Inheritance Tax Planning for UK Nationals Living Abroad

For UK nationals who have built careers, families, and wealth across multiple countries, inheritance tax (IHT) can come as a shock. Many assume that leaving the UK ends their exposure to UK IHT. The reality is considerably more complicated — and the legislative reforms introduced between 2025 and 2027 have tightened the rules further. This guide explains how IHT applies to UK nationals living abroad and sets out the planning options available.

The Foundation: Domicile and the New Residence-Based Rules

Until recently, UK IHT was based primarily on the concept of domicile — a common law concept that determines your "permanent home" connection to a jurisdiction. Under the old rules, UK-domiciled individuals were liable to IHT on their worldwide assets; non-UK-domiciled individuals were only liable on UK-situated assets.

The 2025 Reforms

From 6 April 2025, the UK moved to a residence-based system for IHT (alongside the new Foreign Income and Gains regime for income and capital gains). The key points are:

• A person is within the scope of UK IHT on their worldwide assets if they have been UK resident for at least 10 of the last 20 tax years (the "long-term resident" test).
• Once you become a long-term resident, you remain within the worldwide IHT net for a tail period of up to 10 years after ceasing to be UK resident — the length of the tail depends on how long you were UK resident.
• UK-situated assets remain within UK IHT regardless of residence status.
• The concept of deemed domicile for IHT purposes has been replaced by the long-term resident test, though transitional provisions apply for those who had already acquired deemed domicile status.

For UK nationals who have emigrated, the critical question is: were you UK resident for 10 or more of the 20 tax years ending in the year of the relevant event (gift, death, or charge on a trust)? If so, worldwide IHT exposure remains.

The "Tail" After Leaving

The tail period means that simply leaving the UK is not an immediate solution. A person who has been UK resident for 20 consecutive years will have a 10-year tail after departure; one resident for 10 years will have a shorter tail. During the tail, all worldwide assets remain exposed to UK IHT. Only after the tail expires does the worldwide exposure end (at which point only UK-situated assets remain chargeable).

This is a significant change from the old deemed domicile rules, which operated on a 15-year test. Those who left the UK before April 2025 under the old rules need to take advice on how transitional provisions apply to their specific situation.

UK-Situated Assets: Always in Scope

Regardless of residence or domicile status, certain assets are always situated in the UK for IHT purposes and therefore always exposed:

• UK land and buildings (including buy-to-let property, commercial property, and agricultural land).
• UK-incorporated company shares (unless quoted on a recognised exchange — quoted shares may be deemed situated where the register is held).
• UK bank accounts held personally.
• UK pension assets that do not qualify for excluded property treatment.
• UK government securities (gilts) held by most non-residents are actually exempt — this is one of the few planning-friendly exceptions.

Non-UK-situated assets — overseas property, foreign bank accounts, foreign shares — will only be within UK IHT scope for long-term residents during their tail period.

The Nil Rate Band and Residence Nil Rate Band

Every individual's estate benefits from:

• Nil Rate Band (NRB): £325,000 (frozen at this level until at least April 2031).
• Residence Nil Rate Band (RNRB): up to £175,000 additional relief where a qualifying residence passes to direct descendants. This relief tapers away for estates above £2 million.

Unused NRB and RNRB from a deceased spouse or civil partner can be transferred to the surviving spouse, potentially sheltering up to £1 million combined before IHT applies. For UK nationals abroad, the RNRB is relevant wherever the property is UK-situated and passes to qualifying beneficiaries — but for non-resident families living in overseas property, there is no equivalent relief for foreign real estate.

Spouse and Civil Partner Exemption

Transfers between spouses or civil partners are generally exempt from IHT. However, where the receiving spouse is not UK-domiciled (or not a long-term UK resident under the new rules), the exempt amount is restricted. Specific rules apply; professional advice is required for international couples with different domicile or residency status.

Gifts and the Seven-Year Rule

Lifetime gifts to individuals are generally exempt from IHT if the donor survives seven years from the date of the gift. These are called Potentially Exempt Transfers (PETs). If the donor dies within seven years, the gift is brought back into the estate, though taper relief reduces the IHT charge for gifts made between three and seven years before death.

For UK nationals abroad, lifetime gifting can be a powerful strategy — but it requires:

• Genuine unconditional transfer of the asset (the donor must not continue to benefit from it).
• Careful documentation of the gift and its date.
• Consideration of CGT on assets being gifted (a gift is a disposal at market value for CGT purposes).
• Assessment of the recipient's tax position in their own jurisdiction.

Gifts out of normal expenditure from income — the "normal expenditure out of income" exemption — can also be useful for higher earners who regularly give away surplus income. This exemption has no upper limit if conditions are met.

