From 6 April 2025 the United Kingdom stopped using domicile to decide who pays inheritance tax and started using residence instead. You are a long-term resident, and therefore within the scope of IHT on your worldwide estate at 40% above the nil-rate bands, once you have been UK tax resident for at least ten of the previous twenty tax years. Leaving the country does not end it. A tail provision keeps you inside the net for a further three years if you were resident for ten to thirteen years, rising by one year for each additional year of residence to a maximum of ten years. For an American who moved to London for what was meant to be a five-year posting and is now in year nine, that single fact — the difference between leaving before the tenth tax year and leaving after it — can be worth more than the entire rest of their tax planning combined.
What actually changed on 6 April 2025
The old system asked a question that was famously difficult to answer: where is your domicile? Domicile was a common-law concept about permanent home and intention, layered with a deemed-domicile rule that pulled long-stayers in after fifteen of the previous twenty tax years. It was subjective, litigated constantly, and it allowed a well-advised non-dom to argue about intention for decades.
The new system asks a question with an arithmetic answer: how many UK tax years have you been resident for? GOV.UK sets out the replacement rules in its guidance on Inheritance Tax if you're a long-term UK resident. The abolition of the non-dom regime and the arrival of the four-year Foreign Income and Gains regime got most of the headlines, and we covered that side of it in our guide to the abolition of non-dom status and the FIG regime. The inheritance tax change was quieter and, for wealthy families, considerably more expensive.
The reason it is more expensive is simple. Income tax and capital gains tax are annual charges on flows. Inheritance tax is a one-off charge on a stock — everything you own, everywhere in the world, at 40%. A change to the income tax rules costs you a slice of one year's earnings. A change to the IHT rules costs your family four pounds in every ten of everything you have ever accumulated.
The test: ten out of twenty
You are a long-term resident for a tax year if you were UK tax resident for at least ten of the twenty tax years immediately before it. The guidance also expresses this as being resident for the previous ten consecutive years, which is simply the commonest way of hitting the same threshold.
Three features of this test matter enormously and are routinely misunderstood.
First, the years do not have to be consecutive. Someone who lived in London for six years, spent eight years in Singapore, then returned to London for four years has ten UK years inside a twenty-year window and is a long-term resident. The gap in the middle did not reset anything.
Second, residence is determined by the Statutory Residence Test, not by how you feel about where you live, and not by your visa. The SRT is a mechanical test of days, ties, work and accommodation, and it catches people who genuinely believe they left. If you have not run the SRT properly for every year of the last two decades, you do not actually know your count. Our guide to the Statutory Residence Test for Americans walks through how the day counts and ties work.
Third, the test is applied at the relevant time — most importantly at death, but also whenever a chargeable lifetime transfer is made. It is not a status you acquire once and keep. It is recalculated.
What being a long-term resident actually exposes
If you are not a long-term resident, UK inheritance tax reaches only your UK-situs assets: a house in London, a UK bank account, shares registered in the UK. Your US brokerage account, your 401(k), your family home in Connecticut and your interest in a Delaware LLC are all outside the charge.
If you are a long-term resident, all of it is inside the charge. Every asset, wherever situated, in whatever currency, however long you have owned it. The 40% rate applies above the nil-rate band of £325,000 and, where the conditions are met, the residence nil-rate band of £175,000 on a home passing to direct descendants. Both bands have been frozen for years, which means that every year of asset growth and inflation pushes more of a typical American expatriate estate above them.
For a high-net-worth American this is a genuinely enormous shift. A family with $12 million of assets, almost all of it in the United States, may have paid no UK inheritance tax exposure any thought whatsoever because nothing they own is British. In year ten of UK residence, the entire $12 million becomes chargeable.
The tail: why leaving does not switch it off
This is the provision that catches people who think they have solved the problem by moving away. Once you have become a long-term resident, the status persists after departure for a period that scales with how long you were here.
The tail runs for three tax years where your period of UK residence was between ten and thirteen years. Beyond that it lengthens by one year for each additional year of residence — fourteen years of residence gives a four-year tail, fifteen gives five, and so on up to a maximum of ten years for the longest-staying residents.
So the person who leaves after eleven years is exposed to worldwide IHT for three more tax years. The person who leaves after twenty years is exposed for ten. Ten years is a long time to have to survive in order for a plan to work, and the whole point of inheritance tax is that it is triggered by the one event nobody schedules.
- 10 to 13 years of UK residence — 3-year tail after departure
- 14 years — 4-year tail
- 15 years — 5-year tail
- Each further year of residence adds a further year of tail
- Maximum tail — 10 years
The reset, and why it is harder than it looks
The long-term resident test resets if you spend ten consecutive tax years as a non-UK resident. After that, the twenty-year lookback effectively starts again — only your year of return and subsequent years of residence count towards a fresh threshold.
Ten consecutive years is a genuinely high bar and it interacts badly with the way American families actually live. A returning visit that accidentally trips an SRT tie, a year working in London on a project, a period caring for an elderly parent in the UK — any of these can break the run of non-residence and restart the clock. The reset is available in principle and difficult to achieve in practice for anyone who keeps a foot in Britain.
The ninth year is the decision point
If there is one operational takeaway from the new regime, it is that the ninth UK tax year is when the decision has to be made, not the tenth and certainly not the eleventh.
Once the tenth year completes you are a long-term resident, and the only exit is the tail — a minimum of three further years of exposure that you cannot shorten by leaving faster. Before the tenth year completes, departure removes worldwide exposure immediately and completely, subject only to your remaining UK-situs assets.
