UK Inheritance Tax (IHT) is about to undergo its biggest transformation in decades. As of April 2025, the system shifted from relying on an individual’s domicile to using residence as the determinant of tax exposure. Previously, those who were UK-domiciled were taxed on their worldwide assets, while non-domiciled individuals were only taxed on UK-based assets. Now, long-term UK residents, regardless of domicile, will be subject to IHT on a wider basis. This quick guide takes you through the differences between domicile and residence, what’s changed, who will be affected, and what steps individuals and advisors must take to stay compliant.
How IHT works now: The domicile-based approach
Up until April 2025, an individual’s domicile status (where they considered to be their permanent home) was used to determine their exposure to UK Inheritance Tax. UK-domiciled individuals were taxed on their worldwide estate, while those domiciled elsewhere were taxed only on UK assets. The law also included ‘deemed domicile’ rules, where individuals who had been UK residents for at least 15 of the past 20 tax years were treated as UK-domiciled for IHT purposes. The domicile approach was often criticised as being opaque and outdated, particularly for individuals with international ties.
From domicile to residence: Understanding the 2025 IHT reforms
In April 2025, the UK adopted a residence-based system for Inheritance Tax aimed at creating a clearer, more transparent tax system (particularly for globally mobile individuals). Under the new rules, if you’ve been a UK resident for 10 or more years, you’ll be liable for IHT on your worldwide assets. If you leave the UK, you may remain exposed to IHT for a ‘tail period’ of up to 10 years. The Statutory Residence Test is expected to be used to determine tax residence.
Implications for individuals and estate advisors
Non-domiciled individuals who are long-term UK residents will now be brought into full IHT exposure. Foreign nationals with UK property, trusts, or investments must reassess their arrangements. Estate planning strategies that relied on offshore structures or the remittance basis may no longer offer protection. Even expats who saw themselves as ‘non-doms’ could face unexpected tax liabilities. Legal and financial professionals will need to help clients navigate these complex transitions and meet new reporting requirements.
Estate planning in the new IHT era
Individuals with cross-border assets need to revisit wills, restructure trusts, and consider gifting strategies. Any offshore structures set up to protect assets may lose this protection unless grandfathering rules apply. Also, tracking residence history will be critical under the new regime. Legal advice is essential to navigate the reforms, and if you have a particularly complex estate it may benefit from retaining experienced probate solicitors to do a thorough review and implement any changes so that you get maximum tax benefit.
Preparing for residence-based taxation
This shift to a residence-based Inheritance Tax system is a significant departure from longstanding UK tax principles. For many, especially those with international connections, it’s a call to review estate plans by consulting with legal and tax experts in order to avoid unexpected tax bills down the line.
