UK Inheritance Tax Challenges Expats!

The UK Government is looking at your worldwide wealth to assess their ability to tax it.

You've built global wealth and left the UK behind, but HMRC may not be done with you yet. From April 2025, your past residency in the UK could still link your global estate to the British tax net, even if you haven’t lived there in years.

UK IHT rules are shifting from domicile to residency. That means even former long-term residents could stay within the scope for up to 10 years after leaving.

Can the UK still tax you after you’ve left?

Yes, and by 2027, pension pots left untouched could trigger a tax bill approaching 67% once income tax and IHT are stacked together. Here’s how the new rules work, and what you can do now to protect your estate.

UK Inheritance Tax Used to be based on Domicility

Previously, UK-domiciled individuals paid IHT on worldwide assets. Non-doms only faced tax on UK holdings. Many long-term residents used offshore trusts or claimed a non-UK domicile to reduce their estate’s taxable value, a structure detailed in the government’s residence-based IHT reform proposal.

What’s Changing

From April 2025, the government will introduce a residence-based test to determine IHT liability:

• If you’ve lived in the UK for 10 of the past 12 years, your global estate may fall within UK IHT scope.

• You may remain liable for up to 10 years after leaving the UK.

• Existing offshore trusts and pensions could lose their current IHT protections.

The new residence-based rules significantly expand UK inheritance tax exposure, especially for expats and globally invested individuals who once believed their estates were beyond UK tax reach.

By 2027, Your Pension Pots Join the Equation

From April 2027, even untouched defined contribution pension pots may also become subject to inheritance tax. When combined with income tax on withdrawals, the effective tax rate for some beneficiaries could approach 67%.

These pension changes reflect a larger shift in how the UK treats offshore wealth. The new non-domicile framework removes previous protections and brings more estate assets into the IHT net. The revised treatment of pension pots is expected to increase exposure for many estates materially.

What You Can Do Now

Once a long-term resident leaves the UK, their worldwide assets will remain within the scope of inheritance tax for a number of years, commonly referred to as the ‘inheritance tax tail’.

The length of this tail depends on the duration of the individual’s residence in the UK.

If you have cross-border financial ties, revisit your estate plan now. Review your UK residency history, pension setup, and asset strategy before the residence-based rules take effect. The scenarios below show how past assumptions may no longer hold.

Scenario 1: UK Expat in Dubai

After 15 years in London, Jason moved to Dubai to grow his consultancy and raise a family. He believed his estate was beyond UK tax reach. But if he passes away before 2033, his global assets could still fall within HMRC’s scope under the 5-year rule.

Scenario 2: Offshore Trust Established Pre-2025

In 2020, Maria set up an excluded property trust as part of her estate plan. She assumed it would remain outside the UK inheritance tax regime. However, if she meets the 10-year residency condition after 2025, that trust may become fully taxable.

There’s still time to review your exposure and adjust your tax planning to reduce taxes legally and efficiently. Early advice can help protect more of what you intend to pass to your children/beneficiaries.

Plan Before the Window Closes

With the residence-based rules approaching, now is the time to act. Reassess your exposure, clarify your UK residency position, and align your estate plan accordingly.

The right tax planning today can reduce taxes tomorrow, helping you protect your legacy and pass on more to those who matter, not the tax office.