Cross-Border Inheritance Tax: A Complete UK Guide

UK inheritance tax (IHT) applies to your estate when you die, and in some cases to lifetime gifts. For individuals with cross-border connections, the application of IHT depends on your domicile status, the location of your assets, and your residence history. The rules changed fundamentally from 6 April 2025 with the introduction of a new residence-based test for IHT.

Domicile and IHT

Historically, IHT applied to worldwide assets if you were domiciled in the UK, but only to UK-situated assets if you were non-domiciled. Domicile is a common law concept distinct from residence or nationality. You acquire a domicile of origin from your father at birth, and you can acquire a domicile of choice by moving to a new country with the intention of making it your permanent home.

Under the old rules, individuals who had been UK resident for 15 of the previous 20 tax years became deemed domiciled for IHT purposes, bringing their worldwide assets into the IHT net. From 6 April 2025, this threshold is reduced to 10 years of UK residence.

The Long-Term Residence Test from 2025

The most significant change from 6 April 2025 is the replacement of the domicile-based IHT regime with a residence-based test. Under the new rules, IHT applies to worldwide assets if you have been UK resident for at least 10 of the previous 20 tax years. Once you meet this test, you remain within the UK IHT net for 10 years after leaving the UK (the tail provision).

This means that even if you leave the UK and become non-resident, your worldwide estate remains subject to UK IHT for a decade. This tail provision is a major departure from the previous rules, under which leaving the UK would generally remove worldwide assets from the IHT net immediately for those who were not domiciled here.

Excluded Property

Excluded property is a crucial concept for non-UK domiciled individuals. Under the old rules, foreign-situated assets held by a non-UK domiciled person were excluded property and fell outside the IHT charge. This included foreign bank accounts, overseas property, and shares in non-UK companies. The excluded property status continued even after becoming deemed domiciled for certain assets held through offshore trusts settled before becoming deemed domiciled.

Under the new rules, the excluded property concept is being phased out for long-term residents. Existing excluded property trusts may benefit from transitional protections, but careful review of trust structures is essential.

UK vs Worldwide Assets

UK-situated assets are always within the IHT net, regardless of your domicile or residence status. UK-situs assets include UK property, shares in UK companies, UK bank accounts, and physical assets located in the UK. If you are non-resident and non-domiciled, only your UK-situated assets are subject to IHT, but the nil-rate band of £325,000 still applies.

Certain assets have special situs rules. For example, a debt is situated where the debtor resides, and a bank account is situated at the branch where it is held. Shares in a UK company are UK-situated even if the share certificate is held overseas. Understanding the situs of each asset is essential for IHT planning.

The 10/20 Rule for Gifts

The UK's IHT rules on lifetime gifts apply regardless of domicile. The seven-year rule for potentially exempt transfers (PETs) and the 10/20 rule for chargeable lifetime transfers (CLTs) continue to apply. If you are non-UK domiciled, gifts of excluded property are not subject to IHT, but gifts of UK-situated assets are within the charge.

Careful planning of lifetime gifts can reduce your IHT exposure, particularly where you can make use of the annual exemption (£3,000 per year), the small gifts exemption (£250 per recipient), and gifts out of normal expenditure out of income.

Planning for Cross-Border IHT

If you have connections to multiple countries, you should review your will, trust structures, and asset holdings in light of the new rules. Consider whether to hold foreign assets through offshore trusts, whether life insurance policies written in trust can provide liquidity, and whether your estate plan needs updating to reflect the new 10-year residence test and the tail provision.

Double taxation treaties for IHT exist with some countries, including the United States, India, and Pakistan. These treaties can allocate taxing rights over your estate and provide relief from double taxation where both countries seek to impose IHT on the same assets.

Browse more UK international tax and cross-border guides or try our calculators.