Excluded Property Trust IHT UK: Non-UK Domicile, Foreign Assets, and the April 2025 Reform (2026)
An Excluded Property Trust shelters foreign assets from UK IHT for non-UK nationals — but the April 2025 reform has replaced 'domicile' with a 10-year residency test and changed the rules for new EPTs. Act before you become long-term UK resident.
Specialist Advice Required
Excluded property trusts and the April 2025 IHT reform are extremely complex, high-stakes areas. This page provides a general overview only. Anyone with a potential EPT planning need must take specialist advice from an international private client solicitor and tax adviser before taking any action.
| Concept | Definition | Examples | 2025 Changes |
|---|---|---|---|
| Excluded property (s48 and s6 IHTA 1984) — the foundation | Foreign-situs assets (property located outside the UK) owned beneficially by an individual who is NOT UK-domiciled (under either common law domicile or, until April 2025, the 'deemed domicile' rules) are 'excluded property'. Excluded property is outside the scope of UK IHT on death, on lifetime transfers, and in the calculation of periodic and exit charges on trusts. | Foreign shares; foreign real estate; foreign bank accounts; foreign bonds; assets in a non-UK trust settled by a non-UK domiciliary; a non-UK business interest. All UK-situs assets (UK property, UK shares, UK bank accounts) are always in the UK IHT estate regardless of domicile. | April 2025 reform: the concept of 'UK domicile' for IHT replaced by 'long-term UK resident' (LTUK) test. From April 2025: non-LTUK individual = foreign assets excluded. LTUK individual = foreign assets IN UK IHT estate. The threshold: 10 or more years of UK tax residence within the last 20 tax years. |
| Pre-April 2025 domicile rules — old framework | Under the old rules: (1) UK domicile of origin/choice (common law): all worldwide assets in UK IHT estate. (2) Non-UK domicile (common law): only UK-situs assets in UK IHT estate; foreign assets = excluded property. (3) Deemed domicile (old s267 IHTA): triggered after 15 out of 20 UK residence years. Once deemed domiciled: treated as UK domicile for IHT; worldwide assets in UK estate. The EPT planning window: a non-UK domiciliary had from arrival in the UK up to (roughly) 15 years before becoming deemed domiciled — during which their foreign assets were excluded property and they could settle those assets into a trust. | French national arrives in the UK in 2005. Becomes deemed domiciled after 15 years = approximately 2020. If they settled their French assets into an EPT before 2020 (while still non-UK domiciled), the trust's foreign assets remained excluded property under s48(3) IHTA even after 2020 — regardless of the settlor's deemed domicile. This was the 'excluded property freeze' — settled before becoming deemed domiciled → trust assets remain excluded. | April 2025: the old 15/20 deemed domicile rule is replaced. Anyone who was deemed domiciled under the old rules has transitional status. New arrivals from April 2025 use the LTUK test. |
| The LTUK test — from April 2025 (Finance Act 2025) | From 6 April 2025: the test for UK IHT on worldwide assets is whether the individual is a 'long-term UK resident' (LTUK). LTUK is acquired when the individual has been UK tax resident for at least 10 out of the last 20 UK tax years. Once LTUK: worldwide assets (including foreign assets) are in the UK IHT estate. Exit tail: having acquired LTUK status, the individual remains within UK worldwide IHT for a 'tail' period after leaving the UK. The length of the exit tail depends on how long they were LTUK before leaving — broadly matching years in (10yr entry threshold = 10yr exit tail, up to maximum). | Italian national arrives in the UK in 2020; becomes UK tax resident; after 10 tax years (approximately 2030) becomes LTUK. Before 2030: Italian assets = excluded property; not in UK IHT estate. After 2030: Italian assets IN UK IHT estate. An EPT settled BEFORE LTUK is acquired: the trust's foreign assets may remain excluded under transitional provisions. EPT settled AFTER LTUK: more complex — specialist advice required. | Key dates for LTUK planning: the 10-year window before acquiring LTUK is the planning window. Individuals who are year 7, 8, or 9 of UK residence should urgently take advice before the 10-year LTUK test is met. |
