UK Domicile and Inheritance Tax Planning in 2026

Domicile is a concept so misunderstood that many people conflate it with nationality, citizenship, or simply where they live. In fact, it is a distinct legal idea that has shaped the UK's approach to inheritance tax, succession, and private international law for over a century. Despite significant reforms in 2025, domicile continues to carry major financial consequences — and understanding it remains essential for any internationally mobile individual with UK connections.

Domicile vs Residence: Two Different Tests

Residence, as defined by the Statutory Residence Test, tells you where you live for UK tax purposes in any given year. It can change year by year.

Domicile is fundamentally different. It is the jurisdiction you regard as your permanent "home" — the country to which you belong in the deepest legal sense. In UK law, you always have a domicile, and you can only have one at any time. The concept originates in private international law and has been applied by English courts for centuries.

The key point: you can live abroad for decades and remain UK-domiciled. Equally, you can be a UK resident for many years and remain non-UK-domiciled. The two concepts operate on entirely separate axes.

The Three Types of Domicile

Domicile of origin. This is the domicile with which you are born. It is determined by your father's domicile at the time of your birth (or your mother's domicile if your parents were unmarried or your father had died). Your domicile of origin is not necessarily the country in which you were born; a child born in Germany to a British father has a domicile of origin in England and Wales. The domicile of origin has a remarkable legal quality: it revives automatically if you abandon a domicile of choice without acquiring a new one. It is extraordinarily "sticky."

Domicile of dependence. Until the age of 16, a child's domicile follows that of the relevant parent. At 16, the individual gains the legal capacity to form their own domicile of choice.

Domicile of choice. From age 16, an individual can acquire a new domicile by combining two elements: physical presence in a new country, and the intention to remain in that country permanently and indefinitely, with no present intention of ever returning to the former country of domicile. Both elements must be present simultaneously.

Why Acquiring Domicile of Choice is Extraordinarily Difficult

The courts have applied the test for domicile of choice with great strictness. The intention required is not merely "I think I'll stay here for the foreseeable future." It must be a settled, permanent intention to end your days in the new country — what the courts have described as "animo manendi": the intention to remain.

Crucially, any remaining connection with your country of origin that suggests you might return there can be fatal to a domicile of choice claim. The courts have looked at:

• Whether you retain nationality and a passport from your country of origin
• Whether you are registered to vote in your country of origin
• Whether you have written your will under the law of your country of origin
• Whether your family (parents, siblings) remain in your country of origin
• Whether you own property in your country of origin
• Whether you have said in correspondence or conversation that you "plan to return one day"
• Whether the country you claim as your new domicile is one where you actually have the legal right to remain permanently (a precondition, though not always sufficient)

The case law reveals many failed attempts: individuals who lived for 20 or 30 years abroad but retained UK wills, UK club memberships, UK burial wishes, and UK family connections — and were found by the courts to be still UK-domiciled.

The Scottish Dimension

Domicile in the United Kingdom is not a single concept. Scotland has its own private international law, though it broadly follows the same framework. A person may have a Scottish domicile (domicile in Scotland) or an English and Welsh domicile, or a Northern Irish domicile. For UK inheritance tax purposes, all of these are "UK domicile" and produce worldwide IHT exposure. The distinction matters more in succession law — particularly where immoveable property (real estate) is involved — and in questions of which country's courts should apply which country's law.

Deemed Domicile: The Pre-2025 Framework

Before April 2025, long-term UK residents could be treated as "deemed UK domiciled" for IHT purposes after being resident in the UK for 15 of the preceding 20 tax years. This was the "15/20" rule. It meant that even someone with a clear non-UK domicile of origin — say, an Indian national living in London — would be brought into the UK IHT net on their worldwide assets after 15 years of UK residence, even though they had never acquired a UK domicile of choice.

The deemed domicile test also applied to individuals who had previously held a UK domicile and then acquired a domicile of choice elsewhere: they remained deemed UK domiciled for three to six years after departure under various tests.

The 2025 Long-Term Resident Reform

From 6 April 2025, the primary IHT test shifted away from domicile to a new "Long-Term Resident" (LTR) test. The headline principle is:

• If you have been UK resident for 10 or more of the 20 preceding tax years, you are a Long-Term Resident (LTR) and your worldwide assets are within the scope of UK IHT.
• If you have been UK resident for fewer than 10 of the preceding 20 tax years, only your UK-sited assets are within UK IHT.
• Once you leave the UK, you exit LTR status after a period that scales with how long you were resident (a minimum of 3 years for those resident for 10-13 years, rising to 10 years for those resident for 20+ years).

