September 21, 2026 I 15 minutes read
For British nationals living overseas, exposure to UK inheritance tax for expats on non-UK assets is determined by a residence-based test. Whether your worldwide estate falls within the UK IHT net, or only your UK-situated assets, depends on how many of the last 20 tax years you have spent as a UK resident. This replaced the old domicile-based system, and for expats it brings a clearer, more predictable framework to plan around, but also some traps that catch people leaving and returning to the UK.
This article explains how the rules work now, who they affect, how leaving and returning to the UK changes your position, and what planning options are available. Use it alongside the IHT calculator to model your own position.
The Long-Term Resident Test
The key concept is the long-term resident (LTR). Your IHT exposure on non-UK assets is determined by whether you meet this test.
An individual is a long-term resident in a given tax year if they have been UK tax resident for at least 10 out of the previous 20 tax years, immediately preceding the tax year in which a chargeable event (such as death, or a transfer into trust) occurs.
UK tax residence is determined using the Statutory Residence Test (SRT), which has applied since 6 April 2013. For years before that date, the pre-SRT rules apply.
One important detail: a split year, where someone is only UK resident for part of a tax year, counts as a full year of residence for LTR purposes. This means the year you arrive in the UK and the year you leave both count in full.
What LTR Status Means?
- Long-term residents are liable to UK IHT on their worldwide assets, including non-UK property, overseas investments, and foreign bank accounts.
- Non-long-term residents are liable only on their UK-situated assets.
UK-situated assets, including UK property, UK shares, and indirect interests in UK residential property, remain within the scope of IHT regardless of residence status. They always have been, and leaving the UK does not remove them from charge.
For those under 20
For individuals under 20, the test is modified: a person is a long-term resident if they have been UK resident during at least 50% of the tax years since their birth.
Leaving the UK: The Tail Period
One of the most important practical points for expats is that LTR status does not end the moment you leave the UK. After departure, you remain within the scope of IHT on worldwide assets for a period that depends on how long you were previously UK resident.
Someone who spent the full 20 years in the UK may remain a long-term resident, and therefore subject to UK IHT on worldwide assets, for up to a decade after departing. By contrast, someone who left after exactly 10 years of UK residence carries only a three-year tail.
The tail resets fully once you have been non-UK resident for 10 consecutive tax years. After that point, the count starts fresh, even if you later return to the UK.
For an expat planning their departure, the timing matters. Leaving before completing 10 years of UK residence means non-UK assets never enter the worldwide IHT net at all. Leaving after crossing the threshold means managing the tail period, and the longer your UK residence history, the longer that tail runs.
Returning to the UK
Returning to the UK reactivates the residence clock, and this is where many people are caught out.
If you return before completing 10 consecutive years of non-residence, your previous UK residence years are still counted in the 20-year lookback. You do not start from zero. Someone who spent 12 years in the UK, left for 6 years, and returns will find those original 12 years still count toward the LTR test, so they may become a long-term resident again quickly, or never have lost the status during their absence.
Only once you have achieved 10 consecutive tax years of non-residence does the slate wipe clean. A return after that point starts the 20-year count fresh, and you would need to accumulate 10 new years of UK residence before becoming a long-term resident again.
For anyone who has lived in the UK, moved abroad, and is contemplating a return, modelling the LTR position before the move back is essential. The interaction between years already accumulated, years spent abroad, and the planned return date determines whether worldwide assets will be exposed to UK IHT, and a return even one tax year too early can pull a worldwide estate back into charge.
Transitional Rules for Long-Term Expats (Left Before October 2024)
Specific transitional provisions apply to individuals who were:
- Non-UK resident in the 2025/26 tax year; and
- Not UK domiciled under common law on 30 October 2024
For these individuals, the LTR test operates differently. Rather than the standard 10-out-of-20-year threshold, they become a long-term resident only if they were UK resident for at least 15 out of the previous 20 tax years, and at least one of those years falls within the previous three tax years. In practice, long-term expats who left the UK some years ago, and who had not acquired a UK domicile, face a significantly higher bar before the LTR rules apply to them.
This is a meaningful concession. However, demonstrating a non-UK common law domicile is not straightforward, and professional advice is essential for anyone seeking to rely on these provisions.
