Entity Setup
Entity Setup Insight: Exit Charges and Caps under the Residence-Based Non-dom Regime
Trustees and individuals under the new residence-based system will face new Inheritance Tax exit charges and a £5 million cap for certain offshore trusts—key for entities set up before 30 October 2024.
By NomadicTax Research Team • 5-8 min read • April 14, 2026
## Background: Abolition of Domicile and Rise of the Residence-Based Regime
As of **6 April 2025**, the UK replaced the outdated concept of *domicile* with a **residence-based tax regime**. Under this, UK long-term residents (10 out of 20 years) are taxed on foreign income, gains, and non-UK assets held in trusts. ([gov.uk](https://www.gov.uk/government/publications/budget-2025-overview-of-tax-legislation-and-rates-ootlar/budget-2025-overview-of-tax-legislation-and-rates-ootlar?utm_source=openai))
## Trusts: Exit Charges and Cap on Relevant Property
For trusts settled by formerly non-domiciled individuals holding **excluded property** on **30 October 2024**, new rules cap the inheritance tax relevant property charges to **£5 million per 10-year cycle**, effective from **6 April 2025**. ([gov.uk](https://www.gov.uk/government/publications/capping-inheritance-tax-trust-charges-for-former-non-uk-domicile-residents/cap-inheritance-tax-trust-charges-to-5m-for-former-non-uk-domiciles-from-6-april-2025?utm_source=openai))
These reforms include:
- Making non-UK assets in trusts subject to IHT if settled by long-term UK residents.
- A transitional cap for trusts already holding excluded property before 30 October 2024.
- Estate and trust-level planning needed to address exit charges and preserved benefits.
## Practical Strategy for Entity Setup and Trust Owners
- **Assess trust architecture**: identify trusts settled before or after 30 October 2024. Those before can benefit from the cap; those after may be fully exposed to charges.
- **Evaluate exits and ten-year charges**: plan distributions or exit events to align with 10-year cycles and manage exposure to IHT.
- **Documentation and valuation**: confirm property is ‘excluded’ as of relevant date; ensure updated valuations and accurate records.
## Illustration
- Trust settled in 2023 by formerly non-domiciled individual holds £10m of non-UK investments as excluded property. From 6 April 2025, only up to **£5m** relevant property trust charges per cycle are applicable; the rest should be protected under the cap.
- Trusts created in 2025 onward are fully in scope, without cap, for any non-UK property they hold.
## Setup Tips Before Key Dates
- Finalise trust deeds and settlements before 30 October 2024 if possible—or verify status.
- For new entity structures, consider consulting on whether trust vs non-trust, or corporate holding structures, may be more beneficial.
- Identify whether carried interest or pension benefits could interact with trust or estate IHT exposure.
For entity setups and legacy structures, understanding these caps and exit-edge exposures can drive smarter planning and considerable savings.