Very little noise had been made in the run up to the changes in the new UK tax year surrounding inheritance tax and the question of deemed and non UK domiciled versus UK tax resident status. Here, we take a look at what the rules were previously and what the legislation looks like now. The contents of this blog is for information purposes only and should not be construed as advice. If you require financial advice specific to your circumstances, please do get in touch and we can refer you to financial advisors who specialise in Expats and worldwide assets.      

Pre 6th April 2025

The previous Inheritance Tax (IHT) legislation has always considered where a person considered themselves to be domiciled when looking at assets and IHT liabilities. A person could nominate their place of domicile and that could help mitigate IHT. Under the Remittance Basis, Non UK domiciled individuals were only liable for IHT on their UK sited assets - with their non UK assets being deemed 'excluded property' and generally, outside the scope of UK IHT.

UK Domiciled or 'deemed domiciled' individuals (those that had nominated themselves as domicile in the UK) were liable for IHT on their worldwide assets. Deemed domiciled for IHT purposes typically applied if an individual had been a UK resident for 15 out of the last 20 tax years.

Also, a non UK resident or non UK domiciled individual would only pay income tax and capital gains tax (CGT) on their UK income - unless they brought worldwide assets into the UK and then paid UK income tax and CGT on what they brought into the UK. 

The remittance basis has been abolished and now the UK operates under a different system - ignoring where an individual is domiciled and instead looking at the number of years an individual has been a UK resident.  

6th April 2025 and Beyond

FIG Regime (Foreign Income Gains)

The Remittance Basis has now been replaced with a new Residence Based Test, looking at how long you have been a resident, what roots you have here - accommodation, family, work etc. 

- FIG is available for 4 years starting from 6/4/25 OR the first year in which the individual becomes UK resident if later

- Available to any individuals who have been non-UK resident for at the previous 10 tax years

- Qualifying individuals who were a UK resident paying tax less than 4 years at 6/4/25 will be able to use the FIG regime for any remainder of the 4 year term (so the regime will be available to former UK residents who have been non-UK resident for 10years or more)

During the 4 years, new arrivals to the UK will NOT be subjected to UK tax on their foreign income and gains or distributions from non-resident trusts. These can be brought into the UK freely but you will need to claim for the FIG regime to apply. Individuals will need to nominate all sources of FIG that you are applying for; have separate claims for income and for gains; and a claim for either or both means you opt into the FIG regime and lose your entitlement to UK income tax personal allowance and annual exemption amounts for CGT. 

When the 4 years ends, individuals will then be taxed on their worldwide income and gains in accordance with standard UK tax rules.

Little had been publicised about the UK change in stance on assets and Wills and Inheritance Tax. It wasn't until a friend sent me a newspaper article that I even realised. I was put onto Stacey by a mutual friend and thankfully, she knew all about it. She was able to explain the changes and help me see what I need to do and what I need to be thinking about on my return to the UK.

Temporary Repatriation Facility (TRF)

There have been transitional provisions included in the new legislation for existing non-UK domiciles. UK residents who previously claimed the remittance basis and have unremitted FIG arising before 6/4/25 can elect to designate all or part of the FIG and pay tax at a reduced rate to bring this into the UK.  

- Taxed at a rate of 12% for tax years 2025/26 and 2026/27

- Taxed at a rate of 15% for tax years 2027/28

- TRF ends 6/4/2028

- Do not need to physically move the funds to the UK during the time period. Tax due on the full amount of FIG designated in the elected year and not when funds are brought to the UK

TRF applied to unremitted FIG invested in assets - stringent record keeping will be a must for the UK HMRC. It will also apply to UK resident individuals (settlor or beneficiary) who receive a benefit from an Offshore Trust during the same period, where the benefit is matched to pre 6/4/25 FIG. Finally, TRF also applies to FIG where a claim for Business Investment Relief (BIR) has been made but it will no longer be possible to claim this on new investments or reinvestments from 6/4/2028.

IHT Liability

IHT is now charged on worldwide assets (including offshore bonds/trusts) for individuals who have been a UK tax resident in 10 out of the last 20 years, plus assets will remain in the scope of UK IHT for up to 10 years following the exit from the UK on a tail off sliding scale (dependent on how long the individual was a UK tax resident for). 

