten out of the 20 years prior to the taxyear in which a chargeable event (such as death) arises.
New arrivers enjoy a limited window: your non-UK assets remain outside IHT for your first 10 years here. This allows internationally mobile individuals time to arrange their affairs before the global tax charge bites.
Key thresholds and rates for 2025/26
- Nil-rate band: £325,000 – frozen until at least 5 April 2030 (HM Treasury).
- Residence nil-rate band: £175,000 on a UK home left to direct descendants; tapers once the estate exceeds £2m.
- Main rate: 40% above available bands.
- Reduced rate: 36% where at least 10% of the net estate passes to charity.
Since both bands are fixed for five more years, the real-terms tax burden rises with every uptick in property or share prices.
What counts as UK-sited property?
The scope is broader than bricks and mortar and includes:
- UK land and buildings, residential and commercial
- shares in UK-incorporated companies
- UK gilts and corporate bonds
- UK business assets – plant, machinery and goodwill used in a UK trade
- UK residential property held through offshore companies if anti-avoidance rules apply.
Foreign-currency bank accounts and overseas real estate remain outside IHT unless you become LTR.
Reliefs and exemptions you can still claim
- Spousal exemption: Transfers to a UK-resident spouse or civil partner are exempt. If the recipient spouse is non-resident, the exemption is capped at the nil-rate band unless they elect to be UK-resident for IHT.
- Business property relief and agricultural property relief: Up to 100% relief on qualifying assets held for at least two years. Note this is currently under review, with a government consultation on future caps from 2026.
- Annual gifting exemption: £3,000 per tax year.
- Normal expenditure out of income: Regular gifts that do not reduce your normal standard of living escape the seven-year rule.
- Double-taxation treaties: The UK has estate tax treaties with several countries, including the US, France and Italy, which may relieve double charges.
Practical planning steps
- Asset map: List what you own, its location and how it is held.
- Life assurance: Whole-of-life cover written in trust provides cashflow to pay IHT without forcing property sales.
- Gifting strategy: Use annual exemptions and the seven-year rule to move value early.
- Spouse election: Where appropriate, a non-resident spouse can elect UK residence to secure the full spousal exemption.
- Professional valuations: Obtain robust figures for property and unlisted shares to support relief claims.
- Evidence file: Keep travel diaries, visas and residency certificates – HMRC can ask for proof of residence history.
- Regular reviews: Residence status (each year before 5 April); asset valuations (every two years or after major purchases); trust arrangements (at least every five years).
Our inheritance tax team can assist with many of these steps and help you with planning and regular monitoring.
The outlook for inheritance tax receipts
The Office for Budget Responsibility expects IHT to raise £14.3bn by 2029/30, almost double the 2020/21 figure, driven by frozen thresholds and rising asset values (OBR, 2025). The new LTR rules widen the net further, so internationally mobile families with UK connections should review their exposure now.
How we can help
Pearson May has guided clients through every tax reform since 1841. Our chartered tax advisers, accountants and trust specialists work as one team, giving you a single point of contact for compliance, structuring and succession.
UK inheritance tax for non-residents is no longer about an obscure domicile concept. Residence history decides whether your worldwide estate is taxed, and the 10-year countdown starts as soon as you arrive. If you want advice on your liability to IHT in the UK then get in touch today.