If an individual in this position subsequently returns to the UK, the transitional rules cease to apply and the standard 10-out-of-20-year test governs their position going forward. This is a further reason for anyone in this category to model their position carefully before any return.
Married Couples and Civil Partners
Where a long-term resident transfers assets to a spouse or civil partner who is not a long-term resident, the spousal exemption is capped at £325,000. This limit is cumulative across the transferor’s entire lifetime, including transfers to any previous non-LTR spouse, and does not reset on remarriage. Once the exemption limit is exhausted, transfers to a non-LTR spouse are treated like any other transfer to an individual.
The standard nil-rate band and transferable nil-rate band remain available in the usual way. An LTR with an unused nil-rate band can still leave up to £650,000 (combined NRB and transferable NRB) to a non-LTR spouse free of IHT, in the absence of other chargeable transfers. Transfers in the other direction, from a non-LTR to a long-term resident, are unrestricted.
For internationally mobile couples where one partner has a longer UK residence history than the other, this can create unexpected IHT exposure on the first death. Reviewing the structure of jointly held assets and the respective LTR positions of both spouses is an important planning step.
Spouses can elect to be treated as long-term residents. An election remains effective until the electing spouse has been non-UK resident for 10 consecutive tax years.
Trusts
The IHT position of a trust’s non-UK assets moves in step with the current LTR status of thesettlor. If the settlor is a long-term resident at the time of a chargeable event (a ten-year anniversary charge, a capital distribution, or death), the non-UK trust assets are within scope of IHT. If the settlor is not a long-term resident at that point, those assets are excluded property.
This creates a dynamic position: trust assets can move in and out of IHT exposure depending on where the settlor is living at any given time. For settlors who intend to return to the UK after a period abroad, or who are approaching their 10th year of UK residence, this has important implications for the timing and structure of trust arrangements.
When a settlor ceases to be a long-term resident, the non-UK trust assets become excluded property. This change in status can trigger an exit charge, potentially up to 6%, at the point the assets leave the relevant property regime. Careful planning around the timing of these changes is essential.
Estate Tax Treaties
For most countries, domicile is no longer relevant to UK IHT. However, the UK has estate tax treaties with ten jurisdictions where domicile remains the operative concept: France, India, Ireland, Italy, the Netherlands, Pakistan, South Africa, Sweden, Switzerland, and the United States.
Where an individual may be considered domiciled in one of these jurisdictions under the treaty, the treaty terms may override the UK residence-based rules and limit or eliminate UK IHT exposure on non-UK assets. The mechanics differ treaty by treaty, and specialist advice is essential for anyone with connections to these countries.
Pensions Enter the IHT Net from April 2027
A further change significantly affects expats with UK pension assets. From 6 April 2027, most unused pension funds and death benefits will be brought into scope of UK IHT. At present, defined contribution pension funds, sit outside an individual’s estate for IHT purposes, making them one of the most efficient vehicles for passing wealth between generations. That position changes in April 2027.
From that date, the value of undrawn pension funds will be aggregated with the rest of the estate for IHT purposes. The standard 40% rate applies to the amount above available nil-rate bands.
Key points:
- Transfers of pension funds to a spouse or civil partner remain exempt from IHT, meaning this change will primarily affect estates on the second death.
- Dependants’ scheme pensions and associated death-in-service benefits remain exempt. Charity lump sum death benefits (where a charity is the nominated beneficiary and there are no dependants) and joint life annuities (where the survivor’s rights are treated as outside the deceased’s estate) are also exempt.
- Personal representatives (executors) will be responsible for reporting pension values and paying any IHT due, not the pension scheme administrators. Scheme administrators must provide valuations to executors within four weeks of notification of death. In some circumstances, personal representatives can direct the scheme administrator to withhold up to 50% of pension benefits for up to 15 months to fund the IHT payment; alternatively, the scheme administrator can pay the IHT arising on the pension fund directly to HMRC where the bill is £1,000 or more.
- The full details of the April 2027 changes remain subject to final legislation. Further amendments to the draft are possible, though a full reversal is considered very unlikely.
Why this Matters More for Expats?
UK pension assets are UK-situated assets, and therefore within scope of IHT regardless of LTR status. An expat who left the UK after only eight years, and who has no ongoing LTR exposure on their overseas investments, will nonetheless find their UK pension fully exposed to UK IHT from April 2027.
