Changes to UK Inheritance Tax: What You Need to Know
The UK Inheritance Tax (IHT) system has recently undergone significant changes. These changes came into effect on 6th April 2025 and impact both UK domiciled individuals, and those who qualify as Long-Term Residents (LTR).
Understanding these changes is crucial for effective estate planning and tax management.
Domicile vs Long Term Residency (LTR)
Previously, UK domiciled individuals paid estate tax on their death on any value over the nil rate band on global assets, with a potential 100% spouse exemption. However, from 6th April 2025, the concept of domicile has been replaced by 'Long Term Residency' (LTR).
An individual is considered an LTR if they have been a UK resident for 10 or more of the previous 20 tax years.
LTRs are subject to UK IHT on worldwide assets, while everyone will be subject to IHT on UK situs assets. Spouse transfers will generally remain 100% exempt.
Abolition of Remittance Basis of Taxation
Another major change to the tax regime which came into effect on 6th April 2025 is the abolition of the remittance basis of taxation and the introduction of a new Foreign Income and Gains (FIG) regime.
From 6th April 2025, a Qualifying New Resident (QNR) is defined as a UK resident who has moved to [or returned to] the UK having been non-UK resident for each of the previous 10 UK tax years.
QNR status will be retained for the first four tax years of UK residence. (Note if you arrive in March, that is one tax year used up). Transitional arrangements are in place. For example, if you arrived in the UK two years ago, you could still qualify for a two-year allowance under the new rules.
Details of the Foreign Income and Gains (FIG) Regime
The FIG regime is only available if you’re a qualifying resident. You’re a qualifying resident if you are a UK tax resident under the statutory residence test (SRT) and still within your first four years as a UK tax resident following at least a 10-year period as a non-UK tax resident. If you make a claim under the FIG regime, you’ll not pay tax on your eligible foreign income and gains.
It's important to note that if you subsequently leave the UK during this four-year period, you won’t be able to claim for the periods that you are temporarily not UK tax resident, or for another four-year period if you return to the UK, but you can claim for any remaining tax years available under the FIG regime if you return.
Implications for Estate Planning
These changes necessitate a review of estate planning strategies. For individuals who are planning to expatriate or maintain non-UK residence for tax purposes, it is essential to establish and maintain 10 full tax years of non-UK residence to remove UK assets from IHT scope. To see how this could benefit you, use our online IHT calculator.
Additionally, seeking repatriation advice can help navigate the complexities of the new FIG regime and ensure compliance with the updated tax regulations.
To schedule an initial consultation with a dual-qualified financial planner, contact us today.
This communication is for information purposes only and does not constitute financial, legal, or tax advice. Please schedule a meeting to receive advice on international financial planning and wealth management.
Last updated 25 June 2025
Inheritance Tax (IHT) is a tax levied by the UK government on the estate (property, assets, and money) of someone who has passed away.
Chargeable at a standard rate of 40%, it is typically payable if the total value of the estate exceeds a threshold, known as the 'Nil Rate Band' (NRB). As of 2025, the NRB is set at £325,000 (per individual).
Whether your estate is liable for IHT is also determined by your UK residence status and your 'Long Term Resident' (LTR) status.
The standard rate for Inheritance Tax (IHT) is 40%.
It is charged on the value of your estate that exceeds the 'Nil Rate Band' threshold.
IHT liability is calculated at death and must typically be paid before the estate is distributed to beneficiaries.
The standard rate can be reduced to 36% if at least 10% of the value of the estate is left to charity.
The Nil Rate Band (NRB) is the threshold up to which an estate incurs no Inheritance Tax.
As of 2025, the NRB is set at £325,000 per individual. Any value below this amount is exempt from IHT.
If your estate's value exceeds the NRB, the value of your estate in excess of the NRB threshold is liable for IHT.
Key aspects of the NRB:
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Transferable between spouses: Any unused NRB from the first spouse to die can be transferred to the surviving spouse, effectively doubling the NRB for a married couple to £650,000.
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Residence Nil Rate Band (RNRB): An additional allowance may apply (currently up to £175,000) if the family home is passed to direct descendants. However, this is subject to tapering for estates over £2 million.
UK Long Term Resident (LTR) status applies to individuals who have been resident in the UK for more than 10 of the previous 20 tax years.
If you are unsure about your UK residence status for each of these previous tax years, you can refer to the HMRC Statutory Residence Test or download our Guide to the Statutory Residence Test.
Your LTR status affects how your worldwide assets are taxed upon your death:
- If you have LTR status your UK and non-UK assets are included in the scope of your estate for IHT purposes.
- If you establish and maintain Non-LTR status only your UK situs assets are included in the scope of your estate for IHT purposes, and your non-UK situs assets become exempt from IHT.
It is therefore extremely important to understand your UK resident status and LTR status.
More information about LTR status is available on the HMRC Website.
Establishing and maintaining Non-LTR status can significantly benefit your Inheritance Tax position.
Non-LTR individuals are typically only subject to IHT on UK situs assets, meaning overseas assets are typically exempt from IHT.
Establishing and maintaining Non-LTR status provides an opportunity therefore to substantially reduce potential IHT liability on global wealth for internationally mobile individuals.
To establish and maintain Non-LTR status, you must limit your residency in the UK to fewer than 10 out of the last 20 tax years.
Regular monitoring of your residency status, careful management of your time spent in the UK, and seeking planning advice are important steps.
Strategic planning with an international financial planner and tax advisor, and regular monitoring of your residency status [with careful management of your time spent in and ties to the UK] will help you to secure and maintain this beneficial status.
Book an Initial Estate Planning Consultation
Careful consideration of your inheritance tax exposure, and how this could impact the value of the assets that you pass on to your loved ones, is extremely important if you are to avoid significantly diminishing your family's inheritance. To discuss with an international financial planner how we can help you create a robust plan to ensure that your wealth is passed on to your beneficiaries in the most tax efficient way possible, contact us today.
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