Non-Domicile and Inheritance Tax UK 2026: Finance Act 2025 Long-Term UK Resident Test, Excluded Property, EPT Planning, and Overseas Assets
The Finance Act 2025 replaced deemed domicile with a new Long-Term UK Resident (LTUK) test — 10 of the last 20 UK tax years. Once LTUK: all worldwide assets enter the IHT estate. The planning window is the years before you hit 10.
Finance Act 2025 — LTUK Test from 6 April 2025 (Replaces Deemed Domicile)
The old 17-of-20-year deemed domicile rule is abolished from 6 April 2025. The new LTUK test: 10 of the last 20 UK tax years triggers worldwide IHT exposure. The threshold has REDUCED from 17 to 10 years — meaning long-term UK residents reach worldwide IHT exposure sooner. Act before hitting 10 UK resident years.
| Category | IHT Scope | Planning |
|---|---|---|
| Non-domiciled individual — NOT Long-Term UK Resident (LTUK) | UK-situated assets ONLY in the IHT estate (s1 IHTA and s6 IHTA). Overseas assets (foreign property, overseas bank accounts, foreign shares, overseas business interests, overseas pension funds) are EXCLUDED PROPERTY under s6(1) IHTA — completely outside the IHT estate; no IHT charge regardless of value. UK assets: subject to IHT at 40% on the excess above the NRB (£325k). RNRB: available only if the UK residential property passes to direct descendants — non-doms can use the RNRB on UK residential property if it meets the conditions (s8D-8M IHTA). | Key planning: keep overseas assets outside the UK. Overseas assets not sited in the UK are automatically excluded property — no action needed. Avoid bringing overseas assets to the UK (remitting overseas cash to UK bank account makes it UK-situated — now in IHT estate). Review will: if a non-dom dies intestate or with a UK will that does not address overseas assets, the overseas assets may be distributed inefficiently. Overseas wills: many non-doms have a will in each jurisdiction where assets are held (UK will for UK assets; home country will for overseas assets). |
| Long-Term UK Resident (LTUK) individual — Finance Act 2025 (from 6 April 2025) | ALL worldwide assets in the IHT estate — same as a UK-domiciled individual. Overseas assets are NO LONGER excluded property once LTUK status is achieved (10 of last 20 UK tax years). IHT: 40% on the excess above NRB/RNRB on ALL assets (UK and overseas combined). LTUK test: a UK tax year of residence counts if the individual is resident in the UK under the UK Statutory Residence Test (SRT — Finance Act 2013) for that year. Non-UK years: years the individual was not UK resident (SRT non-resident) do not count towards the 10yr tally. | Critical planning window: the years before hitting 10yr LTUK. Strategies: (1) Establish an Excluded Property Trust (EPT) before LTUK — overseas assets settled in trust before LTUK trigger; limited benefit from April 2025 (FA 2025 imposed relevant property charges on EPT assets once settlor is LTUK). (2) Consider leaving the UK before 10yr — break UK residence to stop the LTUK clock before triggering it. (3) Review worldwide estate — once LTUK, the full worldwide estate needs IHT planning: wills in all jurisdictions; double tax treaty analysis; BPR on qualifying overseas business assets (s105 IHTA applies to overseas business interests if the business is qualifying). |
| Formerly Domiciled Resident (FDR) — pre-April 2025 rules (still relevant for pre-2025 planning) | Under the Finance Act 2017 (pre-April 2025 deemed dom rules — now replaced): an individual who had a UK domicile of origin but left the UK and acquired a foreign domicile of choice — if they return to UK residence, they were treated as deemed UK dom for IHT from the MOMENT they return (no 15yr grace period for FDRs). This was the 'formerly domiciled resident' (FDR) rule. Finance Act 2025: the FDR concept is subsumed into the LTUK test — FDRs who return to the UK start counting UK residence years towards the 10yr LTUK test immediately. | Post-April 2025: FDRs returning to the UK count their residence years from their return. If a FDR has 10 UK years by April 2025 (across their lifetime of residence, using the new 10 of 20 test), they may already be LTUK from April 2025. Seek specialist tax advice to determine the transitional position — particularly for those who were close to or over the old 15yr deemed dom threshold under FA 2017. |
| Excluded Property Trust (EPT) — pre-LTUK window | A trust settled by a non-dom (before becoming LTUK) with OVERSEAS assets: before Finance Act 2025, the overseas assets in the EPT remained excluded property even after the settlor became UK deemed dom. Finance Act 2025 restriction (from 6 April 2025): the FA 2025 removed the EPT shield for settlor-interested trusts — from April 2025, overseas assets in an EPT are subject to the relevant property regime (10-yr periodic charge + exit charges) once the settlor becomes LTUK. Non-settlor-interested EPTs: overseas assets may retain excluded property treatment — depends on FA 2025 transitional provisions and the specific trust structure. Specialist advice essential. | EPT remains a valid structure for: (1) trusts settled before April 2025 that are not settlor-interested (the trust income/assets cannot benefit the settlor); (2) future planning before LTUK: settling overseas assets in an EPT before hitting the 10yr LTUK trigger may still provide a level of IHT sheltering (particularly for non-settlor-interested trusts). However, the EPT is no longer the comprehensive IHT shelter it was before Finance Act 2025. An offshore trust settled outside the UK by a non-LTUK non-dom on non-UK assets for non-UK beneficiaries: may be entirely outside the UK IHT regime. |
