IHT and Domicile UK: How UK Domicile Determines Whether Your Worldwide Estate Pays Inheritance Tax
UK-domiciled: pay IHT on your worldwide estate. Non-UK-domiciled: pay IHT only on UK-situs assets. Domicile is not the same as tax residence or nationality. From April 2025, 10 consecutive years of UK residence triggers worldwide IHT under the new long-term resident test.
How Domicile Affects UK Inheritance Tax
What is domicile and why does it matter for IHT?
Domicile is a concept of private international law that determines which country's legal system governs a person's personal affairs on death. For UK IHT: a UK-domiciled person pays IHT on their entire worldwide estate — property, investments, and bank accounts anywhere in the world. A non-UK-domiciled person pays IHT only on UK-situs assets (assets physically or legally located in the UK). Domicile is entirely different from tax residence (where you live for income tax) and from nationality. A British citizen who emigrated to Australia 30 years ago with a settled intention to remain may have abandoned their UK domicile. A French national who moved to London intending to stay permanently may already have acquired a UK domicile of choice. The IHT stakes are significant: a non-dom with a £2 million estate and only £500,000 of UK-situs assets saves £600,000 of IHT compared to a UK-domiciled equivalent.
Domicile of origin: where you start
Every person is born with a domicile of origin — the country in which their father was domiciled at the time of their birth (for children of married parents) or in which their mother was domiciled (for children of unmarried parents). The domicile of origin is not necessarily the country of birth, nationality, or upbringing — it follows the parent's domicile at birth. The domicile of origin persists throughout life unless replaced by a domicile of choice. If a domicile of choice is abandoned without acquiring a new one, the domicile of origin revives automatically. Example: a child born in France to a father who was domiciled in England at the time of birth has an English domicile of origin (England and Wales is treated as a separate domicile from Scotland).
Domicile of choice: how to change your domicile
A person over 16 can acquire a domicile of choice in a new country by: (1) being physically present in that country; and (2) having a settled intention to live there permanently or indefinitely — making it their home with no present intention to leave. Both elements must exist simultaneously. The standard is high: courts look at all circumstances — where the person lives, where their family and social ties are, where they own property, what they say to advisers, doctors, and in their will about their long-term plans. Temporary residence (for work, education, or on a visa) does not create a domicile of choice. A non-UK national who moves to the UK for work but intends to retire to their home country does not acquire a UK domicile of choice — the settled intention to remain permanently is absent.
UK-situs rules: what assets are subject to IHT for non-doms
For non-UK-domiciled individuals (who are not long-term UK residents under the new rules), only UK-situs assets are subject to IHT. The situs of an asset: (1) UK land and buildings: always UK situs regardless of the owner's nationality — a French citizen owning a London flat pays IHT on it. (2) UK bank accounts: situs is the branch where the account is held — a UK branch account is UK situs. (3) Shares in UK-incorporated companies: UK situs. Shares in foreign-incorporated companies are foreign situs. (4) Debts: a debt is situs where the debtor resides. (5) Goodwill: situs is where the business is carried on. Non-doms can hold overseas bank accounts, shares in foreign companies, and foreign property entirely outside the scope of UK IHT — until they become long-term UK residents.
From April 2025: long-term UK resident replaces deemed domicile
Until 5 April 2025, the deemed domicile rules applied: a non-dom who had been UK resident in 15 of the preceding 20 tax years became 'deemed domicile' for IHT, subjecting their worldwide estate to UK IHT. From 6 April 2025, Finance Act 2025 replaced deemed domicile with the 'long-term UK resident' (LTUR) test. Under LTUR: a non-dom who has been UK tax resident for 10 or more consecutive tax years is a long-term UK resident — their worldwide assets are then subject to UK IHT as if they were UK domiciled. Once LTUR status is reached, the individual must spend at least 20 consecutive years as a non-UK resident before their worldwide assets are outside UK IHT scope again. The LTUR rules significantly restrict the ability to live in the UK for extended periods while keeping overseas assets free of UK IHT.
Changing domicile: practical steps and implications
For a UK-domiciled individual wishing to relinquish UK domicile: (1) Leave the UK and establish a new permanent home in another country. (2) Form and maintain a settled intention to live in the new country permanently — do not retain a UK home or express an intention to return. (3) Document the intention: update wills, instruct foreign advisers, and build a factual record of permanent settlement. A domicile change is fact-sensitive and scrutinised by HMRC on death. Under the LTUR rules: leaving the UK after becoming LTUR requires 20 years of non-UK residence before worldwide assets exit UK IHT scope. For non-doms who have not yet reached the 10-year LTUR threshold: the key decision is whether to continue UK residence (risking LTUR status) or leave before the 10-year mark.
Frequently Asked Questions
What is the difference between domicile and residence for IHT?
Residence (where you live for income tax) and domicile (your permanent home country for legal purposes) are entirely different concepts. You can be UK resident but non-UK domiciled (a foreign national working in the UK). You can be non-UK resident but UK domiciled (a British national living abroad who intends to return). For IHT, domicile determines whether worldwide assets are subject to UK IHT. From April 2025, long-term UK residence (10 consecutive years) now also triggers worldwide IHT — but this is a separate test from domicile.
Does a non-UK-domiciled person pay IHT on their UK property?
Yes. UK land and buildings are always UK-situs assets — subject to IHT regardless of the owner's domicile. A non-UK-domiciled French citizen owning a London flat pays UK IHT on the flat at 40% above the £325,000 nil rate band on death. Their overseas assets are not subject to UK IHT unless they are a long-term UK resident (10+ consecutive years from April 2025 onwards).
How do you change your domicile to save IHT?
A domicile of origin can only be replaced by a domicile of choice. To acquire a domicile of choice in a new country: physically move there AND have a settled, permanent intention to remain indefinitely. Both elements are required. Temporary presence does not qualify. Courts and HMRC examine all circumstances to determine whether a genuine domicile of choice was established. Under the new LTUR rules, a non-dom who leaves the UK after becoming an LTUR must spend 20 years as a non-UK resident before their worldwide assets fall outside UK IHT.
What is the long-term UK resident (LTUR) test from April 2025?
From 6 April 2025, a non-UK-domiciled individual who has been UK resident for 10 or more consecutive tax years is a long-term UK resident (LTUR). As an LTUR, their worldwide assets are subject to UK IHT as if they were UK domiciled. To escape LTUR status, the individual must spend at least 20 consecutive years as a non-UK resident. The LTUR test replaced the old deemed domicile rules (15/20 tax years).
Is a British citizen living in Spain still subject to UK IHT on their worldwide assets?
It depends on their domicile. A British citizen who moved to Spain with a settled intention to remain permanently may have acquired a Spanish domicile of choice — their worldwide assets would then not be subject to UK IHT (only UK-situs assets would). If they left the UK without forming a settled intention to stay in Spain, or if they intend to return, they may retain their UK domicile of origin and worldwide IHT applies. Nationality alone does not fix domicile.
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