Inheritance Tax Non-Domicile UK: IHT for Non-Doms and the Spouse Exemption Cap
Updated 31 May 2026 · 9 min read · Inheritance Tax & International Planning
Non-domiciled individuals are only subject to IHT on their UK assets — overseas property and foreign bank accounts are ‘excluded property’. But there is a critical trap: the IHT spouse exemption is capped at £325,000 where the receiving spouse is non-domiciled, not unlimited. This is one of the most frequently misunderstood areas of UK inheritance tax.
The Basic Rule: Domicile Determines IHT Scope
IHT under IHTA 1984 charges assets based on the deceased’s domicile at the date of death:
| Domicile Status | IHT Applies To |
|---|---|
| UK domiciled (or deemed domiciled) | Worldwide assets |
| Non-domiciled (not deemed domiciled) | UK situs assets only; overseas assets are excluded property |
From 6 April 2025, the old domicile-based system was replaced by a residence-based system: a person who has been UK resident for 10 or more of the previous 20 tax years is a ‘long-term resident’ and subject to IHT on worldwide assets, regardless of domicile.
The Spouse Exemption Cap for Non-Doms
The standard IHT spouse exemption (IHTA 1984 s.18) gives unlimited relief for transfers between UK-domiciled spouses. But where the recipient spouse is non-domiciled at the date of the transfer, the exemption is capped at £325,000 — the same as the nil-rate band.
This means a UK-domiciled person leaving their estate to a non-domiciled spouse:
- The first £325,000 passes free under the (restricted) spouse exemption
- The next £325,000 passes free under the nil-rate band
- Any further amount passing to the non-dom spouse is charged to IHT at 40%
The Non-Dom Election: Opt into UK Domicile
A non-domiciled spouse can make an election under IHTA 1984 s.267ZA to be treated as UK-domiciled for IHT purposes. If the election is made, the UK-domiciled spouse’s estate passes to them with the benefit of the unlimited spouse exemption — eliminating the IHT problem.
The downside: making the election exposes the non-dom spouse’s worldwide assets to UK IHT. The decision turns on the balance between:
- The IHT saved by the unlimited exemption on the UK-domiciled spouse’s death
- The additional IHT exposure on the non-dom spouse’s worldwide assets on their own death
Excluded Property Trusts
Overseas assets placed into a trust by a non-domiciled (or non-long-term-resident) settlor retain excluded property status — they are outside the scope of IHT even if the settlor subsequently becomes UK-domiciled or a long-term resident. This makes excluded property trusts a valuable tool for non-doms who plan to spend significant time in the UK. Trusts settled before the April 2025 reforms generally retain their excluded property status under transitional rules for non-UK assets in the trust.
April 2025 Reforms: Residence-Based IHT
From 6 April 2025, the old ‘15 out of 20 years’ deemed domicile rule was replaced by a 10 out of 20 tax years residency test. A person resident in the UK for 10 or more of the previous 20 tax years is a long-term resident subject to worldwide IHT — equivalent to UK domicile under the old rules. The fundamental principle (overseas assets of non-UK residents excluded from IHT) is preserved, but the threshold for becoming fully subject to worldwide IHT has changed. Specialist advice is essential for any internationally mobile individual or couple.
FAQs
How does IHT apply to a non-domiciled individual?
A person who is not domiciled in the United Kingdom at the date of their death (or the date of a chargeable lifetime transfer) is subject to IHT only on their UK situs assets — assets physically located or legally based in the UK. Non-UK assets (overseas property, foreign bank accounts, overseas company shares) are treated as 'excluded property' under IHTA 1984 s.6(1) and are completely outside the scope of IHT. By contrast, a person domiciled in the UK at the relevant date is subject to IHT on their worldwide assets. This distinction makes domicile a critical IHT planning concept for internationally mobile individuals. 'Situs' refers to the legal location of an asset: land is situated in the country where it is located; bank accounts are situated where the bank branch is; company shares are situated where the company is registered; debts are situated where they are recoverable.
What is the spouse exemption for gifts to a non-domiciled spouse?
The normal IHT spouse exemption under IHTA 1984 s.18 provides unlimited relief for transfers between spouses or civil partners who are both domiciled in the UK — there is no cap on the value that can pass between UK-domiciled spouses free of IHT. However, where the recipient spouse is not domiciled in the UK at the date of the transfer, the exemption is limited to £325,000 (matching the nil-rate band). This means that a UK-domiciled person who transfers more than £325,000 to a non-domiciled spouse (whether on death or as a lifetime transfer) will pay IHT on the excess above £325,000, because the unlimited spouse exemption does not apply. The election procedure: a non-domiciled spouse can elect to be treated as UK-domiciled for IHT purposes (IHTA 1984 s.267ZA), which then entitles their UK-domiciled spouse to use the unlimited spouse exemption. However, an election to be treated as UK-domiciled also exposes the non-dom spouse's worldwide assets (including foreign property and overseas bank accounts) to IHT — so the election is not always beneficial.
