Domicile and Inheritance Tax UK 2026: The Long-Term UK Resident Test (Finance Act 2025), Worldwide vs UK-Only IHT, Excluded Property, and the 10-Year Tail
Finance Act 2025 replaced the domicile test for IHT with the Long-Term UK Resident (LTUK) test from 6 April 2025: 10 of the last 20 UK tax years = worldwide IHT. The excluded property trust window closes when you hit 10 years.
The 10-Year Window for Excluded Property Trust Planning Closes Before You Think
An individual approaching 10yr of UK residence must act BEFORE hitting LTUK status. Overseas assets settled into an offshore trust before LTUK: permanently excluded property (protected from UK IHT even after LTUK). Overseas assets settled AFTER LTUK: no excluded property protection — within worldwide IHT. Once LTUK, the window is shut. If you are on year 7, 8, or 9 of UK residence: take specialist international IHT advice now.
| Scenario | LTUK Position | Non-LTUK Position | Planning Guidance |
|---|---|---|---|
| LTUK status — when does worldwide IHT apply? | An individual is LTUK if they have been UK RESIDENT (under the Statutory Residence Test — SRT, Sch 45 Finance Act 2013) for AT LEAST 10 of the 20 TAX YEARS immediately preceding the relevant year (the year of the transfer or death). The test counts years of UK residence — partial years (residency for part of a tax year) count as full years for LTUK purposes. Tax years run 6 April to 5 April. Example: an individual who moved to the UK in 2015-16 and has been UK resident every year since: by 2025-26 they have been UK resident for 10 of the 20 preceding years — they are LTUK from 6 April 2025. IHT consequence: all worldwide assets (UK and non-UK) are within scope of UK IHT. The non-UK assets are NO LONGER excluded property (s6 IHTA). | Before reaching LTUK status (fewer than 10 of the last 20 tax years UK resident): IHT applies ONLY to UK-situs assets. Non-UK assets are excluded property (s6 IHTA 1984) — not subject to UK IHT. Example: an individual who moved to the UK in 2021-22: by 2025-26 they have been UK resident for 4 of the 20 preceding years — they are NOT LTUK; their overseas assets are excluded property. If they die in 2025-26: IHT applies to UK assets only (their overseas home, overseas investments, foreign bank accounts: all excluded property). | PLANNING FOR UK ARRIVALS: the closer an individual is to the 10yr LTUK threshold, the more important it is to consider pre-LTUK planning: (1) EXCLUDED PROPERTY TRUST: settle overseas assets into an overseas discretionary trust BEFORE becoming LTUK. Overseas assets settled into trust before LTUK status: remain excluded property in the trust even after the settlor becomes LTUK (provided the assets have continuously been excluded property). This is the primary IHT planning tool for international arrivals who want to protect overseas wealth from UK IHT. (2) LIFETIME GIFTS of overseas assets (PETs): make PETs of overseas assets before becoming LTUK — the gifts are of excluded property at the time; they are outside UK IHT entirely (excluded property at the time of the gift is not subject to IHT even after LTUK status is reached). Seek specialist international tax and trust law advice — the FA 2025 rules are complex and recent. |
| The 'tail' after leaving the UK — when does LTUK end? | Even after ceasing UK residence, an individual who was LTUK remains subject to IHT on worldwide assets for a 'tail period': (1) TAIL FOR 10-19yr UK RESIDENT: if the individual was UK resident for 10, 11, 12... up to 19 of the 20 preceding years before ceasing residence: the tail lasts 10 YEARS after the last UK tax year in which they were UK resident. During the tail: LTUK status continues; worldwide assets remain within UK IHT scope. (2) PERMANENT LTUK (20yr resident): if the individual was UK resident for 20 consecutive tax years: LTUK status is PERMANENT — they remain LTUK (worldwide IHT) indefinitely even after leaving the UK. TRANSITIONAL RULES: the transition from the old 15-of-20 deemed domicile rules to the new LTUK test in April 2025 has specific transitional provisions — specialist advice required for those who were deemed UK-domiciled under the old rules but may not be LTUK under the new rules. | A non-LTUK individual who leaves the UK has NO tail — they remain non-LTUK from the date of departure (having never reached 10yr UK residence). UK-situs assets remain within UK IHT scope (excluded property only applies to non-UK assets). Their non-UK assets remain excluded property throughout. | For individuals leaving the UK after becoming LTUK: plan around the