| Excluded Property Trust (EPT) — how it worked (pre-April 2025 logic) | An EPT is a trust set up by a non-UK domiciliary to hold foreign-situs assets. Because the settlor was non-UK domiciled when the trust was created, and the assets in the trust are foreign-situs, those trust assets are 'excluded property' under s48(3) IHTA 1984. Under the old rules, once the assets were settled into the trust as excluded property, they retained their excluded property status even after the settlor became deemed domiciled — the 'freeze'. The EPT therefore allowed a non-UK national to 'lock in' the excluded property status of their foreign wealth in a trust before they became UK domicile-equivalent. | Russian entrepreneur moves to London in 2005. In 2010 (5yr UK resident — not yet deemed domiciled under old 15yr rule), they settle £5m of Russian shares and foreign cash into an EPT. In 2020, they become deemed domiciled (15yr). The EPT's Russian shares remain excluded property under s48(3) IHTA — they are not added to the entrepreneur's IHT estate. On the entrepreneur's death in 2025, the EPT assets are not in the UK IHT estate. Without the EPT: after becoming deemed domiciled in 2020, the Russian shares would have been in the UK IHT estate. | April 2025 reform: the Finance Act 2025 has fundamentally changed EPT treatment. Transitional provisions apply to trusts created before 6 April 2025. New EPTs created after April 2025 by individuals who then become LTUK have a different treatment. |
| April 2025 EPT reform — what changes for existing and new EPTs | Finance Act 2025 introduced complex changes to EPT treatment from 6 April 2025. For PRE-APRIL 2025 EPTs (settled by non-UK domiciliaries before 6 April 2025): broadly preserved under transitional provisions — the excluded property status of the trust's foreign assets at 5 April 2025 is maintained, subject to conditions (key: assets must have been excluded property as at 5 April 2025; no new additions of UK assets; complex anti-avoidance). For NEW EPTs settled after 6 April 2025 by non-UK domiciliaries (non-LTUK): the trust's foreign assets are excluded property while the settlor is non-LTUK. Once the settlor becomes LTUK (10yr threshold met): the trust's foreign assets come INTO SCOPE for UK IHT relevant property charges (periodic and exit charges under ss64/65 IHTA). This is a fundamental change from the old 'freeze' concept. | German national arrives in UK in 2022. In 2024, while still non-LTUK (only 2yr UK residence), settles German assets into a new EPT. In 2032 (10yr UK residence), becomes LTUK. From 2032: the German assets in the EPT are subject to UK IHT periodic and exit charges. The pre-2025 'freeze' no longer applies to this post-2025 EPT. | Planning implication: non-UK nationals arriving in the UK should take specialist international private client advice as soon as possible after arrival — the window for EPT planning (before becoming LTUK) is now 10 tax years rather than 15. Act in years 1-8 rather than leaving it to years 13-14. |
| UK-situs assets — always in UK IHT estate regardless of domicile | Assets situated in the UK (UK property, UK shares, UK bonds, UK bank accounts, UK intellectual property rights, and other UK-located assets) are ALWAYS included in the deceased's UK IHT estate regardless of whether the deceased was UK-domiciled, non-UK domiciled, LTUK, non-LTUK, or of any other status. An EPT cannot shelter UK-situs assets — only foreign-situs assets benefit from excluded property treatment. | A French national (non-UK domicile; not LTUK) who owns a London flat: the London flat is a UK-situs asset = IN the UK IHT estate = IHT at 40% on the flat's value above any available NRB (non-domiciliaries have a reduced NRB — see s8(1) IHTA — historically only £325k; but a non-UK domiciled surviving spouse's estate: s18 spousal exemption applies to transfers to a non-UK domiciled spouse up to an election threshold). | Spouse election (s267ZA IHTA): a non-UK domiciled surviving spouse can elect to be treated as UK domiciled for IHT purposes, gaining the unlimited spousal exemption (s18 IHTA) on assets received from a UK-domiciled deceased spouse. The election is irrevocable and means their worldwide assets are then within UK IHT. This election is complex and should only be made after specialist advice. |
Excluded property trust IHT UK 2026. s48 IHTA 1984: excluded property = foreign-situs assets of non-UK-domiciled individuals (or non-LTUK individuals from April 2025). s6 IHTA 1984: excluded property rule — foreign assets of non-domiciliaries not subject to IHT. s48(3) IHTA: trust assets — excluded property if foreign-situs and settled by non-UK domiciliary. April 2025 reform (Finance Act 2025 — effective 6 April 2025): domicile replaced by long-term UK resident (LTUK) test for IHT. LTUK = 10 tax years of UK residence out of last 20 years. Pre-April 2025 EPTs: transitional provisions preserve excluded property status under Finance Act 2025. New EPTs after April 2025: foreign assets come into scope when settlor becomes LTUK; subject to relevant property regime periodic (s64 IHTA) and exit (s65 IHTA) charges. Old deemed domicile (s267 IHTA — 15/20yr): replaced by LTUK test. Exit tail: LTUK status continues for years after leaving UK. UK-situs assets: always in UK IHT estate regardless of domicile/LTUK. Spousal exemption (s18 IHTA) limited for non-UK domiciled spouse; election (s267ZA IHTA — irrevocable) to be treated as UK domiciled. s8(1) IHTA: reduced NRB available for non-domiciliary UK-situs estate (subject to April 2025 reform updates). Specialist international private client advice essential.
