IHT Excluded Property UK (2026): Foreign Assets & Non-Domicile Rules

Excluded property is property that is completely outside the scope of UK inheritance tax — it does not form part of the IHT estate, does not attract an IHT charge on death or on lifetime transfer, and does not use up any nil-rate band. The main categories of excluded property are defined in sections 6 and 48 of the Inheritance Tax Act 1984: (1) property situated outside the UK that is owned by a person who is not domiciled (and not deemed domiciled) in the UK at the relevant time; (2) property comprised in an excluded property settlement — a trust where the settlor was non-domiciled when the property was settled, and the property is situated outside the UK; (3) reversionary interests (the right to property that will vest in possession in the future) owned by a person other than the settlor or the settlor's spouse; and (4) government securities ('War Loan' and certain other securities specified in HMRC's published list) held by persons who are not ordinarily resident in the UK. The effect of excluded property is stark: a billionaire who is non-domiciled in the UK can hold a global portfolio of offshore assets entirely free of UK IHT, even if they live in the UK.

Foreign-sited assets (property situated outside the UK) are excluded property for IHT if the person who owns them is neither domiciled nor deemed domiciled in the UK at the time of the transfer (on death or as a lifetime chargeable transfer). The situs of property determines whether it is 'foreign-sited': land and buildings — situated where physically located; shares in companies — generally situated where incorporated (but quoted shares are situated where the share register is maintained); bank accounts — situated where the bank branch is located; debts — situated where the debtor is resident; goodwill — situated where the business is carried on; ships and aircraft — situated where registered. UK-sited assets owned by a non-domiciliary are never excluded property — they are fully within the IHT net. So a non-dom who owns a London flat, a Swiss bank account, and shares in a Cayman company: the London flat is within UK IHT; the Swiss bank account and Cayman shares are excluded property if the person is non-domiciled. After 6 April 2025, the domicile test for IHT was replaced by a 'long-term UK residence' test (broadly, having been UK resident for at least 10 of the last 20 tax years).

An excluded property settlement is a trust (settlement) where the property comprised in the trust is: (1) situated outside the UK; and (2) the settlor was neither domiciled nor deemed domiciled in the UK when they settled the property into the trust. If both conditions are met at the time of settlement, the property remains excluded property indefinitely — even if the settlor subsequently becomes UK-domiciled or deemed domiciled. This was a significant planning point: a non-domiciliary could settle foreign assets into trust before acquiring a deemed UK domicile (which previously arose after 15 years of UK residence); once settled, those assets would remain outside UK IHT regardless of later changes in domicile. The Finance (No. 2) Act 2023 announced changes to this regime taking effect from 6 April 2025, replacing domicile with the long-term UK residence test. Under the 2025 reforms, existing excluded property settlements retain their status for assets settled before 6 April 2025, but assets settled on or after that date must be assessed against the new long-term residence rules. The periodic charge (IHTA s.64) and exit charge (s.65) do not apply to excluded property comprised in a settlement.

A reversionary interest is a future equitable interest in settled property — specifically, a right to property that is not yet in possession but will vest in the future (for example, the right to the trust fund when a prior life interest ends on the life tenant's death). Section 48(1) of the Inheritance Tax Act 1984 provides that a reversionary interest is excluded property and is not subject to IHT as long as it has not been purchased. The rationale is that a reversionary interest represents a future right to property that will already be charged to IHT when the prior interest ends — taxing the reversionary interest as well would be double taxation. Exceptions: a reversionary interest is not excluded property if it was acquired for money or money's worth (i.e. purchased rather than inherited or gifted), or if the reversionary interest is one to which the settlor or the settlor's spouse or civil partner is or has been entitled. This means purchased reversionary interests in settled property are fully within the IHT estate — a potential trap for those who buy their way into trust arrangements as a tax-planning device.

The Finance Act 2025 replaced the common law domicile test for IHT with a 'long-term UK resident' test, effective from 6 April 2025. Under the new rules: a person is within the full scope of UK IHT (worldwide estate) if they have been UK resident for at least 10 of the last 20 tax years immediately before the relevant time. Foreign-sited assets are excluded property for IHT only if the person has not been a long-term UK resident. The transitional rules: persons who had a UK deemed domicile immediately before 6 April 2025 (under the old 15-out-of-20-years rule) were automatically treated as long-term UK residents from that date. Persons who arrived in the UK after 6 April 2025 will acquire long-term resident status after 10 years of UK residence. When a person ceases UK residence, they lose long-term resident status after 10 years of non-residence (subject to a sliding scale for those with very long UK residence). The key practical change: for most long-term UK residents, the outcome is the same as before — worldwide assets within IHT. The difference is in the detail: shorter-term UK residents (under 10 years) may have a smaller IHT exposure than under the old deemed domicile regime, and very long-term residents who leave the UK face a longer 'tail' before excluded property status is restored.

Yes — certain UK government securities ('gilts' and related instruments specified in HMRC's list, which includes securities issued under the National Loans Act 1968 and similar legislation) are excluded property if held by a person who is not ordinarily resident in the UK. This is a distinct category from the non-domicile foreign asset rules: it applies to UK-sited assets (government securities) but for a limited class of holders (non-ordinary residents, regardless of domicile). The practical importance of this exception has diminished with the introduction of the 10-year long-term resident test and the modernisation of the IHT non-dom rules, but it remains relevant for non-resident investors who hold UK government debt. Note: 'ordinary residence' is no longer a formal concept in UK income tax law (it was abolished for income tax in 2013), but it remains in the IHT legislation for this specific purpose. HMRC interprets 'ordinarily resident' for these purposes as meaning the person's habitual and settled pattern of life is in the UK.

No — excluded property is only excluded from IHT if the owner is non-domiciled (or non-long-term-resident after 6 April 2025) at the relevant time. A UK-domiciled person who holds foreign assets (a holiday home in Spain, a Swiss bank account, a Cayman Islands investment fund) is fully subject to UK IHT on those foreign assets at their worldwide estate value. The excluded property rules are specifically designed for non-domiciliaries. The planning point is timing: a person who expects to become UK-domiciled (or to acquire long-term resident status after 10 years) can, while still non-domiciled, settle foreign assets into an excluded property settlement — provided the settlement is made before the threshold is crossed. Once settled before that threshold, the property remains excluded property even after the settlor becomes a long-term UK resident. This is the main residual planning opportunity in the 2025 regime. For UK-domiciliary IHT planning, the tools are different: nil-rate band, BPR, APR, potentially exempt transfers, normal expenditure out of income, and life insurance written in trust.