As the UK tax landscape goes through a period of change, individuals with international ties must now navigate two residence frameworks. The new concept of Long-Term Residence (LTR) replaced the long-standing domicile-based approach and sits alongside the well-established Statutory Residence Test (SRT). While they both assess an individual’s connection to the UK, they serve distinct purposes and have different implications for income tax, capital gains tax and inheritance tax.
This article outlines the key differences between the two, why they matter, and what you need to know if you are planning to leave the UK, already live abroad, or are preparing to move back to Britain.
While most UK tax reforms over recent years can have a negative impact on wealth, the introduction of Long-Term Residence stands out as a welcome move for many. Long-term expatriates and those returning to the UK could greatly benefit, provided they plan their affairs strategically.
The Statutory Residence Test (SRT): your annual residency status
The UK Statutory Residence Test, introduced in 2013, determines whether you are UK tax resident in a given tax year. This status affects your liability for income tax and capital gains tax on worldwide assets.
The SRT is structured around three key tests which you work through in order. If you are non-UK resident under the first one, the other two do not apply. In summary:
- Automatic Overseas Test – You are non-UK resident if you spend fewer than 16 days if previously resident over the last three years, or fewer than 46 days if you have been non-resident for longer, as well as if you work full-time abroad with limited UK presence.
- Automatic UK Test – You are resident if you spend 183+ days in the UK, your only home is in the UK, or you work full-time in the UK.
- Sufficient Ties Test – If neither of the above applies, this test considers your UK ties (family, accommodation, work, etc.) and number of days spent in the UK.
The Statutory Residence Test is applied annually and its outcome determines whether you are taxed on your worldwide income and gains or only on UK-sourced income. The one exception is for foreign income and gains for those who are tax resident but do not meet the long-term residence criteria.
The new Long-Term Residence (LTR) Rules: A game-changer for inheritance tax
From 6 April 2025, the UK replaced its long-standing domicile-based approach to inheritance tax with a residence-based system. Under the new rules, you will be considered a Long-Term Resident if you have been UK tax resident for at least 10 of the previous 20 tax years. This status is determined using the Statutory Residence Test.
The key implications of Long-Term Residence status include:
- Inheritance tax: Anyone classified as Long-Term Resident is liable to UK IHT on their worldwide assets, not just UK-sited ones.
- Tail period: If you leave or have left the UK, you retain your LTR status – and remain within the scope of UK IHT – for up to 10 years, depending on how long you were previously resident.
- Long-term expatriates: Once you are non-UK resident for 10 years, your IHT liability is limited to assets you maintain in the UK.
- No relevance of domicile: The concept of domicile is no longer relevant for tax purposes.
- Foreign income and gains (FIG): Anyone moving to the UK who is non-long-term resident can benefit from a tax exemption on foreign income and gains for up to four years.
Statutory Residence Test vs Long-Term Residence: the differences
| Statutory Residence Test (SRT) | Long-Term Residence (LTR) |
| Purpose | Determines annual tax residency for income and capital gains tax | Determines exposure to UK inheritance tax on worldwide assets |
| Basis | Applied year-by-year using a three-part test | Based on residency history over the last 20 years |
| Threshold | Automatically resident if >183 days or day limit determined by the SRT | 10+ years of UK tax residence in the past 20 |
| Tax impact | Affects income and capital gains tax | Primarily affects inheritance tax, though also foreign income/gains for new residents |
| Exit implications | Residency ends the year when SRT conditions are no longer met | LTR status may persist for up to 10 years after leaving the UK |
Why this matters – key points
If you have left the UK, or plan to return or have recently moved back, or if you spend significant time in two or more countries, understanding both the SRT and LTR rules is essential for effective tax and estate planning.
- You can only be a tax resident in one country at a time and cannot choose where to pay annual taxes. Your tax residence is determined by the UK Statutory Residence Test where applicable, and the residency rules in your country of residence. If you meet the residence criteria for both, the ‘tiebreaker’ rules outlined in the relevant double tax treaty determine where you pay your taxes that year. If you live in one country and earn income in another, follow the tax treaty to establish where you must declare the income and pay tax.
- When it comes to inheritance tax, long-term British expatriates no longer need to worry about the uncertainty of the domicile regime. After 10 years of non-UK residence, assets outside the UK do not fall within the scope of inheritance tax.
- It is advisable for British expatriates to reassess which, if any, UK assets they need to retain, especially if you intend to live abroad permanently. From 2027, your UK pension funds will form part of your estate for IHT purposes, along with any other UK assets. Anything over €325,000 per individual is taxed at 40%.
- If you return to the UK after 10 years of non-residence, your non-UK assets will remain outside UK IHT for 10 years. Take personalised advice to review and restructure your assets in advance of returning to fully benefit from the new system.
- And when moving back to the UK, you may also benefit from a four-year exemption on foreign income and gains under the new Foreign Income and Gains regime. This FIG regime again provides opportunities to improve your tax position.
Whether you already live abroad, or are planning to relocate, now is the time to review your residency history, reassess your structures, and seek expert advice. The earlier you act, the more options you’ll have to protect your wealth and legacy.
While the Statutory Residence Test has always been relevant, the introduction of Long-Term Residence marks a new chapter for UK inheritance planning and presents opportunities for protecting your family and heirs. Specialist cross-border tax and wealth management advice, specifically structured around your family circumstances and wishes for your loved ones, will prove invaluable here.
Blevins Franks has excelled at international estate planning for decades, covering the UK, Spain, France, Portugal, Cyprus, Malta and Monaco. Get in touch today for bespoke advice and strategic financial planning solutions.