This means pension planning is a priority issue for internationally mobile individuals, irrespective of how the LTR rules apply to the rest of their estate.
Where inherited pension funds are subject to both IHT and income tax in the hands of beneficiaries, for example where beneficiaries are additional-rate income taxpayers, the cumulative tax burden can be significant. For expats with beneficiaries resident in other jurisdictions, there may also be local income or inheritance taxes to consider alongside UK IHT, with varying treaty protections available.
Reliefs and Exemptions
The following reliefs and exemptions apply:
- Nil-rate band (NRB): £325,000 per individual, frozen at this level until April 2030, potentially transferable between spouses.
- Residence nil-rate band (RNRB): Up to £175,000 where a main residence is left to direct descendants. This is tapered for estates above £2 million.
- Business Property Relief (BPR): 100% or 50% relief on qualifying business assets. From 6 April 2026, 100% BPR is capped at the first £1 million of qualifying business property per individual. Assets above this threshold qualify for 50% relief only. The same restriction applies to Agricultural Property Relief from the same date.
- Agricultural Property Relief (APR): Relief on qualifying agricultural property, subject to the same £1 million cap on 100% relief from April 2026.
- Charitable giving: Gifts to qualifying charities are exempt from IHT; leaving 10% or more of the net estate to charity reduces the IHT rate on the remainder from 40% to 36%.
- Annual gifting exemptions: Up to £3,000 per year can be given away free of IHT, with unused allowance from the prior year carried forward. Gifts from normal expenditure out of income can also be made free of IHT if certain conditions are met. This does not apply to Non-Long Term residents
- Potentially exempt transfers (PETs): Outright gifts become fully exempt from IHT if the donor survives seven years from the date of the gift. This does not apply to Non-Long Term residents
Double Taxation
For expats living in jurisdictions that also impose inheritance, estate, or succession taxes, there is a risk of double taxation on the same assets. The UK has a limited number of estate tax treaties, but the majority of countries do not have a bilateral agreement with the UK covering inheritance taxes.
Planning Around Leaving and Returning
The practical agenda for an expat or prospective expat comes down to a few key questions.
Understand your LTR position. Establish how many of the last 20 tax years count as UK residence. This requires a careful review of residence history against the SRT, particularly for years before 2013/14 when the pre-SRT rules applied. The year of departure and the year of arrival both count as full years, which can accelerate both the LTR threshold and the tail period. The calculator alongside this article models this for you.
Time your departure. For UK residents approaching their 10th year of residence, the timing of departure can determine whether the LTR threshold is triggered at all. Leaving before 10 years have elapsed keeps non-UK assets outside the worldwide IHT net. Leaving afterwards means managing the tail.
Plan your return carefully. If you intend to return to the UK, model the position before you move back. Returning before completing 10 consecutive years of non-residence preserves your earlier UK residence years in the count. Returning after that point starts the clock fresh.
Review your asset structure. It may be appropriate to review how non-UK assets are held, directly, via trust, or via other structures, in light of your current and projected LTR status. For assets already in trust, understanding when the settlor may cease to be a long-term resident, and the exit charge implications, is important.
Address pension exposure ahead of April 2027. UK pensions enter the IHT net from April 2027 regardless of LTR status. Depending on circumstances, responses may include drawing down pension assets during lifetime rather than preserving them as a legacy, making lifetime gifts from pension drawdowns, considering whole-of-life insurance to create a tax-free sum for beneficiaries, reviewing pension nomination forms, or revisiting annuity purchase as a way of removing an undrawn pot from the taxable estate. There is no single right answer; the appropriate response depends on the overall estate position, income needs, and the tax position and residence of intended beneficiaries.
Key Dates
For expats who left the UK early in their working life and have no ongoing LTR status, exposure to UK IHT on non-UK assets may be limited. For those with longer UK residence histories, the tail period means worldwide exposure can persist for years after departure, and a return to the UK can reactivate it. For anyone with UK pension assets, the April 2027 change introduces a planning imperative regardless of LTR position.
Use the calculator alongside this article to model your own LTR position, tail period, and estimated IHT exposure, and seek specialist cross-border advice before making decisions about your estate, your departure, or your return.
This article is provided for general information purposes only and does not constitute personalised financial, tax, or legal advice. Tax rules are subject to change and their application depends on individual circumstances.
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