2025 UK Inheritance Tax Reforms: What British Expats Need to Know
Since April 2025, UK expats have been faced with significant changes to the UK inheritance tax system. The UK government has introduced a major reform, replacing the often ambiguous and confusing domicile-based framework with a clearer and more transparent regime based on tax residency history.
- How the rules have changed following the labour budget
- Which assets will be taxed under IHT rules
- How to make your estate tax-efficient
- Tips for offshoring UK funds
New UK Inheritance Tax Rules
For UK expats living abroad who still have ties to the UK, such as property, assets, pensions, or family, this is a notable change with important implications. The concept of domicile was notoriously vague and difficult to define, often causing frustration among UK expats. While this shift in law introduces a new set of rules to navigate, it also brings greater clarity and the potential to make estate planning far more straightforward and transparent.
Our guide will highlight the key changes so you can move forward with confidence, knowing that your estate planning is properly structured in the most efficient way.
Changes to UK Domicile Rules
In the past, your UK IHT liabilities were dependent on whether or not you were domiciled in the UK. Domicile is a complex legal status, determined by various connections you may have had in the UK, often leaving room for ambiguity and confusion. This meant that certain individuals born in the UK who had spent years living overseas could still be considered domiciled and, as a result, exposed to UK tax on their global assets.
However, the concept of domicile has now become irrelevant, and an individual' s tax liabilities will be based on long-term tax residency status. Under this new system, you will be deemed a Long-Term Resident (LTR) of the UK if you have been a UK tax resident for at least ten out of the previous twenty tax years.
If you qualify as an LTR, your global estate will be subject to UK Inheritance Tax, charged at the standard rate of 40% above the nil-rate band (£325,000 per individual).
This new framework brings more certainty, as individuals’ tax liabilities are now based on a measurable tax residency history. It should clear up much of the previous confusion and, in turn, allow individuals to plan more effectively.
Definition: Your Estate
An estate refers to the total value of everything a person owns at the time of their death, minus any liabilities. It typically includes Property (houses, land, holiday homes) Investments (shares, bonds, ISAs, unit trusts, pensions in some cases) Cash and savings (bank accounts, Premium Bonds) Personal belongings (cars, jewellery, art, valuables), Business interests (if owned directly)
How to Lose Your LTR Status
Under these rules, there is a period of time or ‘tail’ period which applies before you either lose or gain yourLTR status. If you are an expat currently living abroad but were previously a UK resident for ten years or more, your worldwide estate will remain under the scope of UK Inheritance Tax for a period following your departure from the UK. This ‘tail’ period depends on how long you were a UK resident.
If you have been a long-term UK resident, you may remain fully within the scope of UK IHT until you have been non-resident for a period of between three and ten consecutive tax years. Specifically, the ‘tail’ will be three years if you were resident in the UK for between 10 and 13 years, and it increases by one tax year for each additional year of UK residence, up to a maximum of 10 years.
Once you have been a UK expat and non-resident for ten full tax years, you will lose your LTR status, and your non-UK assets will no longer be subject to UK IHT. This timeline may be especially helpful for UK expats who want to plan effectively and make informed estate planning decisions.
Which Assets Will Remain Taxable in the UK?
If you are a UK expat and you do manage to shed your LTR status after years of living abroad, some of your UK assets will remain subject to UK IHT. These include assets such as UK property, shares in companies, bank accounts, collectables, and art.
A significant change to be aware of is that, from April 2027, UK pensions, including SIPPs, will become subject to IHT unless specifically structured to qualify as excluded property. This is a major shift, as pensions have historically been one of the most IHT-efficient ways to transfer wealth.
Furthermore, any UK assets held through offshore platforms will also be subject to IHT, as they are still classed as UK assets by HMRC. If you are a non-UK resident planning on shedding your LTR status and still hold a UK pension, SIPP, or UK assets on an offshore platform, it’s important to urgently seek advice from a specialist adviser who can help you plan accordingly.
Top Tip
If you've left the UK and exploring strategies to mitigate future UK inheritance tax, consider removing your invested assets outside of the scope of IHT and UK jurisdiction. This can be done by exploring international investment accounts and offshore options, such as those based in Jersey, the Isle of Man and Guernsey.
At The Wealth Genesis, we specialise in helping UK expats with their estate planning and can help you review your pensions to ensure your assets are not caught in the UK IHT net.
In some cases, if you are an expat living in a favourable tax treaty country, it may even be possible to draw down pension funds free from both UK income tax and inheritance tax, provided you act before the rules change in 2027. We can help you determine if this may be an option for you.
Lifetime Gifts and Trusts
Strategies such as gifting and trusts have long been used to off-set IHT exposure, and it may be worth exploring these options with a specialised adviser.
Under the new rules, any gifts of non-UK assets made when you were not a LTR will remain exempt from UK IHT even if you become a resident later down the line. (This is provided that you do not retain any benefit or control of the gift).
This provides an opportunity for non-LTR expats who intend to return to the UK to settle any non-UK assets into a trust before regaining LTR status. The trust may be classed as excluded property and remain outside the scope of UK IHT.
The Use of Life Insurance in Estate Planning
If you are a UK expat still holding UK property or business assets, you may find it difficult to move or restructure these. Life insurance may be a solution, and depending on where you are resident, you may have access to life insurance products designed specifically for expats.
You can use a whole-of-life policy held in trust to cover the IHT liability of your UK-situs assets. The proceeds of the policy can be paid directly to your chosen beneficiaries, and these proceeds will not be classed as part of your estate. This can provide your loved ones with the means to deal with any IHT implications and ensures they will not be forced to sell any assets due to IHT burdens.
This may be a particularly useful strategy for expats approaching retirement who intend to leave property or business assets to their heirs without triggering an IHT burden they may not be able to afford.
At The Wealth Genesis, we can help you explore what life insurance options may be available to you in your country of residence, and how you may be able to use these when it comes to estate planning.
What Happens If You Return to the UK?
When returning to the UK, it will take ten years for you to regain your LTR status. For expats who decide to move back, this ten-year window offers a valuable opportunity for tax-efficient estate planning.
Since it takes a full decade to reacquire LTR status, you have time to make gifts, set up trusts, and restructure your assets to limit future exposure to UK IHT. Proper planning during this period is key, and preparing in advance is essential to ensure you retain maximum flexibility while minimising the risk of your worldwide assets becoming subject to UK IHT once again.
At The Wealth Genesis, we can help ensure that your assets are protected and assist you in making the most of any applicable tax treaties or strategies such as gifting, trusts, and life insurance policies to reduce your IHT liability.
We can also help ensure that your pensions are structured correctly and assist you in planning around the upcoming changes to pension laws set to take effect in 2027, giving you peace of mind that your estate is protected and that your heirs won’t be left with unnecessary tax burdens. To learn more about how we can help, book a free discovery call with one of our advisers today.