tail period. If the tail is 10yr: IHT on worldwide assets continues for 10yr after departure. During the tail: the individual may want to: (1) make lifetime gifts of non-UK assets (PETs) — if they survive 7yr: outside the estate; (2) settle non-UK assets into an excluded property trust (timing: can this be done once LTUK status is established? — the excluded property trust planning described above works BEFORE LTUK; once LTUK, the trust settlement is not of excluded property — specialist advice). The 20yr permanent LTUK tail is the harshest outcome: an individual who spent 20yr in the UK and then emigrated permanently has worldwide IHT exposure for life. The 20yr tail was introduced to prevent 'pop and run' strategies (spend many years in the UK; leave; escape IHT on overseas wealth). If the individual dies during the tail: worldwide assets are in the estate. |
| Excluded property — what is protected from UK IHT for non-LTUK individuals? | For a NON-LTUK individual (or a person who is not UK-domiciled under either old or new rules): overseas assets are 'excluded property' (s6(1) IHTA 1984 — property situated outside the United Kingdom where the person beneficially entitled to it is not LTUK / is not UK-domiciled). Excluded property is NOT a transfer of value when gifted (s3(1) IHTA — a disposition that consists of the transfer of excluded property is not a transfer of value). On death: excluded property is not included in the estate for IHT. UK-SITUS assets of a non-LTUK individual: WITHIN scope of UK IHT. What is UK-situs: UK land and buildings; shares in a UK company (situs follows the company's jurisdiction of incorporation — a UK-incorporated company's shares are UK-situs even if held by a foreign nominee or in a foreign custody account); UK government gilts; UK bank accounts; debts owed by UK residents (subject to exceptions); intellectual property registered in the UK. | UK-situs assets of a non-LTUK individual: fully within UK IHT scope (not excluded property — excluded property applies only to OVERSEAS assets). A non-LTUK individual who owns: UK residential property: UK-situs; subject to UK IHT. Shares in a UK company: UK-situs; subject to UK IHT. UK bank accounts: UK-situs (a debt owed by a UK bank to its customer has UK situs); subject to UK IHT. UK commercial property held via an offshore SPV company: IMPORTANT — UK land held via a non-UK company was brought within UK IHT scope by the enveloped dwelling and ATED rules; specialist advice needed on the situs of interests in offshore property holding companies. | EXCLUDED PROPERTY TRUSTS for non-LTUK arrivals to the UK: an individual who settles their non-UK assets into an offshore discretionary trust BEFORE becoming LTUK: the trust assets are excluded property at the time of settlement; they REMAIN excluded property (even after the settlor becomes LTUK) as long as the trust has continuously held excluded property since settlement. Key requirements: (a) the trust must be an OFFSHORE trust (settled outside the UK); (b) the assets must be non-UK assets (excluded property) at the time of settlement; (c) the trust must NOT have received UK-situs assets mixed in with the excluded property (mixing may cause the excluded property protection to be lost for the mixed assets). This is the central IHT planning tool for international arrivals planning for UK long-term residence. The window for this planning closes when the individual reaches LTUK status. After LTUK: settlements into offshore trusts are of worldwide assets — the excluded property protection does not apply to assets settled while LTUK. |
| The old domicile rules vs the new LTUK test — transitional position (6 April 2025) | Pre-6 April 2025 DOMICILE RULES: 'Deemed domicile' applied under s267 IHTA 1984 (as it was before FA 2025): (a) LONG-TERM RESIDENCE RULE: a person was deemed UK-domiciled for IHT if they had been UK resident for 15 of the 20 PRECEDING UK TAX YEARS (the '15-of-20' rule — s267(1)(a)); (b) THREE-YEAR RULE: a person who had a UK domicile of origin/choice and left the UK retained deemed UK domicile for 3yr after acquiring a non-UK domicile of choice (s267(1)(b)). Post-FA 2025 LTUK RULES: for deaths and transfers on or after 6 April 2025: the LTUK test (10 of last 20yr UK resident) replaces the 15-of-20 rule. The 3-year domicile retention rule is replaced by the 10yr tail (for 10-19yr residents) or permanent tail (for 20yr residents). The concept of 'domicile of origin', 'domicile of choice', 'domicile of dependency' remains relevant in other legal contexts (e.g., private international