Tax Planning

Optimising Inheritance Tax for International Trusts Under the New Residence-Based Regime

Legislation now requires equal treatment for UK and overseas investors in UK agricultural property and strengthens anti-avoidance for trusts under the new residence-based IHT regime, effective April 2026.

By NomadicTax Research Team • 5-8 min read • February 26, 2026

## Overview of Residence-Based IHT Changes The **Budget 2025** introduced a **residence-based Inheritance Tax regime** that took effect from **6 April 2025**, dismantling several features of the non-dom regime. ([gov.uk](https://www.gov.uk/government/publications/budget-2025-document/budget-2025-html?utm_source=openai)) Key changes include: - Trusts and overseas entities holding **UK agricultural land or property** will be treated like UK trust bodies—value inside trusts is assessed for IHT regardless of where the trust is situated. ([gov.uk](https://www.gov.uk/government/publications/budget-2025-document/budget-2025-html?utm_source=openai)) - Gifts made to non-UK charities or trusts no longer qualify for full UK charity exemption unless they meet strict UK definition. ([gov.uk](https://www.gov.uk/government/publications/hm-revenue-and-customs-trusts-and-estates-newsletters/hmrc-trusts-and-estates-newsletter-february-2026?utm_source=openai)) - When a settlor ceases to be a long-term UK resident, an **exit charge** will apply on any subsequent change of situs of trust assets that migrates them outside UK jurisdiction. ([gov.uk](https://www.gov.uk/government/publications/hm-revenue-and-customs-trusts-and-estates-newsletters/hmrc-trusts-and-estates-newsletter-february-2026?utm_source=openai)) ## Implications for Trusts and Foreign Investors - Overseas investors in UK agricultural property will now face IHT exposure similar to UK residents—value “looked through” trusts will not shelter such assets. - Trusts that previously relied on changing situs or utilizing non-IHT jurisdiction may now face **exit charges**. - Gifts to certain foreign charities or organizations not recognized under UK charitable regs may face full IHT liability. ## Planning Examples _Example 1: Agricultural Land Held via Foreign Trust_ Sarah owns UK farmland held through a foreign trust. Under new rules, value of that farmland will be brought into IHT valuation even if trust is non-UK. The trust needs to assess whether restructuring (such as bringing ownership inside a UK entity) or acquiring insurance or advance gifting may be optimal. _Example 2: Settlor Leaves UK but Holds Foreign Trust_ James was a long-term UK resident and set up a trust with assets inside UK. He then emigrates. On exit, any change of situs of trust property will trigger an IHT charge. He may consider redeeming or transferring assets before exit to reduce potential IHT liabilities. ## Actionable Steps for Trustees and International Investors - **Review estate and trust documents** to identify UK land, agricultural property, and ensure correct valuation for IHT - Consider **lifetime gifts** where feasible, especially before changing residency - If using foreign trusts, check if they meet UK trust‐body obligations or can be reconstituted in UK laws - Map out the **exit charge** risk—timing matters if you are relocating or relinquishing UK domicile connections - Employ IHT mitigation tools (business or agricultural property relief, life insurance) where they align with revised rules ## Takeaways - Residence-based IHT regime closes major non-dom trust-property loopholes - UK agricultural property in trusts is no longer automatically shielded - Trustees and overseas clients must stay updated and possibly adjust structures before liabilities crystallize As estate and trust advisors know, tax has changed for the non-resident and trust-holding realm—what worked before may no longer work under the residence-based regime.