Estate Planning for British Nationals Living Abroad
Estate planning is the most commonly neglected area of expat financial planning. Many people who are diligent about managing their investments, pensions, and tax position do very little to address what happens to their wealth when they die — assuming, often incorrectly, that "living abroad" somehow resolves the UK inheritance tax problem.
It does not. For most British nationals, regardless of where they live, the risk of UK IHT on their worldwide estate persists — often for much longer than they expect. And the stakes are high: without proper planning, HMRC may claim 40% of everything above the nil-rate band from your estate.
This guide explains the key concepts and the steps worth taking.
The Domicile Problem
The UK's inheritance tax system is built around the concept of domicile — a legal concept that is distinct from tax residency, nationality, or the country where you happen to be living.
Broadly speaking, your domicile is your "permanent home" — the country with which you have the most fundamental long-term connection and to which, if you are away, you intend to return. Domicile is determined at birth (based on your father's domicile at the time of your birth, in most cases) and changes only when you take deliberate and permanent steps to establish a new permanent home in another country.
Why does this matter? UK-domiciled individuals are subject to UK IHT on their worldwide assets — regardless of where those assets are held or where they live. An individual with UK domicile who has lived in Spain for 20 years and has assets in Spain, Cyprus, the UAE, and the UK has all of those assets potentially within the scope of UK IHT.
Non-UK-domiciled individuals are subject to UK IHT only on their UK-situs assets (broadly: property, bank accounts, and shares held in the UK).
Deemed Domicile and the New Long-Term Resident Test
The rules around IHT exposure for long-term UK residents changed significantly in April 2025, as part of the broader non-dom reform.
Under the new rules, individuals who have been UK-resident for 10 or more of the previous 20 tax years are treated as "long-term UK residents" for IHT purposes, and their worldwide estate falls within the scope of UK IHT — even if they are not legally UK-domiciled.
Critically, if you leave the UK after having been a long-term UK resident, you continue to be within scope of UK IHT on worldwide assets for a period that depends on how many years of UK residence you had. Individuals with 20 years of UK residence may face a "tail" of up to 10 years after departure before their non-UK assets fall out of the UK IHT net.
This is a major change from the previous deemed domicile rules and one that many internationally mobile individuals are not yet aware of. If you have spent significant time in the UK, even if you have now moved abroad, you should check your position under the new rules.
The Nil-Rate Band and Available Reliefs
The UK IHT nil-rate band — the amount that can be passed on free of IHT — is £325,000 per individual (frozen until at least April 2031 under current plans). A couple can therefore pass on £650,000 without IHT if they leave their estate to each other first.
In addition, the Residence Nil-Rate Band (RNRB) provides an additional £175,000 per individual where the deceased's main home is left to direct descendants. Again, this doubles to £350,000 for a couple — bringing the potential combined nil-rate bands to £1,000,000.
However, the RNRB tapers away for estates worth more than £2 million (at a rate of £1 for every £2 above this threshold), and it only applies where a UK residential property is left to children or grandchildren — making it less useful for many expats who have sold their UK home.
Above the nil-rate bands, IHT is charged at 40%.
Updated Wills in Every Jurisdiction
This is the most basic — and most frequently neglected — element of expat estate planning.
Many British nationals living abroad have a UK will but no will in their country of residence. Some have neither. This is a serious problem for several reasons:
Wills do not automatically apply across jurisdictions. A UK will is a UK legal document. Whether it governs assets in Spain, Cyprus, or the UAE depends on the conflict of laws rules in each country, and those rules vary significantly.
EU Succession Regulation (Brussels IV). Within the EU, the Succession Regulation allows individuals to elect for their estate to be governed by the law of their nationality (i.e., UK law) rather than the law of their country of residence. Making this election in a will can simplify matters — but it must be done explicitly, and the will must comply with the relevant formalities.
Forced heirship. Many civil law countries (France, Spain, Italy, and others) have forced heirship rules that require a certain portion of the estate to pass to children, regardless of the will. A UK will that attempts to leave everything to a spouse may be overridden by local forced heirship rules in the country where assets are held.