law) — but for IHT from 6 April 2025: it is the LTUK test that determines worldwide vs UK-only IHT exposure. | TRANSITIONAL PROVISIONS: individuals who were deemed UK-domiciled under the old s267(1)(a) '15-of-20' rule but are NOT LTUK under the new '10-of-20' rule: broadly, these individuals are protected from the harsher worldwide IHT exposure UNLESS they have been UK resident for 10 of the last 20 years. Some individuals who became 'formerly deemed domiciled' under the old rules (who had 15yr+ residence but left and lost deemed domicile) may now be within LTUK scope under the new 10yr threshold if they re-entered UK residence. SPECIALIST ADVICE: anyone affected by the FA 2025 transition who was non-UK-domiciled under the old rules should seek specialist advice to understand their LTUK status and IHT position from 6 April 2025. | For existing non-dom IHT arrangements (excluded property trusts set up under old rules): the excluded property status of trusts settled before the individual became deemed-domiciled (old rules) OR before becoming LTUK (new rules) is PRESERVED — provided the trust has continuously held excluded property. The FA 2025 changes do NOT retrospectively remove excluded property status from trusts settled before LTUK was reached. Ongoing compliance: check annually whether UK residence years are accumulating towards the 10yr LTUK threshold; take specialist advice in advance of reaching 10yr UK residence to implement any excluded property trust or pre-LTUK planning. The window is often shorter than expected: partial years count; years of split residence (under SRT) can count. |
| UK-situs rules — what counts as a UK asset for IHT? | UK SITUS ASSETS — always within UK IHT scope (even for non-LTUK individuals): (1) LAND AND BUILDINGS in the UK: always UK-situs. This includes all residential and commercial property physically located in the UK — including Scottish land and Northern Ireland property. (2) SHARES IN UK-INCORPORATED COMPANIES: UK-situs (the company's incorporation determines the situs of its shares — s150-151 IHTA). Shares in a UK-listed company held through a foreign broker: still UK-situs. (3) UK GOVERNMENT SECURITIES (gilts): UK-situs. Exception: certain government securities issued as 'exempt' for non-domiciliaries — being phased out. (4) UK BANK ACCOUNTS: the situs of a bank account is where the bank branch is located. UK bank accounts (even if denominated in foreign currency) are UK-situs. (5) DEBTS OWED BY UK RESIDENTS: generally UK-situs (s150 IHTA — the situs of a debt is where it is properly recoverable). (6) UK INTELLECTUAL PROPERTY (patents, trademarks registered in UK): UK-situs. | NON-UK SITUS ASSETS — excluded property for non-LTUK individuals: (1) Overseas land and property; (2) shares in non-UK companies (even if the company holds UK assets — the situs is the country of incorporation; BUT anti-avoidance rules from FA 2017 onwards brought some offshore property-holding structures for UK land within IHT); (3) foreign currency bank accounts held in foreign banks; (4) debts owed by non-UK residents; (5) overseas government bonds. OFFSHORE HOLDING STRUCTURES FOR UK PROPERTY: since April 2017, interests in non-UK closely-held companies that derive at least 75% of their value from UK residential property were brought within IHT (enveloped dwellings — Finance Act 2017). The situs of the SHARES (in the offshore company) may be non-UK — but the UK residential property interest has been brought within UK IHT via specific anti-avoidance legislation. Specialist advice is essential for offshore structures holding UK property. | UK property in a non-UK company: since April 2017, these structures have been within UK IHT scope for the value of the UK residential property element. The shares in the offshore company may be non-UK situs — but the IHTA anti-avoidance provisions (s48(3A) IHTA) effectively treat the interest in the offshore company (that holds UK land) as UK-situs for IHT. This affects: offshore holding structures; SPVs; non-UK family investment companies holding UK residential property. The offshore holding structure was once used to convert UK land (UK-situs; IHT scope) into offshore company shares (non-UK situs; excluded property) — this route is now closed for UK land. Ongoing planning: for non-LTUK individuals holding UK property: IHT applies to the UK property value; no avoidance via offshore structure for UK residential property since April 2017. |
