UK Inheritance Tax Planning for Non-Domiciled Individuals

The Unique Position of Non-Doms Under UK IHT

The United Kingdom's inheritance tax system treats non-domiciled individuals (non-doms) very differently from UK-domiciled ones. Where a UK-domiciled individual faces IHT on their worldwide assets — potentially a significant liability on a large international portfolio — a genuinely non-UK domiciled person faces IHT only on assets situated in the United Kingdom.

This distinction is one of the most important reasons why domicile status matters so profoundly for internationally mobile high-net-worth individuals. Understanding it — and planning around it — requires an accurate picture of your current domicile position, the assets in scope, the reliefs available, and the strategies that can legitimately reduce or eliminate the IHT exposure that exists.

The non-dom regime underwent significant reform from April 2025. This guide covers the position as it stands in 2026, incorporating those changes. Earlier rules are referenced where the transition is relevant.

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What Is Domicile?

Domicile is a legal concept that broadly represents the country you consider your permanent home — not merely where you live, but where you intend to remain indefinitely. It is not the same as:

• Residence (where you currently live or spend time)
• Nationality (the country of your citizenship)
• Tax residence (the UK's statutory residence test)

Everyone has a domicile of origin — acquired at birth from the father (for those born in wedlock) or the mother. It is tenacious. A British person born in England has an English domicile of origin. Moving to Dubai, Singapore, or New York does not automatically change their domicile.

To acquire a domicile of choice in another country, you must:

1. Physically reside in that country; and
2. Have a genuine, settled intention to remain there permanently or indefinitely

The intention element is assessed very strictly by HMRC and the courts. Retaining a house in the UK, holding a UK driving licence, maintaining children at UK schools, intending to return to the UK "eventually" — all of these can undermine a claimed change of domicile.

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Deemed Domicile: The Key Threshold

Even where a person is not factually domiciled in the UK, the deemed domicile rules can bring them within the worldwide scope of UK IHT.

Under the pre-April 2025 rules, an individual became deemed UK domiciled for IHT purposes after being resident in the UK for 15 of the previous 20 tax years.

From April 2025, the "long-term UK resident" (LTUKR) test has been introduced as part of the broader non-dom reform package. The precise LTUKR test for IHT deemed domicile is still being interpreted in professional practice, but the broad principle is that long-term UK residence eventually results in worldwide exposure to UK IHT, even without formal domicile change.

If you are approaching this threshold — whether measured under the old or new rules — taking advice urgently is essential. The window for certain planning steps closes when deemed domicile is acquired.

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Which Assets Are in Scope for a Non-Dom?

For a person who is genuinely non-UK domiciled (and not yet deemed domiciled), UK IHT applies only to UK-situs assets. These include:

• UK real estate — residential and commercial property physically located in the UK
• UK cash and bank deposits — deposits held with UK banks
• UK listed securities — shares in UK-listed companies, UK government gilts, UK corporate bonds
• Interests in UK businesses — shares in UK unlisted companies, interests in UK partnerships
• UK-situs chattels — physical assets (art, jewellery, vehicles) physically present in the UK
• UK intellectual property — registered UK patents and trade marks

Assets that are not UK-situs (and therefore outside scope for non-doms) include:

• Deposits with non-UK banks (regardless of currency)
• Shares in overseas companies (even if the company holds UK assets — see below for indirect holdings)
• Non-UK real estate
• Non-UK pensions and life insurance

The Position of UK Residential Property

Historically, a common planning strategy was to hold UK residential property through an offshore company (a BVI or Guernsey company, for example). Shares in an offshore company are non-UK situs assets — so the property, held indirectly, was thought to fall outside the scope of UK IHT for non-doms.

Since 6 April 2017, this has no longer been the case. Under the Non-Resident Companies in Residential Property (NRCPR) rules, UK residential property held through an offshore company, trust, or partnership is treated as a UK-situs asset for IHT purposes. This "enveloped" UK residential property is within scope even for non-doms.

The expansion to all UK real estate (not just residential) was proposed in the 2024/25 reform package and is expected to take effect from 6 April 2025. As of 2026, all UK real estate held directly or indirectly through closely held structures is within the scope of UK IHT for all persons.

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The Spousal Exemption: A Key Consideration

Transfers between spouses or civil partners are generally exempt from IHT. For UK-domiciled spouses, this exemption is unlimited. However, for transfers to a non-UK domiciled spouse, the exemption is capped at £325,000 (as of 2026). The excess above £325,000 does not benefit from the exemption.

Example: A UK-domiciled husband dies leaving UK assets of £2 million to his non-UK domiciled wife. The spouse exemption covers only £325,000. The remaining £1,675,000 is potentially subject to IHT (less any nil-rate band available).

Election to be treated as UK domiciled: A non-UK domiciled spouse can elect to be treated as UK domiciled for IHT purposes. If the election is made, the full unlimited spouse exemption applies. However, making the election means the spouse's worldwide assets (including non-UK assets) become subject to UK IHT — a significant trade-off that must be modelled carefully. The election is irrevocable during any period of UK residence and for three years thereafter.

