Citizenship, Domicile and Inheritance Tax: How Nationality Shapes Your Estate Planning

For internationally mobile high-net-worth individuals, inheritance and estate taxes present some of the most complex planning challenges in wealth management. Unlike income tax — where an individual's obligations are relatively well-defined by residency and source — estate and inheritance taxes draw on concepts of domicile, nationality, situs of assets, and treaty coverage that interact in ways that can produce unexpected double taxation, or unexpected relief, depending on the specific configuration.

The acquisition of a second citizenship, or the change of a primary residency, can materially alter estate tax exposure. So can the failure to plan properly. This guide explains the key concepts and their interaction with citizenship and residency planning, with a focus on the UK and US regimes as they affect internationally mobile individuals.

Estate and inheritance tax law is jurisdictionally specific, highly fact-sensitive, and subject to legislative change. Nothing in this guide constitutes tax or legal advice. Professional advice from qualified advisers in every relevant jurisdiction is essential before making any estate planning decision.

The Domicile Concept: More Than Just Residence

In common-law countries — the UK, Ireland, Australia, Canada, India, and others — the concept of domicile plays a central role in determining estate tax exposure. Domicile is distinct from citizenship and from tax residency. It refers, in essence, to the jurisdiction that is an individual's permanent home — the place where they intend to end their days.

Domicile is acquired by birth (domicile of origin), can be changed (domicile of choice), and can be attributed by law in some circumstances (domicile of dependency, relevant for spouses in historical periods and for children).

Why domicile matters for UK IHT: The United Kingdom imposes inheritance tax (IHT) at 40% on the worldwide estate of UK-domiciled individuals above the nil-rate band (currently £325,000, though reliefs and spouse exemptions can materially alter the effective threshold). Non-domiciliaries are, by default, subject to UK IHT only on UK-situs assets.

The critical point: domicile can persist even after leaving the UK. Domicile of origin — typically the father's domicile at the time of the individual's birth — is notoriously difficult to shed. A UK-born individual who emigrates to Dubai and spends the rest of their life there may technically retain UK domicile of origin unless they have clearly established a domicile of choice in another jurisdiction. The test is whether they have an animus manendi — an intention to reside permanently in the new jurisdiction.

The historic "deemed domicile" rule. Until 5 April 2025, the UK operated a separate statutory concept of "deemed domicile" that applied for IHT purposes (and, before April 2025, for income and capital gains purposes). Under that now-superseded rule, an individual was deemed domiciled in the UK for IHT if they had been resident in the UK for 15 of the preceding 20 tax years. From 6 April 2025 this deemed-domicile test was abolished and IHT moved to a residence-based system (see the next section). The historic rule remains relevant only when analysing estates and lifetime transfers that fell within the pre-April 2025 regime.

The interaction of domicile and the new long-term-resident test means that a wealthy individual's IHT exposure may be substantially different from what a simple residency analysis would suggest.

The UK IHT Reforms of 2025 and Their Citizenship Implications

The UK's April 2025 reforms to the non-domicile rules replaced the remittance basis regime with a new residence-based framework for income and capital gains tax purposes. For IHT, the reforms replaced the deemed domicile rules with a new "long-term resident" test: an individual who has been UK-resident for 10 of the preceding 20 tax years becomes subject to IHT on worldwide assets.

Critically, under the new IHT framework, an individual who has left the UK retains worldwide IHT exposure for a "tail" period of up to ten years after ceasing UK residence. The length of the tail depends on how long the individual was UK-resident — up to a maximum tail of ten years for those who were resident for 20 or more years.

Citizenship is not the primary driver of UK IHT under the reformed rules — residence and domicile are. But citizenship interacts with these concepts in two important ways:

First, citizenship of another country can be used as evidence that an individual has established a domicile of choice in that country (demonstrating commitment to a permanent home abroad). It is not conclusive evidence — domicile is a question of fact and intention — but it is one factor the courts have considered.

Second, for individuals who acquire UK citizenship as part of a long-term resident naturalisation, the acquisition of citizenship may itself signal the kind of permanent intention to remain in the UK that supports a finding of UK domicile. Estate planning implications should be assessed before, not after, UK naturalisation.

US Estate Tax and Citizenship

The United States imposes a federal estate tax on the worldwide assets of US citizens and US domiciliaries at rates up to 40%. Following the One Big Beautiful Bill Act of 2025, the federal estate and gift tax exemption is USD 15 million per person for 2026, made permanent and index-linked from 2026 onwards. The previously anticipated post-2025 "sunset" to roughly half that level (which would have followed the expiry of the Tax Cuts and Jobs Act provisions) did not occur.

Non-resident, non-citizen (NRNC) individuals are subject to US estate tax only on US-situs assets (broadly: US real estate, US securities held directly, and certain other US assets), with a much lower exemption — USD 60,000 only under domestic law. However, some estate tax treaties increase this exemption for citizens of the treaty partner country.