| Double tax treaties — IHT/estate tax | UK-US Double Taxation Convention (1978): the US and UK have a comprehensive estate/IHT treaty. The convention provides credit relief: the US estate tax paid on an asset is credited against the UK IHT due on the same asset (and vice versa). For US citizens resident in the UK: US estate tax applies to worldwide assets; UK IHT also applies (once LTUK or UK-dom). Treaty relief prevents double taxation — the higher tax prevails, the lower tax is credited. Treaty also provides domicile tie-breaker for double-domicile cases. France-UK (1963): limited estate duty relief — now largely superseded by FA changes. India: no IHT treaty — potentially subject to both UK IHT and Indian capital gains/estate levies on India-situated assets. Germany, South Africa, Netherlands, USA (1978), Pakistan, Sweden, Italy: all have some form of estate/gift tax treaty with UK. | For non-doms with assets in treaty countries: obtain treaty analysis before death. Ensure executors/personal representatives claim treaty relief on the IHT400. US citizens resident in the UK: file both UK IHT400 (HMRC) and US Form 706 estate tax return; claim treaty credits on the higher tax return. Seek specialist international private client tax advice — these treaty positions are complex and the treaties themselves are old (some dating from the 1960s-1970s and may not reflect modern asset types). |
Non-dom IHT UK 2026. s1 IHTA 1984: charge to IHT. s4 IHTA: charge on death. s6 IHTA: excluded property — property situated outside the UK owned by a person not domiciled in the UK is excluded property; not subject to IHT. s267 IHTA (pre-April 2025): deemed domicile — resident in the UK for 15 of the preceding 20 tax years (Finance Act 2017 reduced from 17yr). Finance Act 2025 (s.X): Long-Term UK Resident (LTUK) test replaces deemed domicile for IHT from 6 April 2025; 10 of last 20 UK tax years; residence determined by Statutory Residence Test (Finance Act 2013 Sch 45). FA 2025 de-tailing: after ceasing UK residence post-LTUK: 3-year tail if resident 10-19 years; longer tail (1yr per yr above 20, max 10yr tail) if 20+ years; transitional rules for those already LTUK at April 2025. Domicile (common law): Lord Advocate v Jaffrey [1921]; Udny v Udny [1869]; In the Estate of Fuld [1968]; Cyganik v Agulian [2006] — establishing domicile of choice requires fixed and settled intention to reside permanently or indefinitely (Doucet v Geoghegan (1878)). Domicile of origin: IRC v Bullock [1976] — domicile of origin is the most tenacious; requires unambiguous abandonment of foreign country and settled intention to remain in UK. Excluded property trust (EPT): Finance Act 2025 changes — s48 IHTA amended; from 6 April 2025: overseas property in settlor-interested trusts (where settlor can benefit) is subject to relevant property charges once settlor becomes LTUK; non-settlor-interested EPTs: position depends on transitional provisions in FA 2025 Sch X. s48(3) IHTA: property comprised in a settlement made before the settlor acquired a domicile in the UK — excluded property if situated outside UK; FA 2025 restricted this exception. FA 2025 transitional provisions: EPTs established before 6 April 2025 may benefit from extended transitional protections — seek specialist advice. Non-dom spouse spousal exemption cap: s18(2) IHTA — if donor UK-dom and donee non-dom: spousal exemption capped at £325k (the NRB level). s267ZA IHTA election: non-dom spouse can elect to be treated as UK-dom for IHT purposes — uncaps the spousal exemption to unlimited; election is irrevocable; election means overseas assets also come into scope; normally beneficial when the UK-dom spouse has a large UK estate; requires specialist analysis. RNRB: s8D-s8M IHTA — no domicile requirement; conditions: UK residential property; residential property qualifying condition; passes to lineal descendants (direct descendants including step-children, foster children, adopted); downsizing credit available. Double tax treaties (HMRC INTM120010): UK-US 1978 treaty (SI 1978/1107) — estate tax; US citizens/domiciliaries vs UK domiciliaries; situs of assets; credit mechanism. UK-France 1963 (SI 1963/1319). UK-Sweden (SI 1981/840). UK-Netherlands (SI 1980/706). UK-India: no comprehensive estate/IHT treaty — double exposure possible. UK-Pakistan (SI 1975/616). UK-Italy: no treaty — double exposure possible. Most UK double tax treaties are bilateral crediting mechanisms (the taxpayer claims credit for the overseas tax against the UK tax, or vice versa). IHT400: Schedule IHT417 (Foreign Assets) — non-doms include only UK assets; LTUK must include worldwide assets. IHT421: for non-doms, the form covers only UK-sited property going through probate. Situs of assets for IHT: determined by lex situs; bank accounts: where the bank branch is; shares: where the company's register is kept (for UK companies); land: where situated; debts: usually where enforceable (debtor's residence); government securities: where government is.
