Inheritance Tax Implications for UK Long-Term Residents

The UK’s IHT framework has undergone major reform, replacing the long-standing domicile-based system with a new residence-based approach. This shift will significantly change how individuals with international backgrounds, or those who move to and from the UK are subjected to inheritance tax on their estates. Below, we break down the inheritance tax implications for UK long-term residents including, how the rules work before and after April 2025, what Long-Term Residence (LTR) means, and how worldwide assets may fall within the UK IHT net under the new regime.

Rules Before 6 April 2025

Prior to 6 April 2025, an individual’s exposure to Inheritance Tax was determined by their domicile status. Under this system, UK-domiciled individuals were taxed on their worldwide estates, while those with an overseas domicile were liable only on their UK assets, unless they became deemed domiciled after spending 15 out of 20 years resident in the UK.

Pre-6 April 2025 trusts may still benefit

Although the UK has now moved to a residence-based IHT system, trusts established before 6 April 2025 under the former domicile rules may continue to benefit from elements of the previous regime. These trusts can, in some cases, retain their favourable treatment, particularly where overseas assets were settled at a time when the individual was not yet within the UK IHT net.

IHT Exposure Now Based on Long-Term Residence

From 6 April 2025, IHT will be determined by how long someone has lived in the UK, not their domicile.

This means:

• >> Individuals who have been UK-resident for an extended period may become liable to UK IHT on worldwide assets
• >> Those who have been in the UK for a shorter period may retain protection for overseas assets.

This new approach is centred on a concept called Long-Term Residence (LTR).

What Is Long-Term Residence (LTR)?

Long-Term Residence is a new test that determines whether an individual is considered “within the scope” for worldwide IHT.

Under the new rules, an individual becomes exposed for worldwide IHT if they have been Resident in the UK for 10 out of the previous 20 tax years. Once this threshold is reached, worldwide assets fall within the IHT net.

How Is LTR Calculated?

The test uses the Statutory Residence Test (SRT) year-by-year to determine UK residence. The calculation works by looking back over the previous 20 tax years, counting how many of those years the individual was UK-resident under the SRT. If the total reaches 10 years, the person becomes LTR for IHT purposes. Once LTR applies, worldwide assets may be subject to UK inheritance tax.

The IHT Tail

Exposure Continues Even After Leaving the UK

Even after ceasing UK residence, an individual does not lose IHT exposure immediately. Under the reforms, LTR can potential “tail” for up to 10 years after leaving the UK.

This tail means an individual could leave the UK but still be taxed on worldwide assets for up to a decade afterwards.

This is significantly longer and more far-reaching than many other tax systems. Anyone considering relocating abroad must understand the long-term IHT implications.

UK Assets Remain Taxable Regardless of Residence or LTR

It’s important to remember that ALL UK-situated assets are always within the scope of UK IHT. This includes:

• >> UK real estate
• >> UK shares
• >> Certain UK-based investment products

This applies whether or not someone is deemed UK-resident, LTR, or is overseas with no UK ties. If it is physically or legally in the UK, it is almost always subject to IHT.

What These Changes Mean in Practice

The introduction of the new residency-based framework marks one of the most significant changes to the UK Inheritance Tax system in decades. Individuals with international ties, global assets, or a complex residence history may now find themselves within the scope of UK IHT far sooner than under the previous domicile-based regime.

With worldwide assets becoming taxable after 10 years of UK residence and exposure potentially creating up to a 10-year tail, the need for forward-thinking estate and tax planning becomes crucial.

Whether you hold overseas property, have established trusts, or anticipate future changes in residence, early action can make a substantial difference to your long-term tax position. Understanding how these rules interact with your circumstances is essential for protecting wealth and ensuring assets pass to the next generation efficiently.

If you would like tailored guidance on the inheritance tax implications for UK long-term residents and how the rules affect you, your estate, or your long-term planning strategy, our team of specialists is here to help. Get in touch with us today for personalised tax advice and support.

The information contained in this blog is provided for informational purposes only and should not be construed as tax advice on any matter. Circumstances will affect tax requirements and liabilities and advice should be tailored to your individual circumstances.