UK Inheritance Tax on Overseas Assets: Who Is Caught

UK Inheritance Tax (IHT) has long been one of the most global taxes in the world. Unlike most countries, which limit estate tax to assets physically located within their borders, the UK has historically imposed IHT on the worldwide assets of individuals who are UK-domiciled — even if those individuals had lived abroad for many years. The April 2025 reforms replaced the domicile-based test with a residence-based test, dramatically expanding the scope of UK IHT exposure for long-term UK residents living overseas, while at the same time reducing some of the uncertainty around former non-doms.

This guide explains who is now caught by UK IHT on overseas assets, how the new "long-term UK resident" test works, and what planning options are available.

The Old Position: Domicile as the Gateway

Under the rules that applied until 5 April 2025, UK IHT was charged on the worldwide assets of individuals who were either:

1. Domiciled in the UK (including those who had acquired a domicile of choice in the UK), or
2. Deemed domiciled in the UK (broadly, anyone who had been UK-resident for 15 of the previous 20 tax years, or who had a UK domicile of origin and had been UK-resident in 1 of the previous 4 tax years)

Individuals who were not UK-domiciled (non-doms) were subject to UK IHT only on their UK-situated assets. Their overseas assets — foreign property, foreign bank accounts, offshore bonds, foreign company shares — were outside the UK IHT net. This was an enormous advantage and a major reason why many HNW non-doms chose to remain in the UK for extended periods.

The deemed domicile test (15 out of 20 years) meant that even long-term non-UK-domiciled individuals eventually became exposed to worldwide IHT after 15 years of UK residence. But there was a grace period of up to four years after leaving the UK before deemed domicile fell away.

The New Position: Long-Term Residence as the Gateway

From 6 April 2025, the domicile-based test for IHT was replaced with a residence-based test. The key concept is now the "long-term UK resident" (LTUR):

An individual is a long-term UK resident if they have been UK-resident for 10 or more tax years in the 20 tax years immediately preceding the tax year in question.

Once you become a long-term UK resident, your worldwide assets are within the scope of UK IHT — including overseas property, foreign bank accounts, overseas investments, offshore trusts (in some circumstances), and digital assets.

The LTUR test is annual: each tax year, you look back 20 years and count how many you were UK-resident. If the answer is 10 or more, you are an LTUR for that year and your worldwide estate is within scope.

How Long Does IHT Exposure Last After Leaving the UK?

One of the most important aspects of the new regime is the "tail" — the period during which UK IHT continues to apply to worldwide assets after you leave the UK.

Under the new rules, once you have been resident for 10 or more years in the past 20, your worldwide IHT exposure does not stop immediately when you leave. Instead, it continues for a period that depends on how many years you were resident:

• If you were resident for 10–13 years in the past 20: IHT tail of 3 years after leaving
• For each additional year of UK residence beyond 13, the tail increases by one year (so 14 years gives a 4-year tail, 15 years a 5-year tail, and so on)
• If you were resident for 17 or more years (up to all 20): the maximum 10-year tail applies

The precise calculation involves counting the years of UK residence in the preceding 20-year window as it rolls forward each year. The tail decreases as previous years of UK residence drop out of the 20-year window. Long-term resident status itself resets only after 10 consecutive complete tax years of non-residence.

Example: You have lived in the UK for 25 years and move to Dubai in 2025. In the 20 years before your departure, you had 20 years of UK residence. Your worldwide estate remains within UK IHT for up to 10 years after leaving — until those 20 years of UK residence drop below 10 within the rolling 20-year window.

This is a significant change from the old rules. Under the domicile regime, an individual who had acquired a UK domicile of choice could in theory shed it within a few years of leaving. The new LTUR tail is time-based and cannot be accelerated by simply demonstrating intention to remain abroad.

What Assets Are Caught?

For long-term UK residents (whether still in the UK or within the LTUR tail period after leaving), the following types of overseas assets are subject to UK IHT:

• Overseas property: residential and commercial real estate located outside the UK
• Foreign bank accounts and savings: accounts held in non-UK banks, denominated in any currency
• Foreign investment portfolios: shares in non-UK companies, foreign funds, overseas bonds
• Offshore life assurance bonds: policies issued by non-UK insurers
• Overseas business interests: shares or partnership interests in non-UK businesses
• Foreign pensions: in some cases, foreign pension schemes may fall within the estate depending on the type of scheme
• Cryptocurrency and digital assets: to the extent the LTUR has worldwide IHT exposure, digital assets are included regardless of their uncertain situs
• Cash held abroad: foreign currency accounts, foreign savings accounts
• Personal chattels overseas: fine art, jewellery, classic cars, wine collections located outside the UK

UK-situated assets are always within scope regardless of residence status. The residence test determines whether the overseas estate is also caught.