Frequently Asked Questions
Do non-domiciled individuals pay UK inheritance tax on overseas assets?
Non-domiciled individuals who are NOT Long-Term UK Residents (LTUK) under the Finance Act 2025 rules: NO — overseas assets are excluded property under s6 IHTA 1984 and are completely outside the UK IHT estate. Only UK-situated assets (UK property, UK bank accounts, UK shares) are subject to IHT. LTUK individuals (10 of last 20 UK tax years from 6 April 2025): YES — worldwide assets including overseas property, foreign shares, and overseas bank accounts are all within the IHT estate. Finance Act 2025 (effective 6 April 2025) replaced the old 17-of-20-year deemed domicile rule with the new 10-of-20-year LTUK test. If you are approaching 10 UK residence years, specialist IHT planning advice is essential — the window to act (before hitting LTUK status) is limited.
What is the Long-Term UK Resident (LTUK) test for inheritance tax?
The Long-Term UK Resident (LTUK) test was introduced by Finance Act 2025, effective from 6 April 2025. An individual becomes LTUK for IHT purposes after 10 UK tax years of residence in the previous 20 tax years. Residence is determined by the UK Statutory Residence Test (SRT — Finance Act 2013). Once LTUK: ALL worldwide assets are within the UK IHT estate — the same as a UK-domiciled individual. IHT at 40% on the excess above the NRB (£325k) and RNRB (£175k if applicable) applies to ALL assets worldwide. De-tailing on departure: if you leave the UK after becoming LTUK, the LTUK IHT status continues for a tail period based on years of UK residence (3 years if 10-19 UK years; up to 10 years if 20+ UK years). Planning: the critical planning window is the years BEFORE hitting the 10yr LTUK trigger.
What is an Excluded Property Trust (EPT) and does it still work for IHT?
An Excluded Property Trust (EPT) is a trust settled by a non-dom individual with overseas (non-UK) assets, established BEFORE the settlor becomes Long-Term UK Resident (LTUK). The historic advantage: overseas assets in the EPT remained outside the IHT estate even after the settlor became UK deemed dom. Finance Act 2025 restriction (from 6 April 2025): EPTs are no longer comprehensively protected from IHT once the settlor becomes LTUK. The FA 2025 imposed relevant property charges (10-yr periodic charge and exit charges) on overseas assets in settlor-interested EPTs once the settlor is LTUK. Non-settlor-interested EPTs (where the settlor cannot benefit) may retain a higher level of IHT protection — the position depends on the specific FA 2025 transitional provisions. EPTs settled before April 2025 may benefit from transitional arrangements. Specialist advice is essential — the post-FA 2025 EPT position is complex.
How long do you need to live in the UK before paying IHT on overseas assets?
Under the Finance Act 2025 LTUK test (effective 6 April 2025): 10 UK tax years of residence in the last 20 years. Once you have been UK-resident (under the Statutory Residence Test) for 10 of the last 20 tax years, you become Long-Term UK Resident (LTUK) for IHT and ALL worldwide assets (overseas property, foreign investments, overseas pensions) are brought into the IHT estate. Under the previous deemed domicile rules (Finance Act 2017 — replaced from April 2025): the threshold was 15 of the previous 20 UK tax years. Finance Act 2025 REDUCED the threshold from 15yr to 10yr — so the LTUK test catches long-term UK residents earlier than before. If you are already at 8 or 9 UK tax years: consider urgent IHT planning — you are close to the LTUK trigger. De-tailing: even leaving the UK does not immediately remove LTUK status — there is a tail period of 3-10 years depending on how many UK years you accumulated.
Can non-doms use the nil-rate band and RNRB for UK inheritance tax?
Yes — non-domiciled individuals (including those who are not LTUK) are entitled to the full Nil-Rate Band (NRB — £325k) for UK IHT on UK-situated assets. A non-dom with £400k of UK assets: only the £75k excess above the £325k NRB is subject to IHT. RNRB (Residence Nil-Rate Band — £175k): also available to non-doms for UK residential property that passes to direct descendants — the RNRB conditions do not require UK domicile, only that the property is a UK residential property that was the deceased's home at some point and passes to lineal descendants. Transferable NRB (tNRB — IHT402): if the deceased was widowed and the spouse did not use their full NRB, the unused proportion transfers to the survivor — available regardless of domicile, subject to the condition that the first death was after 1975. Non-dom spouse exemption: if the donor is UK-dom or LTUK and the donee spouse is non-dom, the s18 IHTA spousal exemption is CAPPED at £325k (effectively an additional NRB) — see the IHT spouse election (s267ZA IHTA) which allows the non-dom spouse to elect to be treated as UK-dom, uncapping the exemption.
A UK Will for UK Assets — Overseas Wills for Overseas Assets
Non-doms typically need a coordinated will strategy covering both UK and overseas assets. WillSafe will kits provide the UK foundation from £39.99.
View Will Kits from £39.99