The Finance Act 2025 (“2025 Act”) reshapes the circumstances in which non-UK assets are brought into the UK Inheritance Tax (“IHT”) net, moving the analysis away from domicile and towards an individual’s UK tax residence. This can create challenges for clients. For general practitioners, the challenge may be in identifying when international or cross-border elements warrant the involvement of private wealth specialists.
What changed under the Finance Act 2025?
With effect from 6 April 2025, exposure to UK IHT on a worldwide estate can arise where an individual meets the statutory definition of a long-term UK resident (“LTR”). In practice, LTR status is triggered, under s44(3) of the 2025 Act, once UK tax residence has been established in no less than 10 of the previous 20 tax years.The reforms under the 2025 Act also mean that exposure to IHT on non-UK assets may continue for a period even after physical UK residence has ended.
A test based on residence may initially appear more accessible than a full domicile analysis. UK tax residence continues to be assessed on an annual basis under the Statutory Residence Test, a framework already familiar to those advising on income and capital gains tax. Once applied to real client circumstances, the estate planning implications can quickly become more intricate than expected.
Residence based IHT: identifying problematic residence histories
Challenges can surface where a client’s residence history is complicated or incomplete. This most often arises in matters involving:
- clients who divide their time between the UK and other jurisdictions;
- internationally mobile professionals; and
- clients who are new to, or have recently left, the UK.
In such cases, determining whether LTR status applies can depend on piecing together evidence from earlier tax years. Relatively small uncertainties, such as gaps in day counts, changes in accommodation, or shifting employment links, can affect the IHT analysis. When LTR status is debatable, even minor factual differences can carry significant risk for both the adviser and the client.
Why domicile still matters for estate planning
Although exposure to IHT now hinges on residence, domicile continues to play a key role in succession planning, and still affects the IHT position in certain specific situations.
General practitioners are more likely to encounter domicile issues indirectly, often through older planning structures or historic paperwork. Any matter involving clients who move between jurisdictions or are highly mobile, that refers to domicile as the basis for an analysis on IHT may require fresh review following the legislative change.
Trusts and offshore structures: a clear trigger for specialist input
Trusts, specifically Excluded Property Trusts (“EPTs”), are one of the areas where the 2025 Act can create challenges for the uninitiated. Certain IHT protections may continue to apply to EPTs, provided the relevant statutory conditions are met. Confirming whether those conditions are satisfied may involve reviewing multiple factors including checking the situs of trust assets at key points in time, and tracing additions, distributions, and residence changes of the settlor over extended periods.
Furthermore, checking the position of an EPT in light of the 2025 Act can throw-up questions around thorny technicalities which, from both a risk and economic perspective, can warrant specialist input to support robust conclusions on the tax treatment.
Leaving the UK: new considerations for exit planning
Advising clients who are planning to leave the UK now involves additional factors that require careful handling. Under the new IHT framework, departure alone does not bring an immediate end to IHT exposure on overseas assets. The ‘IHT tail’, which may run for up to 10 years following UK departure, may warrant exit planning being treated as a phased exercise rather than a single event.
In practice, this involves co-ordinating exit advice at the same time as wider tax planning around lifetime gifts, asset disposals, and succession arrangements. To add the most value, this is best done with input from experienced advisers before any action is taken.
When should smaller firms involve a specialist private wealth team?
Early involvement of specialist private wealth advisers can play an important role in managing complexity and reducing the risk of late-stage reworking.
Specialist involvement is most valuable in matters that involve:
- uncertain or mixed residence histories,
- offshore trusts,
- multiple succession regimes,
- significant overseas assets built up over long periods; or
- clients entering or leaving the UK with complex financial affairs.
Specialist involvement does not displace the role of the general adviser. In most cases, the originating firm remains the client’s primary trusted adviser, with specialist lawyers providing focused technical support where it is most needed. For more information, get in touch with our wills and estate planning lawyers.
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