What are the deemed domicile rules for IHT?
A person who is not actually domiciled in the UK under the general law may nonetheless be treated as 'deemed domiciled' in the UK for IHT purposes. Under IHTA 1984 s.267 (as it stood before the April 2025 reforms), a person was deemed domiciled if: (1) They had been resident in the UK for at least 15 of the 20 tax years ending with the relevant tax year (the '15 out of 20 years' rule); or (2) They had been domiciled in the UK within the 3 years before the relevant date (the 'formerly domiciled resident' rule — meaning a person who had acquired a UK domicile and later acquired a domicile elsewhere was still treated as UK-domiciled for 3 years). Once deemed domiciled, the individual is treated as UK-domiciled for all IHT purposes — their worldwide assets are within scope and the unlimited spouse exemption applies to transfers from a UK-domiciled spouse.
What changed for non-doms from April 2025?
The UK government announced significant reforms to the non-domicile regime, effective from 6 April 2025. The domicile-based IHT system was replaced by a residence-based system: (1) Under the new system, an individual's IHT exposure is determined by their period of UK residence rather than their domicile status. (2) A person who has been resident in the UK for 10 or more of the previous 20 tax years (a 'long-term resident') is subject to IHT on their worldwide assets. (3) A person who has been resident in the UK for fewer than 10 of the previous 20 years is only subject to IHT on their UK situs assets. (4) Non-UK property held in a foreign trust settled by a non-dom before April 2025 may retain excluded property status under transitional rules. The April 2025 changes represent a major structural reform — the old domicile-based system (including the '15 out of 20 years' deemed domicile rule) no longer applies. Professional advice is essential for any internationally mobile individual.
What is 'excluded property' for IHT and how does it interact with non-domicile?
Excluded property under IHTA 1984 s.6(1) includes overseas assets (assets situated outside the UK) owned by a person not domiciled in the UK (or, post-April 2025, not a long-term UK resident). Excluded property is completely outside the scope of UK IHT. Key examples of excluded property for a non-dom: (1) Overseas real estate — a holiday home in France owned by a non-dom is outside the scope of UK IHT. (2) Foreign bank accounts — a current account in a Swiss bank held by a non-dom is excluded property. (3) Overseas company shares — shares in a French company registered in France are excluded property (distinguished from UK company shares, which are UK situs and within scope regardless of the owner's domicile). (4) A relevant property trust settled by a non-dom — the trust property (if situated outside the UK) retains excluded property status during the trust's lifetime, exempt from periodic and exit charges, provided the trust was settled before the non-dom became deemed domiciled (or, post-April 2025, before becoming a long-term UK resident). Excluded property status is lost if the owner becomes UK domiciled (or post-April 2025, a long-term UK resident) and there is no treaty protection.
How should a UK-domiciled person with a non-dom spouse plan their will?
A UK-domiciled person with a non-dom spouse faces the restricted £325,000 spouse exemption unless the non-dom spouse makes an election to be treated as UK-domiciled. Will planning considerations: (1) Consider whether the non-dom spouse should make a IHTA 1984 s.267ZA election to be treated as UK-domiciled — this unlocks the unlimited spouse exemption but exposes their worldwide assets to UK IHT. The election is only worth making if the value of assets protected by the unlimited exemption clearly exceeds the IHT cost of worldwide exposure. (2) If no election is made, the will should be structured to pass the first £325,000 to the non-dom spouse using the restricted exemption, and any excess to other beneficiaries (children or a discretionary trust) using the nil-rate band, RNRB, and any BPR/APR reliefs. (3) Consider whether the non-dom spouse might become deemed domiciled (or, post-April 2025, a long-term resident) — if they will become deemed domiciled/long-term resident before the UK-domiciled spouse dies, the unlimited exemption will be available without an election. (4) Trust structures — a discretionary trust that includes the non-dom spouse as a beneficiary can hold assets outside the restricted exemption, allowing the trustees to benefit the spouse at their discretion during the spouse's lifetime.
International Couples Need Expert Will Planning
If you or your spouse are non-domiciled or have recently moved to the UK, the restricted spouse exemption and the new residence-based IHT rules require careful will planning. WillSafe’s DIY will kit is designed for standard UK estates; for international and cross-border planning, a specialist private client solicitor is essential.
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