Excluded Property Trusts: Complete Guide
What is excluded property and why non-UK domicile matters for IHT
UK IHT (Inheritance Tax Act 1984) operates on a 'domicile and situs' basis. A UK-domiciled individual's WORLDWIDE assets are subject to IHT on death (s4 IHTA). A non-UK-domiciled individual's ONLY UK-SITUS assets are subject to IHT — their foreign-situs assets are 'excluded property' (s6 and s48 IHTA) and fall entirely outside the UK IHT charge. 'Situs' (the legal location of an asset): UK property = UK situs; UK shares = UK situs (s272 IHTA — usually where the company is registered); foreign property = foreign situs; foreign company shares = foreign situs. 'Domicile' for IHT until April 2025 was a mixture of common law domicile (domicile of origin, domicile of choice) and the statutory 'deemed domicile' rule (15/20yr residence). From April 2025, domicile has been REPLACED by the 'long-term UK resident' (LTUK) test — 10 years of UK tax residence out of the last 20 years. The concept of excluded property itself remains in the IHTA — what has changed is the threshold for being treated as equivalent to UK-domicile for IHT. An individual who is NOT LTUK (under the new rules) has the same position as a non-UK domiciliary under the old rules — their foreign assets are excluded property and outside UK IHT.
How Excluded Property Trusts worked under the old rules (pre-April 2025)
Under the rules that applied until 5 April 2025, an Excluded Property Trust (EPT) worked as follows: a non-UK domiciliary (e.g., someone with a non-UK domicile of origin who had moved to the UK but had not yet acquired UK domicile or become deemed domiciled) would settle their FOREIGN-situs assets into a trust. Because the settlor was non-UK domiciled at the time of settlement AND the assets were foreign-situs, the trust assets were 'excluded property' under s48(3) IHTA at the point of settlement. The critical feature of the old EPT structure: once settled as excluded property, the trust's foreign assets RETAINED their excluded property status even after the settlor subsequently became deemed domiciled (after 15/20 years UK residence) or acquired a UK domicile of choice. This 'freeze' was confirmed by the wording of s48(3) IHTA — excluded property status was determined at the point of settlement and did not change merely because the settlor's status changed. The result: a non-UK national with £10m of foreign assets could, before reaching 15 years of UK residence, settle those assets into an EPT. Even if they stayed in the UK for 30 years (becoming deemed domiciled), the £10m in the EPT remained outside their UK IHT estate for their lifetime. On death, the trust assets were not in the estate. This was (and in some transitional cases still is) one of the most significant IHT planning tools available to internationally mobile individuals.
