What’s Happened
Under the IHT reforms introduced alongside Budget 2025, the concept of domicile has been replaced by long-term UK residence for determining liability on non-UK assets and trusts. From 6 April 2025, non-UK assets could be subject to UK IHT if an individual has been resident in the UK for 10 of the last 20 tax years (gov.uk).
Previously excluded property trusts (non-UK trusts) may now lose their exclusion status if the settlor is a long-term UK resident, or benefits flow to a long-term UK resident beneficiary; exit charges may arise when this status changes (gov.uk).
Who Needs to Act
- Individuals with overseas assets: Real estate, bank accounts, shares outside the UK might now fall into IHT calculations.
- Trustees: Those managing trusts settled by people who are or become long-term UK residents must assess whether assets remain excluded or become chargeable.
- Offshore trusts and exclusions: Trusts that were previously excluded under the old domicile-based rules may now require reporting and valuation under new rules, especially when settlor residence or beneficiary status triggers change (gov.uk).
Practical Examples
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Example 1: Maria moved to the UK in 2014 and has been resident every year since. In 2025 she dies owning non-UK property. Under new rules, these assets are included in her estate for IHT because she meets the 10-of-20-year rule.
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Example 2: A trust set up by John in 2018 who later becomes long-term UK resident will see the trust’s non-UK property become taxable under IHT law, especially if the beneficiaries are UK residents or John has been long-term UK resident when the trust is charged (e.g., at death or exit) (gov.uk).
Steps to Take Now
- Audit your estate and overseas assets: make sure valuations are up-to-date and you’re aware of what may fall into scope.
- Review trust structures: especially where settlors or beneficiaries may cross into long-term UK residence.
- Consider filing updated reports or schedules (IHT401a, D31a, D31b) if required under the new guidance (gov.uk).
- Where applicable, plan gifts, use reliefs, or restructure ownership before or early in your period of UK residence.
The IHT reforms represent a major shift. Although many will be unaffected, those with foreign property, trusts, or complex family arrangements should start considering their strategies now.