Long-term residence: the new key inheritance tax status for globally mobile families

When Luca moved from Rome to London in 2010, inheritance tax was the last thing on his mind.

He built an international career in finance, bought a flat in Zone 2, kept the family holiday home in Abruzzo, and – on the advice of a banker friend – settled some investments into a trust in Jersey “for succession planning”. His wife, Francesca, preferred to stay mainly outside the UK, coming over only for short periods.

For years he was told the same comforting line:

“Don’t worry – you’re foreign-domiciled. The UK only taxes your UK estate. The trust is excluded property. Your overseas assets sit outside UK inheritance tax.”

From 6 April 2025, that story changes. For people like Luca – and for thousands of expats who have built their lives around more than one country – the key concept is no longer domicile but long-term UK residence. And that shift affects personal estates, spouses, trusts and cross-border planning in a very real way.

Below I’ll walk through what long-term residence means in practice, using relatable examples, and where internationally mobile families should be revisiting their planning before and after April 2025.

1. From domicile to long-term residence: what actually changes?

Under the new rules, the UK inheritance tax (IHT) system becomes residence-based for non-UK assets.

In simple terms:

• UK assets – still always within the scope of UK IHT, whoever owns them.
• Non-UK assets – in scope if, and only if, the individual is a long-term UK resident (LTR) at the relevant time.

How do you become a long-term UK resident?

You are a long-term UK resident for a tax year if you have been UK-resident for at least 10 of the previous 20 tax years (using the usual Statutory Residence Test).

There is also an “IHT tail”: after you leave the UK, you can remain caught by IHT on your worldwide estate for between 3 and 10 years, depending on how long you lived here before leaving.

So for someone like Luca:

• 2010–2029: he clocks up more than 10 UK-resident years → he becomes long-term resident.
• From the 11th year of UK residence, his worldwide estate – including the Abruzzo house and foreign investments – falls within the UK IHT net.
• If he later moves to another country (back to Italy, or on to the UAE, the US, Singapore, etc.), he may still be treated as long-term resident – and within scope on worldwide assets – for several years after departure.

This is a material acceleration compared with the old “15 out of 20 years” deemed-domicile rule for non-doms.

2. Mixed-residence couples and the spouse exemption – Luca & Francesca

Let’s stay with Luca and Francesca.

• Luca has lived in London for years and is clearly a long-term UK resident.
• Francesca divides her time between countries, but has not yet met the 10-out-of-20 test, so she is not long-term resident.
• Most of their wealth is in Luca’s name: the London flat, non-UK securities, and the offshore trust he settled years ago.

The traditional assumption

Under the old rules, advisers told Luca:

• On his death, transfers to Francesca benefit from the spouse exemption, but
• Because he is UK-domiciled (or deemed dom) and she is not, the exemption is capped at the nil-rate band (currently £325,000), unless she elects to be treated as UK-domiciled for IHT.

From April 2025, the language changes, but the logic is familiar:

• Where a long-term resident leaves assets to a spouse who is not a long-term resident, the spouse exemption is restricted, broadly mirroring the old mixed-domicile limitation.
• Where both spouses share the same long-term residence status – either both LTR, or both not – the full spouse exemption can apply to transfers between them.
• Transfers from the non-LTR spouse to the LTR spouse are not restricted.

In other words, the mismatch is now based on long-term residence, not domicile.

Spousal elections – the new landscape

Under the pre-2025 regime, a non-UK-domiciled spouse could elect into UK domicile for IHT purposes to secure full spouse exemption and worldwide scope.

From 6 April 2025:

• Existing elections are effectively converted into elections to be treated as long-term UK resident for IHT.
• New elections continue to be possible, but now sit within the long-term residence framework rather than the deemed-dom regime.
• The period before an electing spouse falls back out of charge is generally longer: in many cases, they must complete ten consecutive years of non-residence before losing their long-term resident status, whereas a deemed-dom individual who leaves the UK can sometimes fall out of scope after only three years’ non-residence.