The difference in treatment between US citizens and NRNCs is material. A US citizen who dies with USD 15 million of worldwide assets faces a very different estate tax calculation than a UK national who dies with the same amount but where only USD 3 million of it is US-situs property.

Citizenship renunciation and estate tax: Renouncing US citizenship does not automatically eliminate US estate tax exposure unless the former citizen also severs their US domicile. The estate tax is imposed on US citizens AND on US domiciliaries. After renunciation, the individual is no longer a US citizen — but if they continue to be domiciled in the US (perhaps because they have not definitively established a domicile of choice abroad), the estate tax on worldwide assets may still apply. Renunciation must be accompanied by a genuine change of domicile to be effective for estate tax purposes.

Inheritance Tax in Civil Law Countries

The UK and US IHT regimes are the most commonly encountered by HNW individuals in the investment migration space, but several other jurisdictions have inheritance taxes that interact with citizenship and residency:

France: France imposes inheritance tax based on the residency of either the deceased or the beneficiary, and the location of the assets. Citizens of countries with which France has an estate tax treaty may qualify for different treatment.

Germany: German inheritance tax applies based on the residency or citizenship of the deceased or the beneficiary. German citizens abroad are not automatically subject to German inheritance tax on worldwide assets (unlike US citizenship-based tax), but German-resident beneficiaries can bring foreign assets into the German inheritance tax base.

Spain: Spanish inheritance tax is applied regionally (each autonomous community has its own rules) and imposes different rates depending on the relationship between the deceased and the beneficiary. Non-EU residents inheriting Spanish assets may face higher effective rates than EU residents.

Italy: Italy imposes inheritance and gift taxes at rates that depend on the relationship between the parties and the nature of the assets. EU and non-EU residency can affect the applicable rules.

Double Taxation of Estates: The Treaty Gap

Unlike income tax, where a dense network of double-tax treaties covers most combinations of residence and source, estate and inheritance tax treaties are relatively sparse. The US has estate tax treaties with approximately 17 countries. The UK has a smaller network. Many combinations of countries — even wealthy OECD countries — have no bilateral estate tax treaty in place.

The result is that an internationally mobile person who dies owning assets in multiple jurisdictions may have those assets subjected to inheritance or estate tax in more than one country without treaty relief. The domestic unilateral relief provisions (which provide a credit for foreign tax paid against domestic tax) may partially alleviate this, but they do not eliminate double taxation in all cases.

This treaty gap is a significant consideration in choosing where to hold assets, where to establish the primary residence and domicile, and how to structure ownership of cross-border property. The answers depend on the specific combination of countries involved and should be assessed by specialist cross-border estate planning advisers.

Planning Strategies at the Citizenship and Domicile Intersection

Establishing a clear domicile of choice abroad. For UK-domiciled individuals who have left the UK, actively taking steps to establish a clear domicile of choice in the new jurisdiction — acquiring citizenship, making a permanent home, demonstrating the intention never to return to the UK to live — is the primary mechanism for escaping the UK IHT worldwide charge (subject to the new tail provisions).

Structuring assets to maximise treaty benefits. Where a treaty exists between the country of domicile and the country where assets are situs, structuring the asset holding to fall within the treaty relief provisions can be valuable.

Trust planning. Trusts can still play a role in UK IHT planning, but the excluded-property trust rules changed fundamentally with the move to a residence-based regime on 6 April 2025: whether non-UK assets settled into a trust are excluded property now depends on the settlor's long-term-resident status at the time of settlement (and on an ongoing basis) rather than on their domicile. Trusts established while a settlor is outside the long-term-resident scope can shelter non-UK assets, but the rules are complex, the position can change if the settlor later becomes a long-term resident, and careful legal drafting is essential.

Gifts. Both the UK IHT and the US estate tax regimes allow for gifts made during lifetime that fall outside the estate on death, subject to survivorship requirements (the UK's seven-year rule for gifts out of estate, the US annual exclusion and lifetime exemption for gifts).

How Global Investments Can Help

Global Investments works with clients on the intersection of citizenship, domicile, residency, and estate planning. We introduce clients to specialist cross-border estate planning advisers — tax lawyers and qualified advisers with expertise in both the relevant sending and receiving jurisdictions — and coordinate the overall planning process.

We review the estate tax implications of citizenship and residency changes as a standard part of our international mobility advisory service, ensuring that clients do not inadvertently alter their inheritance tax exposure without understanding the consequences.

Contact our international team for a confidential discussion of your estate planning in the context of your citizenship and residency arrangements.

This guide is for general educational information only. Inheritance and estate tax law is jurisdiction-specific and subject to change. Nothing in this guide constitutes tax or legal advice. Qualified professional advice in all relevant jurisdictions is essential before making any estate planning decision.