UK Inheritance Tax: A Comprehensive Guide for Internationally Mobile Individuals

Overview

Inheritance tax (IHT) is charged on the value of an individual's estate at death, plus on certain lifetime transfers. For internationally mobile individuals, the fundamental question is: which assets are within the scope of UK IHT? Until April 2025, the answer turned primarily on domicile; from April 2025 onwards, the answer is increasingly determined by residence. This is one of the most significant reforms to UK estate planning in decades and demands urgent review for any individual who has been resident in the UK for a sustained period.

This guide explains the UK IHT framework, the key reliefs available, and the planning considerations for internationally mobile individuals. Tax law changes frequently; obtain specialist estate planning advice before making decisions.

This guide is for general information only. IHT rules are complex and depend on individual circumstances, domicile status, and treaty positions. Always consult a qualified adviser.

The Basic IHT Charge

The Rate and Threshold

UK inheritance tax is charged at 40% on the value of a deceased person's estate above the nil-rate band. The nil-rate band has been set at £325,000 since 2009 and is currently frozen at that level.

The standard calculation is:

IHT = 40% × (Estate value − Nil-Rate Band)

For a straightforward estate valued at £1 million, the IHT would be approximately £270,000 (40% of £675,000).

Residence Nil-Rate Band

An additional nil-rate band — the Residence Nil-Rate Band (RNRB) — of £175,000 per individual is available where a residential property (or an equivalent value from the estate) is passed to direct descendants. The RNRB is tapered on a £1-for-£2 basis for estates exceeding £2 million, and it is only available where the deceased owned a qualifying residential property at death (or had done so previously and downsized).

A married couple who both die in the right order and meet all conditions could potentially leave up to £1 million combined (2 × £325,000 NRB + 2 × £175,000 RNRB) before IHT becomes payable, though this assumes unused bands are transferable and conditions are satisfied.

Transferable Nil-Rate Band

Where a spouse or civil partner dies before the survivor without using their full nil-rate band (or RNRB), the unused proportion is transferable to the survivor's estate. This can allow a surviving spouse to have a nil-rate band up to double the standard amount.

What Assets Are Within the UK IHT Net?

UK-Sited Assets

UK-sited assets are always within the scope of UK IHT, regardless of the deceased's domicile, nationality, or residence. This includes:

• UK land and property (residential and commercial)
• UK-incorporated company shares (broadly — there are specific rules)
• UK bank accounts
• UK chattels (physical assets located in the UK)

Non-UK Assets: The Domicile and Residence Tests

Under the rules that applied before April 2025:

• A UK-domiciled individual (or deemed domiciled individual) was subject to UK IHT on worldwide assets, including non-UK property, overseas bank accounts, and offshore investments
• A non-UK domiciled individual who was not deemed domiciled paid UK IHT only on UK-sited assets — non-UK assets were excluded property and outside the IHT net

The 2025 Shift to Residence-Based IHT

The April 2025 non-dom reforms began the process of moving IHT exposure away from the domicile test towards a residence-based test. Under the new framework:

• Individuals who have been UK resident for 10 of the last 20 tax years become "long-term residents" and are subject to UK IHT on their worldwide assets — not just UK-sited assets
• The IHT tail after ceasing to be UK resident is significant (see below)
• The precise mechanics, transitional rules, and interaction with existing non-dom structures were subject to ongoing consultation — always take specialist advice on your personal position

The Long-Term Resident IHT Tail

An individual who was a long-term UK resident (10 of the last 20 years) and then leaves the UK does not immediately escape worldwide IHT exposure. A tail period applies during which they remain within scope of UK IHT on worldwide assets even after departure. The tail period depends on how many years of UK residence the individual had built up. This is a critical consideration for anyone contemplating leaving the UK as an IHT planning strategy.

Key IHT Reliefs and Exemptions

Spouse Exemption

Transfers between UK-domiciled spouses or civil partners — whether during lifetime or on death — are exempt from IHT. This is an unlimited exemption for transfers to a UK-domiciled spouse. Where the receiving spouse is non-UK domiciled (or treated as non-UK domiciled), the exemption is limited (currently to £325,000 above the nil-rate band, though rules in this area are affected by the 2025 reforms).

