Background
Domicile has traditionally been the connecting factor when considering how UK Inheritance Tax applies to a person’s estate. The basic rules rules were straightforward. If you are UK domiciled, IHT will apply to your assets wherever they are in the world. Otherwise, IHT will only apply to your UK assets.
However, domicile itself can be a difficult concept to understand. For a start, there are two different sets of domicile rules – the common law rules and the deemed domicile rules. The former are based upon centuries of case law, and the deemed domicile rules, on the length of time a person has been UK resident.
Given the importance of domicile to taxation, it’s therefore unsurprising that it has been the focus of numerous HMRC investigations and litigation.
What’s changing?
From 6 April 2025, the concept of domicile will largely be abandoned for tax purposes. Instead, exposure to IHT will be governed by whether a person is a “long-term resident”.
A long-term resident is someone who has been resident in the UK for 10 or more out of the previous 20 tax years. Sounds simple? If the test stopped there, I would agree. However, there are special rules for:
- People under the age of 20
- Tax payers who are not UK resident after 6 April 2025
- Those who leave the UK and return after 10 years
The IHT “tail”
Much like Hotel California, “You can checkout any time you like, but you can never leave”. Becoming non-resident does not immediately stop IHT applying to your non-UK assets. First, you will need to be non-resident for a set number of years. The number of years, known as the “IHT tail”, is determined by how many years you have been UK tax resident, as shown in the table below.
| Number of tax years resident in the previous 20 | Length of “tail” |
| 10 – 13 | 3 |
| 14 | 4 |
| 15 | 5 |
| 16 | 6 |
| 17 | 7 |
| 18 | 8 |
| 19 | 9 |
| 20 | 10 |
However, even if you remain non-resident for the length of your tail, if you were to return to the UK you could be back within the scope of IHT very quickly.
