Inheritance Tax for Non-Residents: Think You’re Safe? Think Again

Inheritance Tax for Non-Residents has changed in ways many people aren’t prepared for. From 6 April 2025, the UK scrapped the long-standing domicile-based rules and introduce a residence-based system — and if you’ve ever lived or owned property in the UK, this could have far-reaching consequences.

Even if you’ve moved abroad, your worldwide estate may still fall within the UK tax net. With limited time to act, non-residents need to understand the risks — and plan now, before these new rules come into force.

Residency, Not Domicile: The Core Shift

Until now, UK Inheritance Tax for Non-Residents has largely depended on one test: domicile. If you were not domiciled in the UK, only your UK-sited assets — such as property — were subject to IHT.

But from 6 April 2025, that’s changing. The UK is replacing the domicile-based approach with a residence-based regime. If you’ve been UK resident for at least 10 of the previous 20 tax years, you’ll be classified as a long-term UK resident — and that means your entire global estate could be brought within the scope of UK IHT.

This rule applies even if you’ve left the UK. Simply moving abroad does not break the tax link — and this misunderstanding could prove costly for non-residents who wrongly believe they’re out of reach.

This change represents a fundamental shift in how IHT works — and for international families, long-term expatriates, or returning Brits, it introduces significant new exposure

Explore our Inheritance Tax and Estate Planning services to ensure your current position is still tax-efficient.

The 10-Year Tail: You Might Not Be ‘Out’ When You Leave

One of the most striking features of the new Inheritance Tax for Non-Residents regime is the introduction of a “10-year tail” — a rule that extends your exposure to UK IHT even after you’ve left the country.

Under the 2025 reforms, individuals who are classified as long-term UK residents (having been UK resident for 10 out of the previous 20 tax years) will remain liable to UK IHT on their worldwide estate for a number of years after ceasing UK residency.

After you leave the UK, your worldwide estate may remain within the UK IHT net for a period that depends on your length of UK residency prior to departure. For instance, if you were UK resident for 10 to 13 years, the tail period is 3 years. This period increases by one year for each additional year of residency, up to a maximum of 10 years for those with 20 years of UK residency.

So even if you’ve relocated and are tax resident elsewhere, your estate may still fall under UK IHT — for up to a decade.

Example: If you were UK resident for 18 years before relocating abroad, your worldwide estate would remain within the UK IHT scope for 8 years after departure. Therefore, if you pass away within 8 years of leaving the UK, your global estate could still be subject to UK IHT.

This tail clause is one of the most misunderstood risks in the new regime. It requires careful timing — especially for those planning international moves or restructuring their estates late in life.

Get in touch with Nichols & Co. for support aligning your residency history with estate planning goals.

Trusts Under the Spotlight

Trusts have long been a popular estate planning tool for non-residents — especially for shielding overseas assets from UK Inheritance Tax. But under the 2025 residence-based rules, that protection may be significantly weakened.

From 6 April 2025, trusts may fall within the UK IHT net if the settlor is a long-term UK resident (having been UK resident for at least 10 out of the previous 20 tax years) or was UK-resident at the time of settlement. IHT charges may be triggered at specific events, such as ten-year anniversaries of the trust, when assets are distributed, or upon the death of the settlor or a beneficiary.

This means that even trusts holding non-UK assets may now be subject to UK IHT if there’s a UK residency link.

In many reviews we’ve carried out, clients had assumed their offshore trusts were fully protected. But if those trusts were settled during a period of UK residency — even many years ago — they may now be unexpectedly exposed under the 2025 reforms.

This is especially relevant for:

• Trusts settled by individuals who are still within the “10-year tail”
• Trusts where the settlor or beneficiaries remain UK-resident
• Non-UK domiciled individuals who mistakenly believed residence wouldn’t matter

Understanding how UK IHT now interacts with both the residence history of the settlor and the location of trust assets is critical. Without a full review, long-standing trust strategies could become unintentionally inefficient — or even create tax liabilities that were never originally planned for.