Practically, this means that:

• A spouse from any jurisdiction (Italy, France, the US, India, the Middle East, etc.) who casually agreed to an IHT election years ago may now find themselves locked into worldwide UK IHT exposure for much longer than expected.
• In some cases, doing nothing before April 2025 may be safer than rushing to make a new election, especially if the couple are thinking about relocating.

For mixed-residence couples, it is critical to:

• Audit any past spousal elections – when were they made, and on what basis?
• Model the IHT tail if either spouse leaves the UK.
• Align the elections with the marital property regime, wills and any cross-border estate planning.

3. Deemed domicile is repealed – but it still matters historically

The familiar deemed-domicile provision in IHTA 1984 s 267 disappears from April 2025.

However, the concept doesn’t vanish completely:

• It remains relevant for periods up to 5 April 2025.

That still matters for:

• people who die before 6 April 2025; or
• trusts and settlements created before that date.

Example:

• An expat who became deemed domiciled under the old 15/20 rule and settled a trust in 2018 will not magically cleanse that trust on 6 April 2025.
• For charges arising before that date, the old domicile-based analysis still bites.
• Only from 6 April 2025 onwards does the new long-term residence test start to drive future IHT exposure on non-UK assets.

So any serious review needs a timeline: where was the client resident, and what was their status, in each relevant tax year?

4. Treaties and “treaty domicile” – a brief detour

The UK has specific IHT or estate tax treaties with a limited number of states (for example the US, Ireland, Netherlands, South Africa, Sweden, Switzerland), plus older estate-duty-era treaties with others such as Italy, France, India and Pakistan.

Under the updated rules:

• For modern post-1975 IHT treaties, a long-term UK resident is effectively treated as UK-domiciled on the UK side.
• The older estate-duty treaties have their own definitions and do not refer to deemed domicile; they still work, but in a different way and require separate analysis.

For an expat with assets in several countries – say, a UK-resident executive with property in Spain, funds in Luxembourg and a family home in South Africa – the interaction between:

• long-term residence in the UK,
• treaty domicile or nationality elsewhere, and
• local estate/inheritance tax rules

can be the difference between full double tax exposure and an effective treaty-based reduction or credit.

This is not an area for guesswork: each relevant treaty has to be read carefully alongside the new UK rules.

5. Trusts and long-term residence: where the real complexity sits

For many expats in the UK, the most delicate part of the reforms is the impact on trusts and settlements – especially “excluded property” structures holding non-UK assets.

5.1. The old principle – fixed by domicile at settlement

Historically, the position was relatively simple:

• If a non-UK-domiciled individual settled non-UK assets into a trust, and certain conditions were met, those assets could enjoy permanent excluded property status for IHT, even if the settlor later became UK-domiciled or moved elsewhere.
• Charges at ten-year anniversaries or exits often did not apply to those foreign assets.

5.2. The new principle – follows long-term residence over time

From 6 April 2025, for non-UK assets in a settlement, the key test becomes:

Is the settlor a long-term UK resident at the time of the chargeable event (ten-year anniversary, exit, or death)?

Broadly:

• If the settlor is long-term resident, non-UK settled assets are not excluded property and can be subject to:
  • up to 6% ten-year charges, and
  • proportionate exit charges when capital is distributed.
• If the settlor is not long-term resident (or has died without being long-term resident at death, depending on the situation), non-UK settled assets can regain or retain excluded property status.

In other words, for many offshore trusts, the IHT position will now change over time as the settlor moves in and out of long-term residence, rather than being fixed for life by their domicile when the trust was created.

5.3. Transitional rules – partial grandfathering only

The legislation includes important transitional protections, particularly for:

• Trusts settled before 30 October 2024, and
• Certain qualifying interest in possession (QIIP) settlements holding non-UK assets.

In outline:

• Where non-UK assets were already excluded property on 30 October 2024 in a QIIP settlement, those assets can remain protected when the IIP ends, regardless of the long-term residence tests for the settlor or the IIP beneficiary – subject to conditions.
• However, UK-situs assets in the same trust at that date are not protected, even if later converted into foreign assets.
• For discretionary/relevant property trusts holding non-UK assets, there is often no complete grandfathering: they are drawn into the relevant property regime once the settlor is long-term resident, albeit with reduced charges in early years because part of the trust’s life was outside scope.