Who Needs to Take Action

The April 2025 reform has created urgency in a number of specific situations:

Long-term UK residents who have recently left. If you were UK-resident for 10 or more years before leaving, you have an LTUR tail for your worldwide assets. You may have assumed that leaving the UK removed your IHT exposure. Under the new rules, it does not — at least not immediately.

Non-doms who were approaching the 15-year mark. Under the old regime, many non-doms managed their UK residence carefully to stay below the 15-year deemed domicile threshold. Under the new regime, the threshold is 10 years, and some individuals who believed they were safe are now caught.

Returning expats. If you spent years abroad, returned to the UK, and have now been resident for 10 or more years since your return, your worldwide estate is within the UK IHT net. This includes assets built up entirely during your years abroad.

New arrivals. If you are arriving in the UK and plan to stay, you should be aware that after 10 years of UK residence, your worldwide estate will become subject to UK IHT. This affects how you structure your assets and estate plan from the outset.

Planning Options for Overseas Assets

Despite the significant extension of IHT exposure under the new rules, there are legitimate planning options:

Leaving the UK before reaching 10 years. The most effective way to avoid LTUR status is to leave the UK before accumulating 10 years of residence within the most recent 20. For those approaching this threshold, the decision of whether to leave (and when) is now a material financial planning question.

Trusts settled before becoming LTUR. Assets settled into an excluded property trust (typically an offshore discretionary trust) by a non-UK-domiciled individual before they became deemed domiciled (under the old rules) or before April 2025 retain their excluded property status in many cases. The precise treatment depends on when the trust was settled and what changes have been made since. Pre-existing excluded property trusts should be reviewed urgently.

Establishing trusts before reaching 10 years. Under the new rules, a non-UK domiciled individual who has not yet become an LTUR (i.e., who has fewer than 10 years of UK residence) may still be able to settle overseas assets into an excluded property trust, keeping them outside the UK IHT net. Time is limited for those approaching the 10-year mark.

Business Property Relief (BPR). Overseas businesses and some overseas shares can qualify for BPR. From 6 April 2026, the rules changed materially: 100% relief now applies only to the first £2.5 million of qualifying business and agricultural property combined (per estate, and transferable between spouses, giving roughly £5 million for a couple), with relief above that allowance reduced to 50% (an effective 20% IHT charge). AIM-listed and other unlisted shares attract 50% relief only and fall outside the £2.5 million allowance. BPR is subject to strict qualifying conditions and these reliefs were narrowed in the 2026 reforms — do not assume blanket 100% relief.

Agricultural Property Relief (APR). Overseas agricultural property may qualify for APR in limited circumstances, but qualification requirements are strict and relief may not be available for foreign land.

Life assurance. Whole-of-life assurance policies written in trust are a commonly used tool to provide funds to meet an IHT liability without increasing the taxable estate further.

Gifts and gifting. Lifetime gifts more than seven years before death are generally outside the scope of IHT (subject to the reservation of benefit rules). Gifting overseas assets early — before the LTUR tail begins — is worth considering as part of a long-term plan.

UK–Overseas Double Taxation Treaties on Inheritance

The UK has a small number of bilateral inheritance/estate tax treaties — notably with France, Ireland, South Africa, India, Pakistan, the Netherlands, Sweden, and the United States. These treaties can reduce or eliminate double taxation where both the UK and an overseas jurisdiction seek to tax the same assets on death.

However, the UK does not have IHT treaties with many of the countries where British expats live — including the UAE, Cyprus, Spain, Thailand, and Greece. In the absence of a treaty, double taxation is addressed unilaterally by the "Quick Succession Relief" provisions and by credit for foreign taxes under domestic law, but these mechanisms do not always eliminate the double charge fully.

Practical Steps

1. Map your current IHT exposure. Count your years of UK residence in the past 20. If you are at or above 10, seek professional advice on your worldwide IHT position.

2. Review existing trust arrangements. If you settled an excluded property trust under the old non-dom rules, have it reviewed in light of the April 2025 changes.

3. Update your will and estate plan. IHT exposure on overseas assets will affect how you structure inheritance for family members in different countries.

4. Consider life assurance. For those with inevitable IHT exposure that cannot be eliminated by planning, life assurance can provide liquidity to meet the liability.

5. Act before reaching 10 years. For those approaching the 10-year mark, the window for excluded property trust planning is closing. Do not delay.

How Global Investments Can Help

UK IHT on overseas assets is now a concern for a much wider group of internationally mobile individuals than it was before April 2025. Global Investments advises clients across all life stages and jurisdictions, helping them understand their exposure and plan efficiently.

We work with specialist UK tax advisers, estate planning lawyers, and life assurance providers to ensure our clients' worldwide estates are structured to minimise IHT exposure — compliantly, and in a way that reflects their family's international circumstances. Contact our team for a confidential review of your estate plan.

This article is for general information only. Tax rules — including those relating to IHT — changed significantly in April 2025 and may change further. Nothing here constitutes personal legal or tax advice. Always seek independent professional guidance tailored to your circumstances. Investments can fall as well as rise in value.