Business Relief (BR)

Business Relief (formerly Business Property Relief) provides IHT relief on qualifying business assets:

• 100% relief on shares in unquoted companies, interests in qualifying businesses, and certain AIM-listed shares (note: BR on AIM shares is restricted from April 2026 — see FAQs)
• 50% relief on shares in quoted companies where the deceased had control, certain land and machinery used in a business partnership, and some other assets

From April 2026, the 100% BR and Agricultural Relief (APR) are limited to a combined allowance of £2.5 million per person (transferable between spouses and civil partners, up to around £5 million per couple), with a 50% rate (effective 20% IHT) applying above that. The cap was originally announced as £1 million in the 2024 Autumn Budget but was raised to £2.5 million in December 2025. This is a significant reduction in the relief available on business assets and AIM portfolios (AIM shares get 50% relief only and do not use the £2.5 million allowance).

Agricultural Relief (APR)

Agricultural property — farmland, farm buildings, and farmhouses — can qualify for Agricultural Relief at 100% on the agricultural value of the property. The same £2.5 million combined cap with BR applies from April 2026. Development value above agricultural value may not qualify.

Charity Exemption and Reduced Rate

Gifts to UK charities are exempt from IHT. Additionally, if a deceased leaves at least 10% of their net estate to charity, the rate of IHT on the taxable estate is reduced from 40% to 36%. This "charitable legacy rate" can be worth modelling for larger estates with philanthropic intentions.

Woodland Relief and Heritage Property

Reliefs are also available for certain woodlands, heritage buildings (Grade I and II* listed properties), and works of art accepted in lieu of IHT under the Acceptance in Lieu scheme.

Lifetime Gifts and IHT Planning

Potentially Exempt Transfers (PETs)

Outright gifts to individuals (not to trusts) made during the donor's lifetime are Potentially Exempt Transfers. A PET is completely outside the estate if the donor survives for seven years after making the gift. If the donor dies within seven years, taper relief reduces the IHT charge on the gift on a sliding scale (though full taper relief only applies after six years, and the IHT becomes a charge on the recipient rather than the estate in most cases).

Chargeable Lifetime Transfers (CLTs)

Gifts into trusts are typically Chargeable Lifetime Transfers and are subject to IHT at the lifetime rate of 20% on the value above the nil-rate band at the time of the transfer. The trust is then subject to a ten-year anniversary charge (up to 6% of trust value) and exit charges when assets are distributed.

The Annual Exemption

Each individual can give away up to £3,000 per year completely free of IHT (the annual exemption). Unused annual exemption from the previous year can be carried forward for one year. Small gifts of up to £250 to any number of individuals are also exempt. These are modest exemptions for HNW individuals but can be used systematically over time.

Gifts Out of Income

Regular gifts made from surplus income — not from capital — can be entirely exempt from IHT, provided they are made as part of a normal expenditure pattern and do not reduce the donor's standard of living. This exemption can be valuable for individuals with high incomes who wish to pass wealth down the generations without using capital.

Planning for Internationally Mobile Individuals

Review Following the 2025 Reforms

Any internationally mobile individual who has been UK resident for an extended period should obtain an IHT review that addresses:

• Their current and projected residence history under the new long-term resident test
• Whether existing offshore trusts or other structures retain their excluded property status
• The IHT tail if they are contemplating departure from the UK
• Whether the RNRB is available and whether estate planning should be revised

Life Insurance in Trust

Whole-of-life insurance held in trust can provide funds to pay an IHT liability on death without those funds forming part of the estate. The policy is written into trust at outset, so the payout goes directly to the trustees for the benefit of the family, outside the estate. Premiums may be covered by gifts out of surplus income (see above).

How Global Investments Can Help

Global Investments has over 32 years of experience helping internationally mobile high-net-worth individuals plan their estates across multiple jurisdictions. The 2025 non-dom reforms and the April 2026 Business Relief changes make this an urgent area of review for many of our clients.

Our team can coordinate IHT reviews, trust planning, lifetime gifting strategies, and cross-border estate planning with specialist legal and tax advisers in Cyprus, the UK, and across our key markets. We work with clients to ensure their wealth passes to the next generation in the way they intend, with the minimum cost and disruption. Contact us to arrange a review.