The UK’s domicile regime has been abolished for tax purposes. The new residence-based system provides much more certainty for UK inheritance tax, and full freedom in some cases. Expatriates returning to the UK also benefit from the ‘FIG’ (foreign income and gains) tax regime.
While liability to many taxes depends on your residence status that specific year, UK inheritance tax (IHT) has long been based on a vaguer domicile regime. Your British domicile could follow you around the world for long periods of time, and many expatriates remained subject to UK inheritance tax on their worldwide assets, even when living abroad for over 10 years.
Domicile, or non-domicile in this case, also offered tax benefits to foreign nationals living in the UK, a system which proved controversial at times.
The unpopular domicile and deemed domicile regime came to an end on 6 April 2025, when new long-term residence rules come into effect. This is for tax purposes; domicile remains relevant for other issues such as matrimonial law and succession.
The new system provides much more clarity and certainty about expatriates’ inheritance tax position and makes cross-border estate planning more straightforward. Those moving to the UK, whether British expatriates returning home or foreign nationals, could also benefit from tax advantages for a number of years if they do not meet long-term residence criteria.
UK long-term residence definition
Whether or not you are a UK long-term resident depends on your tax residence status (as determined by the UK’s statutory residence test) and the number of tax years.
You classed as a long-term resident in the UK if you meet either of the following criteria:
- You were tax resident in the previous 10 consecutive years
- You were tax resident for a total of 10 or more years over the previous 20 years
Long-term residence affects:
- Your liability to UK inheritance tax
- Tax on foreign income and gains for those moving to UK
Long-term residence and UK inheritance tax
Long-term residents are liable to UK inheritance tax on their worldwide estate. This is regardless of nationality and where your assets are located.
Expatriates may also be liable to an inheritance tax in their country of residence. In this case, establish if you are subject to both taxes (as is the case in Spain, though credit is given in Spain for tax paid in the UK), or if a specific double tax treaty determines where you pay tax (as is the case in France).
Once you no longer meet the UK long-term residence criteria – and many expatriates will already be in this position – only assets situated in the UK will be liable for inheritance tax. The less assets you retain in the UK, the less likely you are to breach the IHT nil rate bands. Bear in mind, however, that UK pensions funds become subject to inheritance tax in 2027, a move that will push many more families into the IHT net.
Expatriates and those leaving the UK
You keep your long-term residence status – and so remain caught by the ‘IHT tail’ – for up to 10 years after leaving the UK.
Whether it is the full 10 years or less will depend on how long you were UK resident over the previous 20 years. The shortest IHT tail possible is three years, which applies to those who only lived in the UK for 7 to 10 of the 20 years before departing. Individuals leaving the UK for the first time, for example to enjoy their retirement years abroad, will retain their status for the full 10 years.
Take this opportunity to review your estate plan and establish the most tax-efficient transfer of wealth to your heirs. Take both the UK and local rules in your country of residence into account to establish the most effective cross-border solution.
Returning to the UK and inheritance tax planning
Depending on how long you lived abroad, your non-UK assets could remain outside the scope of inheritance tax until you meet the long-term residence criteria, with a maximum of 10 years.
If you return to the UK after 10 consecutive years abroad, you will not be classed as a long-term resident until you have been back 10 years. Over this period, for UK inheritance tax purposes your estate will only comprise assets located in the UK.
This new regime provides opportunities for effective succession planning for British expatriates returning to the UK. With strategic advance planning, you could potentially make the UK an IHT-free zone for up to 10 years.
Once you decide to move back, review your wealth management as soon as possible. Analyse where and how you hold your assets, reevaluate old and perhaps outdated estate planning arrangements, and look ahead at how assets will transfer down over the generations.
Returning to the UK and the FIG regime tax benefits
The new system that came into effect in April 2025 also includes the ‘FIG’ regime for foreign income and gains. This tax benefit is available to individuals moving or returning to the UK after being non-UK resident for at least 10 years.
For the first four years of UK tax residence, your foreign income and gains could be tax free in the UK. This applies even if you remit the income into the country, provided it is generated from assets in a foreign jurisdiction. It does not apply automatically; you will need to make a claim for the FIG regime.
Once the four years are over you will pay UK tax on worldwide income and gains, unless you leave the UK again before your fifth year of tax residence commences.
Tax and inheritance planning
With careful structuring of your assets, the UK’s new residence-based rules can unlock significant tax and estate planning advantages for British expatriates and those relocating to the UK. However, navigating the complexities of cross-border tax and succession laws requires expert guidance.
That’s why it’s essential to seek advice from a cross-border wealth management specialist. They can help you comply with the legal requirements of each jurisdiction while optimising your arrangements to protect your wealth and secure your legacy.
At Blevins Franks, we tailor our strategic financial planning to your unique circumstances, family dynamics and long-term goals. Our integrated approach spans tax planning, succession, investments, and pensions – giving you confidence that your affairs are in order, your tax liabilities are minimised and your wishes for your heirs will be fulfilled.
If you have questions about the new UK rules or would like a personalised review of your tax and estate planning, contact us today. We’re here to help you make the most of your financial future.