The April 2025 reform — the LTUK test and what changes for EPTs
The Finance Act 2025 (effective 6 April 2025) replaced domicile with the LTUK test for UK IHT purposes. The key changes affecting EPTs: (1) The planning window is now 10 years (not 15): the LTUK threshold is 10 out of 20 years of UK tax residence. Non-UK nationals arriving in the UK must act in the first 9 years of UK residence to settle foreign assets into an EPT before acquiring LTUK. The old 15-year window has shrunk by 5 years. (2) New EPTs created after April 2025 by non-LTUK individuals lose the 'freeze': under the new rules, if a post-April 2025 EPT's settlor subsequently acquires LTUK status, the trust's foreign assets come into scope for UK IHT relevant property charges (periodic charges at 10-year anniversaries and exit charges on distributions). The pre-April 2025 'freeze' concept (that excluded property status was locked in at settlement) no longer applies to post-April 2025 trusts in the same way. (3) Pre-April 2025 EPTs — transitional provisions: trusts settled by non-UK domiciliaries BEFORE 6 April 2025 are subject to specific transitional provisions in Finance Act 2025. Broadly: assets that were excluded property as at 5 April 2025 continue to be treated as excluded under the old s48(3) IHTA rules — the 'freeze' is preserved for these pre-existing trusts, subject to conditions. However, the detailed conditions and anti-avoidance provisions are complex and must be reviewed with specialist advice. (4) Exit tail: once LTUK is acquired, an individual remains within UK IHT for a 'tail' period after leaving the UK (the length depends on how many years of LTUK they accumulated). This is fundamentally different from domicile (where leaving the UK could relatively quickly shed UK domicile of choice under common law). Under the LTUK rules, even a UK non-resident may remain subject to UK IHT on worldwide assets for years after departing.
Who should consider EPT planning in 2026
Excluded property trust planning is relevant for: (1) Non-UK nationals who have recently arrived in the UK (within the last 5-8 years) and have substantial foreign assets — they are approaching the 10-year LTUK threshold and need to act before that threshold is crossed. (2) Long-established UK residents who are non-UK domiciled under common law but have not yet acquired LTUK (if they arrived before April 2025 and are under the transitional provisions). (3) UK expats abroad who have significant UK-situs assets (note: UK assets are in the UK IHT estate regardless of domicile/LTUK — EPT only shelters foreign assets). (4) Internationally mobile families with significant foreign wealth held across multiple jurisdictions. Who EPT planning does NOT help: (a) UK-domiciled individuals (all assets worldwide are in the estate — no excluded property concept); (b) non-UK residents with only UK-situs assets (no foreign assets to shelter); (c) LTUK individuals (worldwide assets in scope — the excluded property shield has been lost). The April 2025 reform has made the window for EPT planning shorter and the ongoing tax treatment more complex. Anyone in the 'arriving in UK' category should seek specialist international private client advice within the first 2-3 years of UK residence to understand their planning options before the 10-year LTUK threshold approaches.
UK-situs assets — what EPTs cannot shelter
An important limitation: an EPT only shelters FOREIGN-situs assets. Assets situated in the UK are always in the UK IHT estate regardless of domicile, LTUK status, or any trust structure. UK-situs assets include: UK real property (freehold and leasehold land and buildings in England, Wales, Scotland, and Northern Ireland); UK registered company shares (shares in a company registered in the UK — typically by registration at Companies House; the situs is where the share register is maintained); UK bank accounts and deposits; UK government gilts and bonds; UK intellectual property rights registered in the UK. For an international individual who owns a London flat, UK-quoted shares, and a UK bank account — these are all UK-situs assets = IN the UK IHT estate regardless of their domicile/LTUK status. Only their overseas property, foreign shares, and non-UK bank accounts are excluded property (if non-LTUK). Practical implication: many international individuals who live in the UK own UK property (their home) and UK investments. These are subject to UK IHT at 40% above the NRB (£325k). An EPT can shelter the foreign assets but not the UK home. Separate UK IHT planning (PETs, annual exemptions, BPR, RNRB, life insurance, etc.) is needed for the UK-situs assets. Note on NRB for non-LTUK individuals: non-UK domiciliaries historically had the same NRB (£325k) as UK domiciliaries for their UK-situs assets. The April 2025 reform maintains the NRB concept for non-LTUK individuals in relation to their UK-situs estate.
Frequently Asked Questions
What is an excluded property trust for IHT?