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Key Reliefs and Exemptions Available to Non-Doms

Nil-Rate Band

All individuals — domiciled or not — benefit from the nil-rate band (NRB), which is £325,000 in 2026. The first £325,000 of chargeable UK-situs assets is not subject to IHT. The NRB is transferable between spouses on death (the unused NRB of the first spouse to die can be used by the surviving spouse's estate).

Residence Nil-Rate Band

The residence nil-rate band (RNRB) of up to £175,000 (2026) applies when a main residence is left to direct descendants. As a non-dom, this is only relevant to UK residential property — but since UK residential property is now in scope regardless, the RNRB may be available. The RNRB is tapered for estates above £2 million.

Business Property Relief and Agricultural Property Relief

Qualifying business property and agricultural property can attract 50% or 100% relief from IHT (depending on the nature of the assets). These reliefs were significantly modified from 6 April 2026: 100% relief on unlisted trading company shares and qualifying agricultural property is now capped at a combined £2.5 million per individual, with value above that attracting only 50% relief (a 20% effective IHT rate). The £2.5 million allowance is transferable between spouses and civil partners (up to around £5 million per couple). The cap was originally announced as £1 million in the October 2024 Budget but was raised to £2.5 million in December 2025. AIM-listed companies and other quoted-but-unlisted holdings attract only 50% relief and do not use the £2.5 million allowance. Planning in advance of the changed rules is important.

Charitable Exemption

Gifts to qualifying UK charities — and, in limited circumstances, to overseas equivalents — are fully exempt from IHT. Leaving 10% or more of the net estate to charity reduces the IHT rate on the remainder from 40% to 36%.

Potentially Exempt Transfers (PETs)

Gifts of UK-situs assets to individuals during lifetime are PETs. If the donor survives seven years, the gift falls outside the estate entirely. In the interim period, taper relief reduces the effective rate. For non-doms with UK assets they wish to pass to the next generation, systematic gifting (within the seven-year window) is a fundamental strategy.

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Key Planning Strategies for Non-Doms

1. Maintain Non-Dom Status and Avoid Deemed Domicile

The most powerful strategy is to remain genuinely non-UK domiciled. This means managing UK residence carefully (the statutory residence test affects income and CGT; the domicile test for IHT requires genuine long-term intention to live elsewhere), retaining strong connections to a home country, and demonstrating that intention through behaviour and documentation.

This is increasingly difficult for individuals who have lived in the UK for many years — but it remains the most effective protection against UK IHT on worldwide assets.

2. The Excluded Property Trust

Settled before the non-dom becomes deemed domiciled, an offshore discretionary trust holding non-UK assets becomes excluded property — permanently outside UK IHT. See the dedicated guide on excluded property trusts for full detail.

3. Restructure UK Asset Holdings

UK-situs assets are inherently in scope. Options for managing them include:

• Gifting UK assets during lifetime (PETs — seven-year survival required)
• Using life assurance written in trust to cover the expected IHT liability
• Selling UK assets and replacing with non-UK assets (if investment objectives allow)
• Charitable giving of UK assets

4. Life Assurance in Trust

A whole-of-life policy written in trust can be used to cover the anticipated IHT liability on UK-situs assets at death. The policy proceeds are paid to the trust (not the estate), avoiding IHT on the proceeds themselves. Premiums are paid from the estate but as regular payments from income may qualify as exempt from IHT.

5. Annual Gifting Programme

Use the annual exemption (£3,000 per tax year), small gift allowance (£250 per recipient), and gifts from surplus income exemption to systematically reduce the UK-situs estate over time.

6. Spousal Planning

For a mixed-domicile couple (UK-dom spouse + non-dom spouse), consider whether the non-dom spouse should own UK assets (where the IHT exposure is limited to UK-situs assets and the spousal exemption cap is relevant) or whether the UK-dom spouse should hold them (where the full spousal exemption applies on transfers to a UK-dom spouse).

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Compliance and Reporting

Non-doms with UK-situs assets are subject to the same IHT reporting and payment obligations as UK-doms in respect of those assets. The personal representatives of a non-dom's estate must:

• File an IHT return (IHT400) where the UK estate exceeds £325,000 or where there is IHT to pay
• Pay any IHT due within six months of the end of the month in which death occurred (interest runs from this point)
• Obtain a grant of representation from the UK courts for UK assets

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How Global Investments Can Help

Global Investments works with non-domiciled and internationally mobile individuals to build comprehensive UK IHT planning strategies. We assess your current domicile and deemed domicile position, identify the UK-situs assets in scope, and design a coordinated plan — combining excluded property trusts, lifetime gifting, life assurance, and other strategies — to minimise the IHT exposure as efficiently and legitimately as possible.

We work alongside specialist UK tax counsel to ensure your arrangements are robust, compliant, and regularly reviewed as the law evolves.

Contact us for a confidential IHT planning review.

This guide is for general information only and does not constitute tax or legal advice. IHT law has been subject to significant recent change and continues to evolve. Always seek qualified professional advice tailored to your personal circumstances before taking any action. As of 2026.