What This Means in Practice

Trusts may become liable to UK IHT:

• At ten-year anniversaries
• When assets are distributed
• Upon the death of the settlor or a beneficiary

This is true even if:

• The trust holds only offshore assets
• You are no longer UK resident
• The trust was originally thought to be outside the UK tax net

If you were UK resident when you settled a trust — or are considered a long-term UK resident under the new rules — your trust could now trigger IHT on assets previously deemed “safe.”

Worse, trusts may move in and out of the IHT net over time, based on your residency status at different stages — creating uncertainty and complexity for settlors and beneficiaries alike.

What You Should Do

With these changes looming, it’s vital to:

• Review the date and location of trust creation
• Check the settlor’s and beneficiaries’ UK residence status
• Assess potential IHT triggers across the trust’s lifecycle

Trust planning for international families is no longer a “set and forget” strategy — proactive restructuring is essential to preserve value and avoid exposure.

Our team at Nichols & Co. can assess whether your existing trust structure is still tax-efficient under the 2025 regime — and if not, help you reconfigure it confidently.

Don’t Fall Into These Common Traps

With the new 2025 rules, Inheritance Tax for Non-Residents is no longer as straightforward as “if I leave, I’m safe.” In fact, the most common IHT pitfalls come from false assumptions — and these can prove costly for your estate, your beneficiaries, and your legacy.

Here are five traps we frequently see:

1. Assuming You’re Out of Scope Because You’ve Left the UK
   
   A common misconception is that leaving the UK immediately removes your estate from UK IHT liability. However, due to the ‘tail’ period, your worldwide estate may remain within the UK IHT net for several years post-departure, depending on your length of prior UK residency.
   
2. Forgetting About Old UK-Based Trusts
   
   Trusts set up during your UK years may still drag overseas assets into IHT scope — even if they were previously offshore.
   
   You need to reassess whether any UK connections exist in the structure, particularly around the settlor and beneficiaries
   
3. Relying on Outdated Advice Based on Domicile
   
   The move away from domicile-based IHT changes everything. If your estate planning was built around non-domicile status, it may no longer work under the new rules.
   
   Residence history now matters more than domicile alone.
   
4. Waiting Too Long to Review Your Position
   
   Delaying action could mean you miss out on key planning opportunities, such as restructuring trusts or gifting strategies before 6 April 2025.
   
   Once the new rules are live, your exposure may already be locked in.
   
5. Thinking HMRC Won’t Enforce
   
   HMRC is tightening its approach to international estates, and penalties for non-compliance can be severe. A failure to report or prepare properly can lead to disputes, investigations, and delays in probate.

Many non-residents don’t even realise they’re still exposed. That’s why early advice and a fresh estate review are essential — especially if your last review was based on older rules.

Not sure where you stand? Our team can help you review and restructure before the changes take effect.

What You Can Do Now

With the UK shifting to a residence-based Inheritance Tax system in April 2025, now is the time to act — before the window closes.

Here’s where to start:

• Review your UK residency history — Check how many tax years you’ve been UK resident in the past 20. This determines your long-term residency status.
• Revisit any trusts created while UK resident — Trusts created while UK-resident may be within scope even if now held offshore.
• Don’t assume you’re in the clear — the new “10-year tail” means you could still be liable years after relocating.
• Seek expert advice — small missteps could lead to large tax bills later.

These changes are complex — and waiting could cost you. Early action now could make a major difference.

How Nichols & Co. Can Help

The new rules around Inheritance Tax for Non-Residents bring greater risk — but also opportunities for those who plan ahead. Whether you’re leaving the UK, managing a cross-border estate, or reassessing old trusts, our team can help you stay one step ahead.

We work with high-net-worth individuals, international families, and globally mobile professionals to:

• Assess and limit UK IHT exposure
• Restructure trusts and estate plans
• Align your residency and timing with long-term tax strategy

Need tailored advice before the rules change? Contact Nichols & Co. today for expert, no-fuss guidance — and protect your legacy with confidence.