UK inheritance tax, domicile and long term residence: your questions answered

As widely reported, the scope of UK inheritance tax changed significantly from 6 April 2025 moving away from the previous domiciled based system and moving over to a residence based system.

Now, the deciding factor for whether an asset is subject to UK inheritance tax depends on both the location (situs) of the asset and whether an individual is considered ‘long-term resident’.  The position for many clients has changed significantly. Answers to some of the most frequently asked questions can be found below:

What counts as a long-term resident for IHT purposes?

An individual will be a long-term UK resident if they have been UK resident for tax purposes for 10 of the previous 20 tax years.  The 10 years do not need to be consecutive and you need to assess the full 20 year period.

For tax years from 6 April 2013, whether an individual has been UK resident for tax purposes is established by the Statutory Residence Test.  For any earlier years, you need to apply the older ‘common law’ test for income tax purposes.

Once an individual has become long term resident, they will remain long term resident for a number of years even if they leave the UK.  This is commonly referred to as a ‘tail’.  The length of the tail depends on the number of years of UK residence.  The minimum number is 3 years going up to a maximum of 10 years.

Does domicile still have any relevance?

Absolutely. Whilst the UK from a taxing perspective is moving away from a domicile-based system, it still has a fundamental role for succession, estate planning and even family law.

For succession domicile is still an important and often deciding factor in determining the succession of a particular asset.

Domicile also still has an important part to play in many of double tax conventions.  The UK has ten treaties covering inheritance tax:  France, India, Italy, Pakistan, Ireland, the Netherlands, South Africa, Sweden and the United States of America.

It also still has a part to play in contentious estate proceedings and specifically determining whether an estate is potentially subject to proceedings under Inheritance (Provision for Financial Dependents) Act 1975. A claim under this 1975 Act is only available to UK domiciled estates.

Domicile is a tricky concept and again should be considered on a case-by-case basis.  We strongly recommend you seek a lawyer used to advising on domicile matters.

Is it still possible to make a domicile election when a spouse is not domiciled or resident in the UK and the inheritance tax exemption between spouses is limited?

It remains possible to make a domicile election for periods up to 6 April 2025.  In addition, there are transitional rules within the legislation which cover elections already made before 6 April 2025.

From 6 April 2025 if there is a mismatch of long-term residence status between spouses/civil partners, and the amount of spousal/civil partner exemption is limited (generally to an additional £325,000), it is possible for a spouse/civil partner to elect to be treated as long-term resident and benefit from the unlimited spouse/civil partner exemption.

One of the main drawbacks of completing an election is if the electing spouse/civil partner dies whilst still being considered long-term resident, their worldwide estate and specifically assets abroad which otherwise would have been excluded property, will be within the scope of UK inheritance tax.  The length of time an electing spouse will remain a long-term resident was significantly increased as a result of the changes introduced in April and now stands at 10 years before it will be possible to lose long-term resident status.  Previously, this ‘tail’ was much shorter at 4 years. Careful consideration should be given on a case-by-case basis as to whether an election is worthwhile in the circumstances and the potential overall consequences.