The practical difficulty is that people rarely know which year they are in. A posting that began in September 2017 has a UK tax year count that depends on split-year treatment, on whether the arrival year counted at all, and on whether a subsequent sabbatical year broke residence. We regularly find that a client's own belief about their year count is out by one or two in either direction — which, at this threshold, is the whole ball game.
How this collides with US estate tax
A US citizen or Green Card holder never escapes the US estate tax system. The United States taxes the worldwide estates of its citizens and domiciliaries regardless of where they live, so an American who becomes a UK long-term resident is now inside two worldwide estate tax regimes at once, on the same assets.
What stops that becoming straightforward double taxation is the US/UK estate and gift tax treaty, which contains a domicile tie-breaker and a system of credits allocating primary taxing rights between the two countries by reference to where assets are situated and where the deceased was domiciled for treaty purposes. It works, but it is intricate, and it does not always produce full relief — particularly where the two systems disagree about what an asset is or where it is located.
The mismatch that causes the most damage is structural rather than numerical. The US system has a very large per-person exclusion and an unlimited marital deduction between US citizen spouses. The UK system has a much smaller nil-rate band and, crucially, restricts the spouse exemption where the recipient spouse is not long-term resident. Assets that pass entirely free of tax on the first death in the US analysis can generate a UK charge, and planning built on one system's assumptions can fail badly under the other. Our comparison of US estate tax and UK inheritance tax sets out where the two regimes align and where they do not.
Trusts settled before the change, and the loss of excluded property
Under the old regime a non-domiciled individual could settle non-UK assets into a trust and those assets became excluded property — permanently outside UK inheritance tax, even if the settlor later became deemed domiciled. That was the single most valuable piece of planning available to internationally mobile wealthy families, and a great many American arrivals were advised to do it.
The residence-based regime changed the basis on which excluded property status is tested, moving it from the settlor's domicile at the time of settlement to the settlor's long-term resident status on an ongoing basis. Trusts that were confidently outside the net can now be inside it, exposed to the relevant property regime with its ten-yearly charges and exit charges.
If you settled an offshore trust while non-domiciled and have not had it reviewed since April 2025, that review is overdue. The answer will not always be bad — but it will very rarely be the same as it was.
Pensions join the estate from April 2027
There is a second change stacked on top of this one. From April 2027 unused pension funds and death benefits are brought within the scope of inheritance tax, removing what had been one of the most effective ways of passing wealth down outside the IHT net.
For a long-term resident American with a substantial UK pension, that means the pension pot moves from being an IHT-free wrapper to being part of a chargeable worldwide estate — while remaining, on the US side, an asset with its own separate and often unfavourable treatment. We have written about the interaction in detail in our guide to UK inheritance tax on pensions from 2027, and about the underlying US treatment in US tax on UK pensions and SIPPs.
The Temporary Repatriation Facility is a separate, closing window
The Temporary Repatriation Facility is not part of the inheritance tax change, but it shares a deadline pressure and it affects the same people. It allows former remittance-basis users to bring pre-6 April 2025 foreign income and gains into the UK at a reduced rate — 12% for 2025-26 and 2026-27, rising to 15% for 2027-28, after which it closes.
The two decisions interact. Money designated under the TRF and brought onshore is money sitting in a UK bank account, which is UK-situs and therefore chargeable even for someone who is not a long-term resident. Repatriating heavily at 12% and then failing to plan the estate position can trade one tax for another. Our guide to the Temporary Repatriation Facility deadline covers the mechanics and the timing.
What actually works now
The planning that survives the move to a residence-based system is mostly about timing and structure rather than about arguing over status, because status is now a matter of arithmetic and cannot be argued with.
Lifetime giving becomes more important, because the seven-year potentially exempt transfer rule is unchanged and gifts made while your year count is still low, and survived by seven years, fall out of the estate entirely. Life assurance written in trust to fund a projected IHT bill becomes more important, because it converts an unpredictable liability into a known premium. And for families where the American spouse's estate is the large one, the differing spouse exemption rules on each side need modelling before, not after, a will is signed.
What no longer works is waiting to see. The old regime rewarded ambiguity; the new one punishes it, because the clock runs whether or not anyone is watching it.
- Establish your exact UK tax year count under the SRT for the last twenty years, in writing.
- If you are at year eight or nine, model departure before year ten against staying, in cash terms.
- Have any pre-April 2025 offshore trust reviewed for loss of excluded property status.
- Check the spouse exemption position on both sides before executing UK or US wills.
- Model the 2027 pension change into the projected estate rather than treating pensions as outside it.
- If you are already long-term resident, calculate the tail length precisely — three years and ten years are very different plans.
A worked illustration of the cliff edge
Consider an American couple who arrived in London in 2017 with roughly $14 million of assets, substantially all situated in the United States, plus a £2 million house in Kensington.
If they leave the UK before completing their tenth UK tax year, UK inheritance tax reaches the Kensington house and any other UK-situs assets. The US assets are outside the charge from the day they cease to be resident.
If they complete the tenth year and then leave, they are long-term residents with a three-year tail. For those three tax years, the whole $14 million sits inside a 40% charge above the available bands, alongside the house. Whether that costs anything at all depends entirely on whether either of them dies during the tail — which is precisely the sort of thing that cannot be planned around after the fact, only insured against or avoided in advance.
The delta between those two positions, on those numbers, runs into the millions. The action that separates them is a decision about a departure date taken in year nine.
Getting the position established
The residence-based regime has made UK inheritance tax exposure calculable in a way it never was before. That is genuinely good news, because a calculable liability can be planned for. It is only dangerous while it goes uncounted.
You can get a feel for the UK-side numbers with our UK inheritance tax calculator and the US-side exposure with the US estate tax calculator, but the two have to be looked at together, against a properly established year count and a view on the treaty, before any of it means much.
