IHT Planning for Non-Domiciled Individuals After April 2025

For decades, UK inheritance tax (IHT) planning for non-domiciled individuals followed relatively well-understood lines: maintain non-UK domicile status and your worldwide assets are outside the UK IHT net. Only UK-situs assets were exposed. This framework — imperfect and frequently litigated, but broadly predictable — was dismantled from April 2025 by a shift from a domicile-based IHT system to a residence-based one.

The implications are significant and, for those who have been in the UK for close to a decade, potentially urgent.

The Old Rules: What Applied Before April 2025

Under the pre-April 2025 regime:

• UK-domiciled individuals were subject to IHT on their worldwide estate.
• Non-UK domiciliaries were subject to IHT only on their UK-situs assets — essentially UK property, UK bank accounts, and UK-registered shares.

Domicile is a common law concept distinct from residence. An individual can be UK resident for many years without acquiring a UK domicile of choice — this requires both residence in the UK and the intention to make the UK your permanent home indefinitely. Many long-term UK residents, particularly those who maintained connections to and intentions of returning to their country of origin, successfully maintained non-UK domicile status.

The practical result: a wealthy individual from, say, Turkey or India who spent 15 years in London, owned a £5m flat in Mayfair and £20m of assets in their home country, was only exposed to IHT on the UK property — provided they maintained non-UK domicile. That £20m of foreign assets was entirely outside the UK IHT system.

There was also the option of a "deemed domicile" test: if you had been UK resident in 15 of the last 20 tax years, you were deemed UK domiciled for IHT purposes even if you hadn't acquired a UK domicile of choice. The new rules replace this with a tighter, purely residence-based test.

The New Rules: Long-Term Resident (LTR) Test

From 6 April 2025, IHT exposure for non-doms is determined by UK residence, not domicile. An individual becomes subject to UK IHT on their worldwide estate once they qualify as a Long-Term Resident (LTR): broadly, resident in the UK for 10 of the last 20 tax years.

Once the LTR threshold is reached:

• The individual's worldwide estate is subject to UK IHT at 40% (above the NRB of £325,000).
• Domicile status is no longer relevant for IHT purposes.
• The fact that assets are held overseas, in a foreign currency, or through foreign structures does not protect them from UK IHT.

The "tail" after leaving the UK:

Critically, LTR status does not end immediately on leaving the UK. There is a period of continuing exposure — the length of which depends on how long the individual was UK resident. Broadly, the longer the UK residency, the longer the post-departure tail before worldwide assets fall out of the UK IHT net. The maximum tail under the new rules is 10 years for the longest-term residents.

This means a foreign national who spent 20 years in the UK and then retired to their home country could remain subject to UK IHT on their worldwide estate for up to 10 years after departure — a significant change from the old rules, where the position was clearer and (with planning) the exposure could be managed more quickly.

What Still Works: Excluded Property Trusts

The primary planning tool remaining for non-doms in the UK is the excluded property trust (EPT). This is a discretionary trust settled with overseas assets while the settlor is non-UK domiciled (and, under the new rules, before they reach LTR status).

Assets settled into a properly constituted EPT are treated as excluded property for IHT purposes. Under the new legislation, this status is preserved even after the settlor becomes an LTR — the trust's excluded property status is frozen at the point of settlement.

What this means in practice:

A Turkish national arrives in the UK in 2019. By 2026, she has been resident for 7 years. She settles €3m of assets held in a Swiss bank account into a Channel Islands trust now — while she is non-UK domiciled and before she reaches the 10-year LTR threshold.

When she crosses the 10-year LTR threshold in 2029, she becomes subject to UK IHT on her worldwide estate. But the €3m in the Channel Islands trust retains excluded property status — it is not pulled into her UK IHT estate, neither at the 10-year LTR anniversary nor on her death.

This is the core remaining tool. The window to use it is closing rapidly for individuals who have been in the UK since 2015 or earlier.

The trust must be properly constituted before the LTR threshold is crossed. A trust settled after the 10-year mark is reached does not benefit from excluded property status — assets settled at that point are chargeable lifetime transfers subject to the normal IHT trust charging regime.

UK Assets Remain Taxable

The EPT only shelters non-UK assets settled into it before LTR status. UK-situs assets — UK property, UK bank accounts, UK-registered shares — remain in the UK IHT net regardless of whether the individual is an LTR or not. This was true under the old rules and remains true under the new ones.

For non-doms with significant UK property holdings, IHT on those assets is unavoidable through an EPT. Alternative strategies — life insurance written in trust, gifts with reservation considerations, changes to ownership structure — may help but must be carefully planned.

The Spouse Exemption

The IHT spouse exemption applies between UK-domiciled spouses fully. For transfers between a UK-domiciled and non-UK domiciled spouse, there is a cap: the exempt amount is limited to one nil rate band — currently £325,000 — on lifetime transfers and on death combined. Amounts above this cap from a UK-domiciled to a non-UK domiciled spouse are subject to IHT in the normal way.

Alternatively, a non-UK domiciled spouse can elect to be treated as UK domiciled for IHT purposes, gaining the full inter-spousal exemption but simultaneously becoming subject to IHT on their worldwide estate. This election is irrevocable while UK resident.

Under the new LTR rules, a non-dom spouse who is not themselves an LTR retains limited spousal exemption treatment for receiving assets from an LTR spouse. The interaction of the new rules with inter-spousal transfers requires specific advice.

Acting Before the Window Closes

For non-doms currently in the UK, the immediate priority is to understand where they stand relative to the 10-year LTR threshold and what planning options remain. The approach:

1. Establish the precise number of UK resident tax years in the last 20 (using the Statutory Residence Test, which determines UK residence for each year).
2. Determine whether LTR status has already been reached or when it will be.
3. If not yet an LTR, assess whether an excluded property trust can and should be settled before that threshold is crossed.
4. Consider whether any pre-existing offshore structures are already providing excluded property protection and whether they need updating.
5. Review UK-situs assets and consider separate IHT mitigation strategies for those.

How Global Investments Can Help

The new IHT framework for non-doms is one of the most consequential changes in UK private client law in a generation. The interaction between the LTR test, the FIG regime, the TRF, and excluded property trust planning requires joined-up advice from tax counsel, trust lawyers, and financial planners working together.

Global Investments coordinates this multi-disciplinary approach for internationally mobile clients, helping them understand their current exposure, identify the planning options that remain open to them, and implement structures before windows close. If you have been in the UK for 7 or more years and have not yet reviewed your IHT position under the new rules, the time to act is now.