- Example: UK resident 10-13yrs - remain in the IHT net for 3 tax years. It then increases 1 year (inside the net) for each year of residence until, UK resident 20yrs or more and inside the net for UK IHT liability for 10 years.

- So this should mean that individuals with a domicile in the UK (such as British Expats) will be outside the scope of IHT on non-UK assets IF they have NOT been a UK resident for 10 out of the last 20 years.

- UK assets remain in the scope of UK IHT regardless of resident status

- Individuals who are non-UK resident for 2025/26: will be treated as long term resident only if on 6/4/25 the individual is deemed domicile under exisiting 15/20 rule and resident for one of the 4 tax years following exit. 

Excluded Property Rights 

The matter of domiciled may be abolished but still has relevance for considering IHT implications for ASSETS HELD IN TRUST.

A Gift with Reservation of Benefit (GROB) would be where an individual gives a gift, but still benefits from the gift in some way - an example being gifting a house to an adult child and continuing to live in it; or setting up a lifetime trust for your children to access and accessing the funds for yourself; and so for IHT purposes, the gift never left the estate of the person giving the gift.

GROB rules do NOT apply for non-UK domiciled settlors with pre-existing trusts holding non-UK situs assets. 

Instead, the trust will be subject to 10 yearly and exist charges (6%) depending on whether the settlor is a long-term resident under the new 10/20 year rule. This applies even if the settlor (person who has set up and funded the trust) is no longer a UK tax resident as of 6/4/25. When the settlor ceases to be a long term UK tax resident, the trust will be hit with an exit charge of 6% of the value of trust assets.

If the settlor is a long term UK tax resident, the trusts non-UK assets fall into the 'relevant property' regime, potentially incurring IHT charges of 6% on 10 year anniversaries and capital distributions. For trusts settled after 30/10/24, where the settlor retains a benefit (GROB), and the settlor is a long term UK resident at death, the full value of the trust assets may be treated as part of the estate and subject to a potential 40% IHT charge.

Trusts settled before 30/10/24 will have some transitional protection from GROB but they will still be exposed to the relevant property charges if the settlor becomes a long term resident. If settlors died before 6/4/25 then the old domicile rules still apply to determine IHT status of the trust assets.

Other Matters To Consider

For gifting and trusts - the 7 year for gifts still applies. Gifts made 7 years or more before death are typically free from IHT and IHT allowances are reset. Trusts can be used but there would be reporting requirements and charges to pay on chargeable events. 

Double Taxation Relief - the UK did have estate and IHT treaties with several countries (including the US, France & Italy) to prevent assets being taxed twice. Now your estate will pay IHT taxes in the countries you own assets, and if there is a double taxation relief, a credit would be applied to match the tax paid out already when the UK taxes your estate on the same asset (if you are a UK resident at the time of death or still within the IHT net after leaving the UK). 

Expats with UK property can still make use of Protective Property Trusts on their main home in the UK to protect against sideways inheritance and care home fees on your return. Expats and anyone with UK assets can also have LPAs for property & finance (personal and also one for business if relevant) plus health & welfare if you reside in the country or domiciled for some of the time. 

Owning property abroad in your own name could create an exposure in both the UK and local. Using a company or transferring ownership may be a better solution. 

Charitable Legacies can help to decrease the amount of IHT from 40% to 36% if over 10% of your estate.

Know the local inheritance rules within the countries you hold assets and ensure you have a Will for each country. This should be in the home language of the country and stored as is locally advised. 

Ensure that each Will you have in the country of your assets does NOT REVOKE ALL WILLS. You would be asked to sign a waiver accepting responsibility for ensuring any other Wills created do not revoke your UK Will(s)   

Summary 

IHT now based on resident status 10/20 tax years; resident for 10 yrs or more and you will have a continued IHT exposure of UK IHT on worldwide assets following your departure from the UK on a sliding scale; and IHT applies to worldwide assets if you are a UK resident

If you have UK assets then it is best to have a UK Will in place. Assets in other situs should have a Will in the language and country of your assets. Please get in touch with us via our Contact page and we will be happy to discuss your circumstances and see how we can assist.