New HMRC guidance – IHT and long-term residence

Essentially, from 6 April 2025, the test to determine whether non-UK situated assets are within the scope of IHT will depend on whether an individual is long-term resident – so if they have been resident in the UK for at least 10 out of the last 20 tax years, immediately preceding the tax year in which the chargeable event (e.g. death or transfer into trust) occurs. At this point, a ‘long-term resident’ will be liable to IHT in respect of their worldwide assets.

An individual’s residence status for the purposes of establishing whether they are a long-term resident for income tax, capital gains tax and IHT will be determined using the statutory residence test.

An individual will not be a long-term UK resident if:

• on 30 October 2024 they did not have UK domicile or deemed domicile status;
• for the tax year 6 April 2025 to 5 April 2026, they are non-UK resident; and
• they do not return to the UK.

Leaving the UK as a long-term resident

An individual can still keep long-term UK residence for up to ten tax years after they leave the UK. This is shorter if they have not lived in the UK for all the previous 20 years. 

For example, if an individual previously lived in the UK for:

• ten to 13 years, they’ll stop being a long-term UK resident three years after they leave;
• 14 years, they stop being a long-term UK resident four years after they leave;
• 15 years, they stop being a long-term UK resident five years after they leave.

This means that an individual’s long term residence status will always be ‘reset’ once they have been non-UK resident for 10 consecutive tax years, which aligns with the new foreign income and gains regime – see below.

Leaving the UK as a deemed UK domicile

An individual stops being a long-term UK resident after three years of non-residence if:

• on 30 October 2024 they had deemed UK domicile;
• for the tax year 6 April 2025 to 5 April 2026, they are non-UK resident; and
• they do not return to the UK.

IHT on overseas assets

Subject to transitional rules, the excluded property status of non-UK settled assets is not fixed at the time the assets are added to a settlement. Instead, they are only excluded property - and so not subject to IHT charges - at times when the settlor is not a long-term UK resident.

HMRC’s guidance states that, there will be no IHT to pay on their death on trust assets that were:

• placed in the trust while the individual was non-UK domiciled;
• overseas on 30 October 2024; and
• overseas on the date of the individual’s death or when their rights to the trust ended.

When a settlor is a long-term UK resident, any assets they have settled - even when not long-term UK resident - will be subject to IHT.

These rules mean that settled assets may come in and out of charge depending on the residence status of the settlor from time to time and IHT exit charges may apply where trust assets cease to be relevant property as a result of a change in the long-term UK residence status of the settlor. 

Foreign income and gains

From 6 April 2025, foreign income and gains may be eligible for relief for new arrivals to the UK in their first four years of tax residence, provided they have not been UK tax resident in the 10 tax years immediately prior to their arrival (4-year FIG regime).

If the individual’s first four years as a UK tax resident started before 6 April 2025, they can use the regime:

• from the tax year 2025/26;
• up to and including the last tax year of their four-year period.

If the individual leaves the UK temporarily during the four-year period and becomes a non-UK tax resident, they:

• cannot claim the regime for the tax years they temporarily left the UK;
• can claim the regime for any of the qualifying tax years remaining on their return to the UK as a UK tax resident.

HMRC has also produced updated guidance on these new rules, including how to claim relief, which can be found here.