IHT and Offshore Trusts After April 2025: Excluded Property, the Long-Term Resident Test, and What Changes
From 6 April 2025, the domicile-based excluded property test for offshore trusts was replaced by a residency-based test. Individuals who have been UK resident for 10 or more years (long-term UK residents) can no longer settle new excluded property trusts. Pre-2025 trusts are largely grandfathered — but additions after April 2025 are not protected. For non-doms approaching the 10-year threshold, the planning window is closing.
The Offshore Trust IHT Rules: Before and After April 2025
Pre-April 2025: domicile-based excluded property
Before 6 April 2025, the excluded property rules for offshore trusts were based on domicile: a discretionary trust settled by an individual who was neither domiciled nor deemed domiciled in the UK at the time of settlement, with non-UK situs assets, was excluded property. The trust assets were outside the scope of IHT for all time — even if the settlor subsequently became UK domiciled or deemed domiciled. This was the fundamental advantage of offshore trust planning for non-doms: settle the trust while non-domiciled, and the assets are sheltered permanently (provided UK situs assets are excluded and the trust is not 'infected' by subsequent UK situs assets). The deemed domicile rules (applying after 15 years of UK residence under the old rules) could subject the settlor to UK IHT on their personal worldwide assets — but did not retrospectively bring an existing excluded property trust within the IHT net.
From April 2025: residency-based long-term UK resident test
From 6 April 2025, the Government replaced the domicile test for IHT with a residency-based long-term UK resident (LTUKR) test. An individual is a long-term UK resident if they have been UK resident for tax purposes in at least 10 of the previous 20 tax years. A long-term UK resident is subject to IHT on their worldwide assets — including offshore trust assets previously sheltered as excluded property. The excluded property test for offshore trusts now depends on whether the settlor was a long-term UK resident at the time of settlement (not whether they were non-domiciled). A trust settled by a non-UK domiciled person who was not a long-term UK resident at the time of settlement retains excluded property status. A trust settled by a long-term UK resident — even if non-domiciled — is not excluded property.
Grandfathering for trusts settled before 6 April 2025
The 2025 legislation includes a transitional grandfathering provision: offshore trusts that were settled before 6 April 2025 by a person who was not UK domiciled (or deemed domiciled) at the time of settlement retain their excluded property status for assets that were excluded property under the old rules at the date of settlement. However, additions made to such trusts after 6 April 2025 by a long-term UK resident are not protected — they are subject to the new rules. New trusts settled after 6 April 2025 must meet the new LTUKR test (settlor must not be an LTUKR) to achieve excluded property status.
Impact on UK resident non-doms with offshore trusts
The most significant group affected by the 2025 changes: individuals who are UK resident and non-UK domiciled but who have been resident in the UK for 10 or more years. Before April 2025, they could settle offshore trusts and protect worldwide assets from IHT under the excluded property rules. After April 2025, a non-dom who has been UK resident for 10 or more years is an LTUKR — and a trust settled by them after April 2025 is not excluded property. For those approaching the 10-year threshold: there is a planning window to settle an excluded property trust before the 10-year mark is reached (i.e. before becoming an LTUKR). For those already over 10 years: existing pre-2025 trusts may be grandfathered, but new trust settlements after April 2025 cannot achieve excluded property status.
Frequently Asked Questions
What is an excluded property trust for IHT?
An excluded property trust is an offshore discretionary trust where the trust assets are 'excluded property' for IHT — outside the scope of IHT entirely. Excluded property is property situated outside the UK that is owned (or settled in trust) by an individual who was not UK-domiciled (or UK-deemed domiciled) at the time of the settlement. Before April 2025, the key test was domicile at the time of settlement: if the settlor was non-domiciled when settling, the trust was excluded property regardless of subsequent domicile changes. From April 2025, the test is whether the settlor was a long-term UK resident (LTUKR — 10+ years of UK residence in the preceding 20 years) at the time of settlement. Trust assets that are excluded property are: outside the settlor's estate for IHT; not subject to periodic (10-year) charges; not subject to exit charges when assets leave the trust.
Does the 2025 reform affect trusts that were already settled before April 2025?
Yes — but with transitional protection (grandfathering). Offshore trusts settled before 6 April 2025 by a person who was not UK-domiciled (under the old rules) at the time of settlement retain their excluded property status for the assets that were excluded property before 6 April 2025. New additions to the trust after 6 April 2025 are subject to the new LTUKR test — if the settlor is now an LTUKR when making the addition, the added property may not be excluded property. The grandfathering protects the pre-2025 trust structure — it does not protect against the settlor becoming personally subject to UK IHT on their worldwide estate as an LTUKR.
What happens to an offshore trust if the settlor dies as a long-term UK resident after April 2025?
If the settlor was not an LTUKR when the trust was settled before April 2025, the trust retains excluded property status regardless of the settlor's status at death — the excluded property test looks to the settlor's status at the time of settlement. If the settlor settles a new trust after April 2025 while already an LTUKR, the trust is not excluded property — the assets are within the IHT net (as relevant property) and subject to periodic and exit charges. The settlor's personal worldwide estate is also within the IHT net as an LTUKR. Planning for LTUKRs after April 2025 must focus on: restructuring existing assets before becoming an LTUKR (if still possible); making gifts as PETs; and trusts of non-excluded property with BPR-qualifying assets.
Are there IHT periodic charges on an excluded property offshore trust?
No — while the trust assets are excluded property, no periodic (10-year) charge or exit charge applies. The relevant property regime charges are only levied on relevant property — excluded property is expressly outside the scope. However: (1) if any UK situs assets are introduced into the trust, those assets are not excluded property and do attract periodic/exit charges; (2) if the excluded property status is lost (e.g. because the settlor was an LTUKR under the new post-April 2025 rules and the trust is therefore not excluded property), the trust becomes a relevant property trust subject to the usual charges. Trustees of offshore trusts should review the excluded property status regularly — particularly after April 2025.
What is the planning window for non-doms approaching the 10-year LTUKR threshold?
A non-domiciled individual who has been resident in the UK for fewer than 10 of the last 20 tax years is not yet an LTUKR. They can settle an offshore excluded property trust before crossing the 10-year threshold — securing excluded property status for the trust assets settled at that time. This is the key planning window: once the individual becomes an LTUKR (after 10 qualifying years), they can no longer establish new excluded property trusts. Additions to an existing excluded property trust made after becoming an LTUKR are also not protected. The planning: (1) review how many qualifying UK residence years have accrued; (2) model when the 10-year threshold will be crossed; (3) consider settling an offshore trust and transferring worldwide assets before the threshold is reached; (4) take specialist advice on the interaction with remittance basis and other UK tax considerations.
Does an offshore trust protect assets from IHT if the settlor dies?
For a pre-April 2025 excluded property trust (where the settlor was not UK-domiciled at settlement): yes — the trust assets are excluded property and are not included in the settlor's estate for IHT on death. The trust continues as excluded property for all beneficiaries. For a post-April 2025 trust settled by a non-LTUKR: yes — same protection, provided the LTUKR test is satisfied. For a trust settled by an LTUKR: no — the trust is not excluded property and the assets may be within the IHT scope. In all cases, assets introduced into the trust that are UK situs property are not excluded property and may be subject to IHT. Specialist offshore trust and IHT advice is essential — the rules are complex and fact-specific.
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