Domicile and IHT UK 2026. Finance Act 2025: introduced the Long-Term UK Resident (LTUK) concept replacing domicile for IHT from 6 April 2025. Pre-6 April 2025: s267 IHTA 1984 — deemed domicile rules: (a) s267(1)(a): a person who had been resident in the UK for at least 15 of the 20 preceding UK tax years was deemed UK-domiciled for IHT; (b) s267(1)(b): a person who had a UK domicile at any time within the 3yr preceding the transfer retained deemed UK domicile for that 3yr period. Post-FA 2025: s267 IHTA repealed and replaced by the LTUK rules. LTUK definition: a person is a Long-Term UK Resident in a tax year if they have been UK resident (under the SRT — Finance Act 2013 Sch 45) for at least 10 of the 20 tax years preceding that year. Statutory Residence Test (SRT): Sch 45 Finance Act 2013; determines UK residence for each tax year based on: automatic UK tests (days spent in UK; only home in UK; working in UK full-time); automatic overseas tests (fewer than 46 days in UK in certain circumstances; working full-time overseas); sufficient ties tests (if neither automatic test is met). Tail period (LTUK status after leaving the UK): if the individual had been UK resident for 10-19 of the 20yr preceding their last year of UK residence: LTUK continues for 10 further years (the 'longer absence rule'). If they had been UK resident for 20 of the 20yr: permanent LTUK (IHTA s267ZC — specialist advice needed on the precise rules). Transitional provisions: for deaths and transfers between 6 April 2025 and the date of any further amendment: individuals who were formerly deemed UK-domiciled (under the old 15-of-20 rule) but who are not LTUK (under the new 10-of-20 rule) are treated as non-UK-domiciled for IHT — their worldwide IHT exposure ceases (for IHT only; income tax and CGT transitional rules differ). This is a significant relief for some long-term UK residents who left the UK and lost deemed domicile under the old rules but would still have been within the old 15-of-20 years test. s6 IHTA 1984: excluded property — property situated outside the UK is excluded property if the person beneficially entitled to it is not domiciled in the UK (and, from 6 April 2025, not LTUK). A transfer of value is not a chargeable transfer to the extent that the value transferred is attributable to property which is excluded property (s3(1) IHTA). Excluded property trusts (EPT): the settled property provisions — s48(3) IHTA: where property comprised in a settlement is situated outside the UK, and the settlor was not domiciled in the UK (and from 6 April 2025: was not LTUK) at the time the settlement was made, the property is excluded property (unless the settlement was made before the settlor acquired UK domicile — specific provisions apply). FA 2017 offshore property structures: Finance Act 2017 amended s48 IHTA to bring UK residential property held via offshore companies within scope of UK IHT from 6 April 2017. s48(3A) IHTA (inserted by FA 2017): property is not excluded property if it is a 'UK residential property interest' — defined as an interest in a non-UK close company (or partnership) where the value of that interest derives (directly or indirectly) from a UK dwelling (residential property). This applies to: non-UK closely held companies whose value is derived (at least in part) from UK residential property; non-UK partnerships holding UK residential property; foreign trusts holding such structures. The IHT charge applies: to the person's interest in the non-UK entity (the shares in the offshore company or partnership interest) but only to the extent the value derives from the UK residential property. Domicile of origin/choice: concepts from private international law (Udny v Udny (1869) LR 1 Sc & Div 441 (HL Scotland)): domicile of origin — the domicile acquired at birth (typically the domicile of the father, or the mother if the child is illegitimate; or the country of birth if parents are unknown); domicile of choice — acquired by a person of full age and capacity who resides in a country with the intention of remaining there permanently or indefinitely; domicile of dependency — for those below majority or lacking capacity, follows the domicile of the person on whom they are legally dependent. For IHT from 6 April 2025: domicile of origin/choice no longer determines IHT liability — LTUK test determines worldwide vs UK-only scope. Domicile still relevant for: private international law (succession, marriage, other civil matters); non-IHT tax purposes where domicile has not been replaced (income tax: the remittance basis remains relevant for domicile although the remittance basis itself was largely reformed from 6 April 2025).