This reform significantly changed the planning environment. The old strategy of establishing a clear non-UK domicile to avoid UK IHT on worldwide assets has been largely superseded. Now, residence history is what matters for IHT — not domicile.

However, domicile remains important in several areas:

1. Excluded property trusts. A trust settled by a non-UK domiciliary before they became an LTR may still protect assets from UK IHT even after the settlor becomes an LTR. The rules on this are transitional and complex, and some protection that existed under the old regime may have been modified by the Finance Act 2025. Specialist advice is essential.

2. Succession law. Domicile still determines which country's succession law applies to moveable property (personal assets) on death. A UK-domiciled individual's moveable assets worldwide are governed by English or Scottish succession law. A non-UK-domiciled individual's moveable assets are governed by their law of domicile. This has practical consequences for forced heirship countries (France, Spain, etc.) and for probate processes.

3. Private international law. For disputes involving trusts, family law, and commercial contracts with international elements, domicile determines jurisdiction and applicable law in many scenarios.

4. Other tax areas. Certain reliefs and exemptions in UK tax law still reference domicile, and there may be residual circumstances where domicile remains relevant even under the new IHT regime.

The Excluded Property Trust: Still Worth Establishing?

An excluded property trust (EPT) is a discretionary trust established by a non-UK domiciliary. Under the original excluded property rules, assets placed into an EPT before the settlor became UK domiciled (or deemed UK domiciled) were excluded from UK IHT for as long as they remained in the trust — even if the settlor later became UK domiciled.

This was the principal tool for long-term UK residents who were non-UK domiciled: establish the trust before reaching the 15-year deemed domicile threshold, put non-UK assets in, and they remain outside the IHT net indefinitely.

Under the 2025 LTR reforms, the window is now measured by the LTR test (10 years) rather than the old deemed domicile test (15 years). The principle of excluded property trusts remains, but the window for establishing them is narrower. Non-UK domiciliaries who have been UK resident for seven or eight years and have not yet established an EPT should take advice urgently.

Practical Planning for Non-UK Domiciliaries

If you are a non-UK domiciliary who has been in the UK for fewer than 10 years:

1. Consider whether your non-UK assets should be placed into an excluded property trust before you meet the LTR test.
2. Review whether you are approaching any thresholds and model the timeline carefully.
3. Understand that establishing a UK domicile of choice would historically have made your worldwide estate subject to UK IHT — now the LTR test is the primary trigger, but domicile may still be relevant for trust planning.

If you are a non-UK domiciliary who has been in the UK for more than 10 years and is now an LTR:

1. Your worldwide estate is subject to UK IHT. UK estate planning strategies — lifetime gifts, trusts, business property relief — now apply to you as they would to a UK-domiciled individual.
2. If you leave the UK, model the "tail period" — how long it will take to exit LTR status and cease worldwide IHT exposure.
3. Review any EPT you established before the LTR threshold was met — the assets in the trust may still be protected, but the rules are detailed.

If you believe you have already lost a non-UK domicile:

1. Do not assume — the question is a legal one, not a factual one. Domicile requires a settled intention, not merely physical presence. You may have retained your non-UK domicile.
2. If you can demonstrate that you never had the necessary intention to remain permanently in the UK, and that you have not yet met the LTR test, there may still be planning opportunities.
3. Take specialist advice before taking any action on the basis of an assumed domicile status.

How Global Investments Can Help

Domicile and the Long-Term Resident test sit at the intersection of private international law, UK succession law, and tax planning. These are among the most complex areas of private client advice, and the consequences of getting them wrong — on either side — can involve very significant sums. At Global Investments, our advisers work alongside specialist UK barristers and international legal counsel to analyse clients' domicile position, model the IHT consequences of LTR status, review the timing and structure of any excluded property trusts, and integrate domicile planning into the broader international wealth plan. If you are a non-UK national living in the UK, or a UK national living abroad, your domicile position should be reviewed as part of your annual financial planning — speak with our team to understand where you stand.