Overseas assets: understanding the change to UK inheritance tax and residency rules

A holiday home in France. A bank account in Spain. An offshore trust in the Cayman Islands. Depending on your UK residency status, worldwide assets like these could increase the inheritance tax (IHT) bill for your loved ones when you pass away.

On 6 April 2025, the UK government introduced new IHT rules that some have described as the most significant shift in the taxation of wealth in decades. The changes could impact anyone living in the UK with overseas assets, but especially those who previously held ‘non-dom’ status – potentially bringing overseas assets into the UK IHT net for the first time.

Goodbye domicile, hello residence

Under the Finance Act 2025, UK IHT rules have switched from being domicile-based to residence-based. This means you are now either classed as a long-term UK resident or not. Although the concept of domicile is still important from a legal perspective, it is no longer a determining factor for tax status.

Domicile is different to legal residence or citizenship and can be difficult to establish. You are normally considered domiciled in the country that is your long-term permanent home. You can also be deemed domiciled depending on how long you have been a resident in a country. For example, in the UK, you were deemed domiciled from an IHT perspective if you had been a UK resident for at least 15 of the previous 20 tax years.

In the past, if you were UK domiciled or deemed domiciled, IHT was payable on your worldwide assets following your death. If you were non-domiciled, IHT only applied to your UK assets.

Do you pass the long-term resident test?

The length of time spent living in the UK is still important under the new IHT framework, which uses a long-term residency test to determine an individual’s tax status. You are considered a long-term resident for a tax year if you are tax resident in the UK for either the previous 10 consecutive years or a total of 10 years or more within the previous 20 years. Long-term residents will pay IHT on UK and overseas assets.

There are, however, some additional transitional rules, so it’s a good idea to get expert advice to ensure you apply the residency test correctly. It’s also important to remember that you can still be classed as a long-term UK resident for up to 10 tax years after your departure. This will depend on how long you were resident in the UK: for example, if it was 15 years, you will only stop being a long-term resident five years later.

The new rules may have significant consequences for a range of cross-border scenarios. For example, someone who moves to the UK and later meets the long-term residence test could find that assets acquired and retained overseas are now subject to UK inheritance tax. Similarly, individuals who previously relied on non-domiciled status may now be caught by IHT on their worldwide estate once they become long-term residents. Estates that include overseas property, investment portfolios or foreign bank accounts may therefore face unexpected tax liabilities if planning is not reviewed in light of the new regime.

Expert advice on cross-border estate planning

Whether you’ve just arrived in the UK or have been living here for several years, it’s important to consider the change in IHT rules as part of your estate planning. There are also double taxation treaties and offshore trust exemptions to consider.

Attwaters can help you navigate the complexities and avoid the pitfalls of cross-border estates. Even if your tax status has not changed as a result of the new regime, it’s still a good idea to reassess the potential tax liabilities associated with your overseas assets to avoid any nasty surprises for you or your loved ones.

As a STEP-accredited solicitor, Jenna Harrington has extensive experience of supporting clients with cross-border estates – from advising on residency status and succession laws to assisting with wills and probate. Contact Jenna on 0203 871 0088 or jenna.harrington@attwaters.co.uk for a consultation.