Action required. You should have a will in each country where you own assets, reviewed by a lawyer qualified in that jurisdiction. You should also ensure your wills are consistent with each other — it is possible for wills in different countries to revoke each other inadvertently.
Powers of Attorney
If you lose mental capacity while living abroad, someone needs to be able to manage your affairs. A UK Lasting Power of Attorney (LPA) — for health and welfare, and for property and financial affairs — is an important document for anyone, but it does not automatically operate in other countries.
Many countries require a local equivalent — a "procura" in Spain, a "general power of attorney" registered locally in Cyprus or the UAE. Consider whether you need local powers of attorney in each country where you hold assets or live.
Life Insurance in Trust
Life insurance can be a cost-effective way to address an IHT liability — the policy pays out on death, providing a lump sum that beneficiaries can use to pay an IHT bill without having to sell assets.
To be effective for IHT purposes, the policy must be written in trust. A life policy that is not in trust forms part of your estate on death — it increases the size of the estate and the IHT liability. A policy written in trust sits outside the estate and passes directly to the named beneficiaries.
For expats, international life insurance (international universal life) rather than a UK policy is typically more appropriate — UK life insurance policies often have residency requirements and may lapse or be cancelled when you emigrate.
Trusts — A Useful but Complex Tool
Discretionary trusts can play a useful role in estate planning for internationally mobile individuals. The basic concept: assets placed in a trust are legally owned by the trustees, not by the settlor (the person who set up the trust). On the death of the settlor, trust assets do not form part of their estate — they are already held by the trust.
However, trusts for IHT planning in the UK context require careful professional advice:
- Transfers into trust are potentially subject to an immediate IHT charge (above the nil-rate band)
- Trusts are subject to periodic (10-year) IHT charges and exit charges
- The new long-term resident rules affect the IHT treatment of offshore trusts settled by long-term UK residents
- If you set up a trust while UK-resident and then leave the UK, the tax consequences require careful analysis
Trusts work best when established as part of a well-considered long-term plan with professional support — not as a last-minute solution.
The Gifting Strategy
Perhaps the simplest and most widely applicable IHT planning tool is the systematic use of gifting exemptions. Annual gifts that are covered by exemptions leave no IHT liability regardless of when you die.
Key exemptions include:
- Annual exemption: £3,000 per person per year (can carry forward one year's unused allowance)
- Small gifts: £250 to any number of individuals (cannot combine with the annual exemption for the same recipient)
- Wedding gifts: £5,000 to a child, £2,500 to a grandchild, £1,000 to anyone else
- Normal expenditure out of income: Gifts that are genuinely made out of surplus income (not capital) and are a regular pattern can be fully exempt — potentially a very powerful relief for those with high incomes
Beyond these exemptions, gifts are potentially exempt transfers (PETs) — they become exempt if the donor survives seven years. Taper relief reduces the IHT charge on failed PETs made three to seven years before death.
Practical Steps to Take This Year
Understand your IHT position. Are you UK-domiciled? Are you a "long-term UK resident" under the new rules? What is the current value of your worldwide estate?
Update your wills. Have a will in each country where you hold significant assets. Ensure they are consistent.
Set up powers of attorney. UK LPA plus local equivalents where needed.
Review life insurance. Is it written in trust? Is it appropriate for your current situation and country of residence?
Start a gifting programme. Use annual exemptions systematically every year. Document gifts out of income properly.
Consider trust structures. If your estate is large and you have time to plan, discuss with a specialist whether a trust could form part of your strategy.
This article provides general information only and does not constitute financial, tax, or legal advice. IHT rules are complex and changed significantly in April 2025. Always seek professional advice from a qualified adviser. Rules can change.
How Global Investments Can Help
Global Investments helps British expats address their estate planning needs in a coordinated way — working alongside specialist tax lawyers and local legal advisers in each jurisdiction. We can review your overall position, help you understand your IHT exposure under the new long-term resident rules, and develop a practical plan that fits your situation. Contact us to arrange an initial conversation.
This article is for general information only and does not constitute financial, legal or tax advice. Rules, prices and regulations change; verify current requirements with a qualified adviser before acting.