Annual and Other Exemptions

Smaller gifts benefit from various annual exemptions:

• Annual exemption: £3,000 per donor per tax year (any unused amount from the prior year can be carried forward once).
• Small gift exemption: up to £250 per recipient per year.
• Wedding/civil partnership gifts: £5,000 to a child, £2,500 to a grandchild, £1,000 to anyone else.
• Gifts for maintenance of family: can be exempt under specific rules.

These exemptions are modest in the context of larger estates but should form part of a consistent annual gifting programme.

Business Property Relief and Agricultural Property Relief

Assets qualifying for Business Property Relief (BPR) or Agricultural Property Relief (APR) can reduce the IHT charge by 50% or 100%. These reliefs are reviewed in separate articles; in summary:

• BPR applies to interests in qualifying businesses, unlisted shares, and certain AIM-listed shares.
• APR applies to qualifying agricultural property — UK agricultural land, and (in certain circumstances) farmland in the European Economic Area (EEA).
• From 6 April 2026, BPR and APR combined are capped at £2.5 million of 100% relief per estate (per individual), with assets above that threshold qualifying only for 50% relief (a 20% effective IHT rate). The cap was originally announced as £1 million in the Autumn Budget 2024 and raised to £2.5 million in December 2025; the allowance is transferable between spouses and civil partners (up to roughly £5 million per couple). This is a significant change for larger estates.

For UK nationals living abroad with farming or business interests, these reliefs remain valuable but require active management to maintain qualifying status, particularly after the 2026 reform.

Trusts and IHT Planning

Trusts remain one of the most flexible tools in IHT planning for UK nationals abroad. The key trust types are:

• Discretionary trusts: assets transferred in are potentially a chargeable lifetime transfer (CLT) for IHT purposes, subject to the trust's own 10-year anniversary charges and exit charges. However, once assets are settled in trust, they are outside the settlor's estate (subject to reservation of benefit rules).
• Bare trusts: assets pass to the named beneficiary immediately; useful for holding assets for children or grandchildren.
• Loan trusts and discounted gift trusts: structures designed to reduce IHT while allowing the settlor to retain a benefit.

For UK nationals who are still within their tail period, the trust structure does not immediately remove assets from the IHT net — the trust itself may remain within scope of UK IHT if the settlor was a long-term UK resident. The trust structure does, however, provide control, flexibility, and eventual protection once the tail expires.

Offshore Life Assurance

A whole-of-life assurance policy written in trust is a common and relatively straightforward way to provide a lump sum to pay the IHT liability on death. The policy is held outside the estate (if correctly structured), so the payout does not itself attract IHT. Premiums must be affordable and the policy must remain in force. This approach does not reduce the IHT liability itself, but ensures that cash is available to meet it without forcing a sale of illiquid assets such as property.

The Importance of a Will

A will is essential for UK nationals abroad. Without a valid will:

• UK assets will pass under the UK intestacy rules, which may not reflect your wishes.
• Overseas assets will pass under the intestacy laws of the relevant jurisdiction, which vary considerably.
• Delays and costs associated with intestate estates are significantly higher.

For UK nationals with assets in multiple countries, a properly co-ordinated international estate plan — with separate wills or a single will designed to operate across jurisdictions — is strongly advisable. This is addressed in a separate article on international wills.

Action Points for UK Nationals Abroad

1. Establish your residence history — has the 10-year long-term resident threshold been met? How much of the tail period (if any) remains?
2. Identify UK-situated assets — these are always exposed, regardless of tail.
3. Value the estate and estimate the IHT exposure.
4. Review the will — ensure it reflects current wishes and is valid in each relevant jurisdiction.
5. Consider lifetime gifts — start the seven-year clock while assets are manageable.
6. Assess qualifying business and agricultural reliefs — are assets properly structured to qualify?
7. Review trust planning — consider whether a trust structure is appropriate.
8. Consider life assurance — to fund the liability without forced asset sales.
9. Co-ordinate across jurisdictions — ensure the UK plan does not create unintended tax consequences in the country of residence.

How Global Investments Can Help

IHT planning for UK nationals abroad requires an understanding of both UK law and the tax rules of the country where you live. At Global Investments, our advisers work with internationally mobile clients across the international markets we serve — and coordinate with local advisers where cross-border issues arise.

We can help you:

• Assess your UK IHT exposure under the new residence-based rules.
• Design a lifetime gifting programme that reduces your estate over time.
• Review and co-ordinate your wills across multiple jurisdictions.
• Advise on trust structures and their interaction with UK IHT.
• Structure business and agricultural interests to maximise BPR and APR.
• Arrange appropriate life assurance to fund any remaining liability.

The interaction of UK IHT with local succession and gift taxes in other countries is genuinely complex. Taking early advice — before large assets change hands, and well before any health event — is always preferable to late-stage planning. Tax treatment depends on individual circumstances and the law may change; all figures in this guide are as of 2026. Seek professional advice tailored to your situation.