An Excluded Property Trust (EPT) is a trust settled by a non-UK domiciled individual (or, from April 2025, a non-LTUK individual) to hold foreign-situs assets. Because the settlor is non-UK domicile-equivalent and the assets are foreign-situs, the trust assets are 'excluded property' under s48 IHTA 1984 — outside the scope of UK IHT. Under the old rules (pre-April 2025), once settled as excluded property, the trust's foreign assets RETAINED excluded property status even after the settlor became UK deemed-domiciled — the 'excluded property freeze'. Under the April 2025 reform (Finance Act 2025): pre-April 2025 EPTs retain their excluded property status under transitional provisions; new EPTs created after April 2025 by non-UK domiciliaries who subsequently become LTUK (10yr UK residence) face different rules — the trust's foreign assets may come into scope for UK IHT relevant property charges when the settlor becomes LTUK. EPTs are extremely technical — specialist international private client advice is essential.
What is the April 2025 IHT domicile reform?
From 6 April 2025, the Finance Act 2025 replaced the concept of 'domicile' for UK IHT purposes with the 'long-term UK resident' (LTUK) test. Under the old rules, a non-UK domiciliary only became subject to UK IHT on their worldwide assets after 15 years of UK residence ('deemed domicile' — old s267 IHTA). From April 2025: LTUK is acquired after 10 years of UK tax residence out of the last 20 years. Once LTUK: worldwide assets (including foreign assets) are within UK IHT. The 'planning window' for EPTs has shrunk from 15 years to 10 years. An exit tail applies after leaving the UK — unlike common law domicile (which could be shed relatively quickly by establishing a foreign domicile of choice), the LTUK status lingers for years after departure from the UK. Transitional provisions protect the position of those who were non-UK domiciled or non-deemed-domiciled as at 5 April 2025. Specialist advice is critical for anyone affected by this reform.
Are UK property and UK assets excluded from IHT for non-UK domiciliaries?
No. UK-situs assets (UK property, UK company shares, UK bank accounts, UK bonds) are ALWAYS in the UK IHT estate regardless of the owner's domicile, LTUK status, or any trust structure. Excluded property treatment only applies to FOREIGN-situs assets owned by non-LTUK individuals (or held in pre-April 2025 EPTs with excluded property status). Example: an Italian national (non-UK domicile; not yet LTUK) who owns a London flat, Italian shares, and a French bank account: the London flat = UK-situs = IN UK IHT estate; Italian shares + French bank account = foreign-situs = excluded property = OUTSIDE UK IHT estate. Only the foreign assets benefit from excluded property treatment. An EPT can shelter the Italian shares and French cash — but not the London flat.
Who should use an Excluded Property Trust in 2026?
EPT planning is potentially relevant for non-UK nationals who: (1) have arrived in the UK recently (within the last 5-8 years) and have substantial foreign wealth — they are approaching the 10-year LTUK threshold and must act before LTUK is acquired; (2) are in the transitional provisions from the April 2025 reform (non-UK domiciled as at 5 April 2025 with pre-existing foreign assets); (3) have foreign assets that they wish to shelter from UK IHT before becoming LTUK. EPT planning is NOT appropriate for: (a) UK-domiciled or LTUK individuals; (b) those with only UK-situs assets; (c) those making UK IHT planning for a standard UK estate. The April 2025 reform makes EPT planning both more urgent (shorter planning window) and more complex (new rules for post-April 2025 trusts). Specialist international private client solicitors and tax advisers (qualified in both UK and relevant foreign law) are essential — this is not an area for generic estate planning or DIY approaches.
Does the spouse exemption apply to a non-UK domiciled surviving spouse?
Only partially — the s18 IHTA spousal exemption for transfers from a UK-domiciled deceased to a non-UK-domiciled surviving spouse is LIMITED. The excess above the 'surviving spouse election threshold' (historically equivalent to the NRB — £325k; updated by statutory instrument) is NOT exempt. This is because the unlimited spousal exemption assumes both spouses are treated as UK domiciled for IHT. To access the unlimited spousal exemption, the non-UK-domiciled surviving spouse can make an irrevocable ELECTION to be treated as UK domiciled for IHT purposes (s267ZA IHTA). This election: (a) gives the surviving spouse the unlimited s18 spousal exemption on assets received from the UK-domiciled deceased; (b) BUT means the surviving spouse's own worldwide assets are then within UK IHT. The election is irrevocable and must be made with full specialist advice on the long-term consequences. Note: from April 2025, the 'election' concept has also been updated to reflect the LTUK framework — specialist advice is essential.
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