5.4. A practical story: Giulia’s Jersey trust

Giulia, originally from Torino, moved to London in 2016.

• In 2019, while still non-dom under the old rules, she settled a Jersey trust holding her non-UK portfolio for herself and her children.
• By 2027, she has been UK-resident for more than ten years in total and becomes a long-term UK resident.

Under the new regime:

• From 2027 onwards, the entire foreign trust fund can be within the relevant property regime for IHT.
• At the 2029 ten-year anniversary, there may be a ten-year charge calculated by reference to the years since the trust first fell within scope (from 2027), not the full ten years since 2019 – hence a reduced effective rate in early years.
• If Giulia later relocates again – whether back to Italy or to a third country – and, after enough consecutive years of non-residence, ceases to be long-term resident, the foreign trust may again become excluded property, but that status shift itself triggers an exit charge.

For Giulia, the key is not just “Do I have a trust?” but:

• When was it settled?
• Where are the assets now?
• What is my long-term residence status in each relevant year?
• Can I afford the possible 6% periodic charges or exit charges if the trust remains within the UK IHT net?

6. Personal tax, mobility and family strategy

All of this sits alongside the broader reforms to foreign income and gains (FIG) and the new four-year regime, which affect income tax and capital gains tax rather than IHT.

For an internationally mobile family, sensible planning now combines:

• Personal tax – how your salary, bonuses, carried interest, dividends and FIG are taxed over time, especially as you move in or out of the UK.
• Inheritance tax – when you cross the long-term residence threshold and how long the IHT tail lasts after you leave.
• Trusts and wealth-holding structures – whether existing trusts still do what they were meant to do, or whether they now create unplanned IHT exposures.
• International treaty position – in particular, whether any IHT or estate tax treaties (with the US, Switzerland, India, EU states, the Middle East, etc., and older estate-duty treaties) can mitigate double taxation on death or on lifetime transfers.

For many expat professionals and entrepreneurs in the UK, the question is no longer simply:

“Am I UK-domiciled?”

but rather:

“When will I become a long-term UK resident, and do I actually want to?”

7. What should expats in the UK do now?

If you have read this far and recognised yourself in Luca, Francesca, Giulia or their children, a few practical next steps are essential:

Map your residence history

Build a simple timeline: in which tax years were you UK-resident since 2013? This tells you:

• when you will become a long-term resident; and
• how long your IHT tail would be if you left the UK.

Review wills and spousal planning

• Identify any mixed-residence or mixed-status couples (one long-term resident, one not).
• Check whether any spousal IHT elections have already been made, and whether they still make sense in a long-term residence world.

Audit all trusts and structures

List every trust where you are settlor, beneficiary or protector. For each one, understand:

• whether it holds UK or non-UK assets;
• whether it is relevant property, QIIP or another category;
• whether transitional protections apply; and
• at what date(s) future ten-year or exit charges might arise.

Consider your mobility plan

If you were already thinking of moving country (back “home” or to a third jurisdiction), the timing in relation to the 10-out-of-20 test and the IHT tail can now make a very big difference.

In some cases, an earlier move or a more structured departure plan can remove worldwide IHT exposure years sooner.

Coordinate UK and overseas advice

The interaction between UK IHT, local succession rules, forced heirship regimes and any regional wealth/estate taxes is increasingly complex.

A coherent plan needs both UK technical input and local advice in the relevant jurisdictions – not separate conversations in silos.

Call to action – don’t become a “long-term resident” by accident

Many expats in the UK will cross the long-term residence threshold almost without noticing – one more school year, one more promotion, one more bonus cycle, and suddenly your worldwide wealth sits under the UK inheritance tax spotlight.

If you are an internationally mobile individual with assets or family in more than one country and you:

• have lived in the UK for several years (or are planning to),
• hold non-UK assets personally or via a trust or company, or
• are part of a mixed-residence couple,

this is precisely the moment to review your position.

To discuss how the long-term residence rules affect your family, trusts and cross-border estate plan, you can contact Vectigalis Tax via www.vectigalistax.co.uk or email angelo@vectigalistax.co.uk to arrange a confidential consultation.