For generations, the concept of domicile sat at the heart of UK Inheritance Tax (IHT) planning. Where you were born, where your parents were born, and where you truly intended to make your permanent home all fed into a legal determination that decided whether your worldwide estate would be subject to UK IHT or, only your UK-situated assets. From 6 April 2025 however, the UK fundamentally rewrote the rules. Domicile has been replaced, for IHT purposes at least, by a new concept: long-term UK residence (LTR). The shift is significant, and every individual who has lived outside the UK at some point should understand what it means for their estate.
The old world: domicile and deemed domicile
Under the previous regime, your domicile status determined whether HMRC could tax your worldwide assets on death or on lifetime transfers. A person domiciled outside England & Wales, Scotland or Northern Ireland was only exposed to IHT on UK-situated assets. The rules included ‘deemed domicile’: if you had been UK resident for 15 out of the previous 20 tax years, HMRC treated you as UK domiciled for IHT purposes, regardless of your legal domicile. This caught many long-term residents who may have never intended to make the UK their permanent home.
The new world: long-term UK residence
Since the 6th April 2025, this turns on how long you have been a UK resident. An individual is now a long-term UK resident if they have been resident in the UK for at least 10 out of the 20 tax years immediately preceding the tax year in which the chargeable event arises. Once that test is met, their worldwide assets fall within the scope of IHT, and this is considerably sooner than under the old 15-out-of-20 deemed domicile rule.
Every individual who has lived outside the UK at some point should understand what it means for their estate.
Crucially, leaving the UK does not immediately end your exposure to UK IHT. Long-term UK residents remain within scope for a minimum of three years and up to ten years after departure, depending on how long they have been resident. Those who were a UK resident for 20 years will then need 10 consecutive non-resident years before their non-UK assets escape UK IHT. This makes exit planning considerably more complex than it once was. Of course, UK assets remain within UK IHT indefinitely.
What if you were domiciled in the UK in 2025 but not a long-term resident?
This is where the transition creates a genuinely important planning point. Consider someone who holds a UK domicile of origin, but who has not been UK resident for 10 of the last 20 years; under the old rules, their worldwide estate would have been fully exposed to IHT by virtue of their domicile alone. Under the new LTR test, their foreign assets could fall outside the scope of IHT entirely, even though they remain legally domiciled in the UK under common law.
Domicile does not disappear altogether under the new regulations. It remains relevant for events before 6 April 2025, for certain trust charges, and within double taxation conventions. Individuals who were UK domiciled under common law on 30 October 2024 also move onto the new LTR test from 6 April 2025 without the benefit of certain transitional protections available to non-domiciled individuals. But for the vast majority of ongoing IHT purposes, residence has firmly taken centre stage.
Other significant IHT changes on the horizon
The April 2025 reforms do not stand alone. Agricultural Property Relief and Business Property Relief were significantly curtailed from April 2026. Whilst these reliefs used to be unlimited, now only the first £2.5 million of combined agricultural and business property will continue to attract 100% relief. Any value above that threshold will only qualify for 50% relief, effectively creating a 20% IHT charge on the excess. For farming families and business owners with substantial estates, this represents a material increase in their IHT exposure. Perhaps most significantly, from April 2027, unused pension funds are set to be brought within the scope of IHT for the first time.
The UK's IHT landscape has changed more dramatically in the last two years than in the previous century. The shift from domicile to long-term UK residence catches people more quickly and holds them in scope for longer after departure. Combined with the reforms to agricultural and business reliefs and the looming inclusion of pensions, now is the time to revisit your estate plan with fresh eyes.
Ben Branson
Tax Partner, Milsted Langdon
About Milsted Langdon
Milsted Langdon is a leading independent accountancy, tax, and business advisory firm, which was established more than 35 years ago, and has grown to 21 Partners and over 200 staff across offices in Bath, Bristol, London, Taunton and Yeovil.
All views expressed are those of the author and are presented for information purposes only. The information provided in this article is of a general nature and is not a substitute for specific advice about your own circumstances. You are recommended to obtain specific advice from a qualified professional before you take any action or refrain from any action.