Frequently Asked Questions
What is the Long-Term UK Resident (LTUK) test for inheritance tax from April 2025?
Finance Act 2025 replaced the domicile-based deemed domicile rules for IHT with the Long-Term UK Resident (LTUK) test from 6 April 2025. An individual is LTUK if they have been UK resident (under the Statutory Residence Test) for at least 10 of the 20 UK tax years immediately preceding the relevant year (the year of death or transfer). If LTUK: IHT applies to WORLDWIDE assets — exactly like a UK-domiciled person. If NOT LTUK (fewer than 10 of the last 20yr UK resident): IHT applies only to UK-situs assets; overseas assets are excluded property (s6 IHTA 1984). Tail provision after leaving the UK: if the individual had 10-19yr UK residence: worldwide IHT continues for 10 years after the last year of UK residence. If 20yr residence: permanent LTUK (worldwide IHT forever even after leaving).
What is excluded property for inheritance tax and how is it protected?
Excluded property (s6 IHTA 1984): overseas assets (property situated outside the UK) belonging to a person who is NOT LTUK and NOT UK-domiciled are excluded property. Excluded property is NOT subject to UK IHT — it is outside the estate entirely. A non-LTUK individual who dies with a UK estate of £500k and overseas assets of £2m: IHT applies to the £500k UK estate only; the £2m overseas assets are excluded. UK-situs assets (UK land; UK company shares; UK bank accounts) are NEVER excluded property — they are always within UK IHT scope regardless of domicile/LTUK status. Excluded property trusts: if a non-LTUK individual settles their overseas assets into an offshore trust BEFORE becoming LTUK, those assets remain excluded property in the trust even after the settlor becomes LTUK — provided the assets were excluded property at the time of settlement and have remained continuously so.
How long does IHT exposure last after leaving the UK as a Long-Term UK Resident?
The 'tail' period depends on how many years of UK residence the individual had: (1) 10-19 years UK resident: LTUK status continues for 10 YEARS after the last UK tax year of residence. During this tail: worldwide assets remain within UK IHT scope. If the individual dies during the tail: IHT on worldwide estate. After the 10yr tail: LTUK status ends; only UK-situs assets are within IHT scope. (2) 20 or more years UK resident: LTUK status is PERMANENT — worldwide IHT for life, even after leaving the UK. This is a significant deterrent for long-term UK residents contemplating emigration to escape IHT — it only works if they have been in the UK for fewer than 20yr; and even then, they have a 10yr tail to wait out.
Can I use an excluded property trust to protect overseas assets from UK IHT?
Yes — but TIMING IS CRITICAL. An excluded property trust works as follows: a non-LTUK individual settles their overseas assets into an offshore discretionary trust BEFORE becoming LTUK (before reaching 10yr of UK residence). At the time of settlement: the overseas assets are excluded property (non-LTUK); settling them into the trust does not involve UK IHT (excluded property is not a transfer of value — s3(1) IHTA). After settlement: the trust assets RETAIN their excluded property status even after the settlor becomes LTUK — provided: (a) the assets were excluded property at the time of settlement; (b) they have continuously been excluded property in the trust (no UK-situs assets added); (c) the trust remains an offshore trust. Key window: the planning must be completed BEFORE the settlor becomes LTUK. After LTUK: a settlement of overseas assets is a settlement of WORLDWIDE assets (no longer excluded) — the excluded property protection does not apply. Seek specialist international trust and tax advice urgently if you are approaching 10yr UK residence.
How does IHT apply to UK property owned by a non-domiciled or non-LTUK person?
UK-situs assets — including UK land and buildings — are NEVER excluded property. A non-LTUK individual who owns UK property: that property is fully within UK IHT scope regardless of their LTUK/domicile status. On death: the UK property is in the estate for IHT at 40% above the NRB. The fact that the individual's overseas assets are excluded property does not protect the UK property. Offshore structures holding UK property: since Finance Act 2017, interests in non-UK companies that hold UK residential property are brought within UK IHT (s48(3A) IHTA). Holding UK property via an offshore company (BVI, Jersey, Isle of Man etc.) no longer provides IHT protection for the UK property element — the interest in the offshore company is treated as UK-situs for the proportion attributable to UK residential property. Seek specialist advice on any offshore structure holding UK land.
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