From 6 April 2025, the UK will introduce a residence-based system for inheritance tax (IHT), replacing the current domicile-based rules . This change significantly impacts individuals who have been UK residents for an extended period, as well as trusts holding non-UK assets.
Key Changes:
1. New ‘Long-Term Resident’ Test
- If an individual has been UK resident for 10 out of the last 20 years, their worldwide assets (not just UK assets) will be subject to inheritance tax.
- Even after leaving the UK, individuals will remain within the IHT net for up to 10 years, depending on their period of UK residency (the “IHT tail”).
2. Implications for Trusts
- Trusts holding non-UK assets will now be subject to IHT if the settlor is a long-term UK resident.
- The excluded property status of non-UK assets settled in trust before 30 October 2024 will be partially protected but still subject to IHT charges.
3. Impact on Non-Doms and Expats
- Non-UK domiciled individuals will fall under UK IHT rules much sooner—after 10 years instead of the current 15.
- Expats who have been UK residents for 10+ years should review their IHT exposure, especially if they hold assets abroad.
4. Succession and Estate Planning Considerations
- Individuals should review their wills, asset holdings, and estate plans in light of these changes.
- Lifetime gifting before 6 April 2025 may help mitigate IHT exposure.
- Alternative structures such as family investment companies (FICs) or partnerships might be worth considering instead of trusts.
5. Reduced IHT Relief on Business & Agricultural Property
- From April 2026, Business Property Relief (BPR) and Agricultural Property Relief (APR) will be capped at £1 million for 100% relief.
- This could increase IHT exposure for high-value estates with business and farming interests.
What Should You Do Now?
- Assess your residency history and future plans.
- Review estate planning structures , especially trusts and overseas holdings.
- Consider pre-emptive actions , such as lifetime gifting and restructuring.
- Seek specialist tax advice to navigate these changes efficiently.
At AJN Accountants , we help individuals and business owners plan effectively for tax changes. Get in touch to discuss how these reforms could impact your estate and what steps you can take to mitigate potential tax liabilities
