Last Updated on 28th May 2025
Inheritance tax, or IHT, is complex and often misunderstood. Many expatriates, including those who have lived overseas as tax residents for many years, assume their estates are no longer subject to IHT but don’t realise that their domiciliary status has, until very recently, meant that some or all of their assets remain liable.
Following reforms announced on 30th October 2024 and introduced on 6th April 2025, the UK government has changed the way overseas expatriates are assessed for IHT exposure, which could dramatically impact your estate and succession planning.
We’ll summarise the changes and what they mean, but it remains essential to highlight that IHT isn’t only relevant to UK residents. Any expatriate should consult a knowledgeable, independent professional to ensure their estate and inheritance plans are solid and future-ready.
Major Changes to UK Inheritance Tax for Expatriates Living Overseas
Traditionally and for many years, UK IHT obligations depended on whether the person was considered a domicile. Non-domiciles, or non-doms, were subject only to tax on assets based in the UK. In contrast, domiciles, including most people born in Britain, were exposed to IHT against their worldwide assets.
The rules around deemed domiciliary status have been tightened, but the criteria are notoriously complex. Some expatriates found that living partially or occasionally in the UK, for instance, could mean their global estate was liable for IHT, or this may have been discovered by their beneficiaries after their death.
Under the new reforms, the big difference is that domiciliary status is no longer the primary basis on which expatriates are categorised for IHT. Instead, the government will levy IHT against the worldwide estates of individuals who have been UK residents for ten of the last 20 years.
This may seem more simplified and easier to quantify, but it remains important to understand the criteria for residency for tax purposes in different jurisdictions, including the Statutory Residence Test, especially if you have assets in multiple counties or split your time between several tax jurisdictions.
How the Statutory Residence Test Could Impact Your Exposure to UK Inheritance Tax
The Statutory Residence Test, or SRT, has existed since 2013 and acts as a framework that helps tax authorities decide whether an individual is considered a tax resident in the UK for a specific period. If so, they are then subject to income and capital gains tax on their worldwide income and qualify as residents for that year for future IHT assessments.
Each assessment relies on a series of tests as follows:
- The automatic overseas test includes several criteria, any one of which may mean a person is automatically deemed a non-resident, such as spending a minimal number of days in the UK in that tax year or not having visited at all.
- Automatic UK tests work the opposite way and determine the circumstances under which a person is automatically considered a UK resident—that could include having a primary residential home in the UK.
- Sufficient ties tests apply if any uncertainty remains and provide tiebreakers that attempt to clarify how the person should be categorised for tax purposes. This can be complex but looks at employment income, the location of the individual’s family, the number of days spent in each location, and how much time they spent in the UK in previous tax periods.
Going forward, the SRT is the most relevant way for expatriates to determine whether or not they are likely to be subject to inheritance tax. An individual found to have been a UK tax resident in 10 of the last 20 years will normally be considered a long-term resident, which means the whole of their estate is exposed to IHT.
In most cases, UK-based assets are typically subject to inheritance tax either way, but a long-term resident’s estate will be subject to the tax on all assets held in any location, including property, cash, and shareholdings.
An Overview of the UK Inheritance Tax System
Many financial advisers and wealth managers consider inheritance tax voluntary, primarily because there are various ways to structure assets and wealth efficiently and compliantly without attracting a significant tax burden.
That said, there is ample reason many citizens and overseas expatriates are keen to clarify their IHT status because:
- Exemptions only apply to estates worth up to £325,000 in total or if everything above that threshold is left to a spouse, civil partner, charity or a community amateur sports club. Any unused allowance can also be passed to a partner when one person passes away.
- Thresholds only increase in some circumstances, such as a £500,000 limit when leaving a property to children or grandchildren.
- The inheritance tax rate is 40%, applied to all assets above the threshold.
- Gifting assets has often been considered a way to avoid IHT, but this only applies to gifts made more than seven years before the original owner’s death.
Last year, HMRC collected £7.5 billion in inheritance tax, a value that has increased steadily every year since around the 2009/10 tax year. Taking action in advance is essential, ensuring that beneficiaries and heirs are not hit with an unexpected tax burden when it is too late to do anything to mitigate it.
Independent Advice on Navigating the Changes to Inheritance Tax Legislation for Expatriates
These reforms are recent but could have a sizable impact, and our advice is always to seek professional guidance if you have any uncertainty about your estate’s exposure to UK IHT or liabilities for wealth, property, gift, or succession tax in another jurisdiction.
Proper estate planning ensures your plans are fully up to date, incorporate the latest tax rules and thresholds, and protect the values you intend to share with your future beneficiaries while safeguarding their inheritances by incorporating tax-efficient structures.
Our teams consult with clients worldwide, crafting inheritance tax strategies bespoke to their circumstances, wishes, and estates. For a private discussion with the IHT experts, contact your local Chase Buchanan Wealth Management office to explore which routes offer you the most tax-efficient options.
All investments carry risk, including the potential loss of capital. You should carefully consider whether investing is suitable for you, taking into account your personal circumstances, financial situation, and risk tolerance.
*Updated June 2025
