Changes to the UK long-term residence status
From 6th April 2025, the UK abandoned the traditional concept of domicile for inheritance tax (IHT) purposes. Instead, it hinges on whether someone is a long-term UK resident. Under this new regime, an individual is deemed a long-term UK resident if they have been tax-resident in the UK for at least 10 of the preceding 20 tax years. Once classified as a long-term resident, global assets, both UK and nonUK, are subject to full IHT, regardless of domicile. Even if such an individual leaves the UK, they may remain liable to UK IHT on worldwide assets for between three and ten years, depending on their period of residence prior to departure. This has been termed the ‘residence tail’.
Implications
The implications are that UK long-term residents who previously were being taxed only on their UK assets are now liable to pay tax on their worldwide assets. This is particularly pertinent to individuals who have assets in multiple countries or might spread their residency between different countries. It has been predicted that 16,500 millionaires will have left the UK by the end of the tax year, many hope to ‘run out’ the UK residency tail, and settle in a jurisdiction with lower IHT liabilities where they will not face double taxation or higher UK IHT liabilities than other jurisdictions would offer.1 This will be £66 billion of investable wealth that has been extracted in 2025.
Unilateral relief and the prevention of double taxation
A large concern from these changes has been the consequence of double taxation. Individuals will be taxed in the UK on their worldwide assets and, despite having left the UK, they may be taxed again for assets within their country of residence if they die within their UK residency tail. To prevent this, the UK offers unilateral relief on IHT. This is a form of tax credit available under UK law to prevent double taxation. It is provided under Section 228 of the Inheritance Tax Act 1984 and is available where UK IHT is charged on an asset that has also suffered a similar foreign tax. This includes inheritance tax, successive duty and estate tax, by allowing the UK IHT to be reduced by a variable margin.
This relief will only be granted if the following conditions are met:
The deceased was considered a UK long-term resident.
They are liable to UK IHT on their worldwide assets.
They own property or investments in another country, and inheritance tax has been imposed on the assets in this country.
Foreign IHT has been paid on the same asset for which UK IHT is due.
The tax must be charged on the same occasion (i.e the death of the individual).
If the unilateral relief conditions are met, relief will be granted on the lower of:
The tax paid in the foreign jurisdiction, or
UK IHT due on the same asset.
In these cases, the credit is a proportion of the tax. The proportionate credit is computed by the formula: A ÷ (A + B) x C. A is the inheritance tax, B is the overseas tax and C is whichever of A or B is smaller.
To provide a practical example of this, if there is £10,000 UK IHT due on an asset in a foreign country, and there is £5,000 foreign IHT paid in that jurisdiction, C would be the smaller of the two at £5,000.
A (£10,000) ÷ (A £10,000 + B £5,000) x C £5,000 = £3,333.
The total UK IHT payable of £10,000 could be deducted by £3,333, leaving £6,666 due and outstanding.
Double taxation treaties
Unilateral relief is a secondary measure, and if countries have double taxation conventions, unilateral relief will not apply. There are ten countries for which the UK has a double taxation convention. Below is a list of these countries and the relevant legislation:
Example implications of the UK/Italy Double Taxation Relief (Estate Duty (Italy) Order 1968)
To provide an example of the application of the UK/Italy DTR Order 1968, domicile will firstly need to be determined. Various factors are used to determine this including:
Where your permanent home is.
Where you have economic or personal ties (centre of vital interests).
Your nationality.
How many days of the year you spend in Italy.
If it has been determined that the individual is Italian domiciled, that country will retain the primary right to tax the deceased’s worldwide estate. The secondary country will be able to tax the assets physically located in their territory, and on the foreign asset less the amount that was paid in Italy. The executors will be able to credit the foreign IHT paid on those situated assets. If you own an Italian property worth £1,000,000 and you are considered to be both an Italian resident and UK long-term resident, your executors would initially pay the tax owed in Italy, for example at 8% (£80,000). The IHT due in the UK might be at a rate of 40% (£400,000). Your executors can claim credit for the asset tax paid in Italy from the outstanding amount owed in the UK (£400,000-£80,000) leaving £320,000 due as UK IHT on the property.
Consequences
Individuals with assets in multiple jurisdictions should consider their ‘UK residence tail’ and the implications of having a variety of worldwide assets. Some countries have agreements in place to prevent the full burden of double taxation.
Those countries that do not benefit from double taxation may benefit from the unilateral relief offered in specific circumstances. It must be noted that many of the treaties still refer to the term UK deemed domicile and have not been revised to account for our change in legislation.
We are yet to see how this will be updated, and we would recommend specific inheritance tax advice is sought regarding each jurisdiction and the IHT liabilities. For more information, please contact the Private Wealth & Philanthropy team.
Related Expertise
Disclaimer: This publication is provided by Laytons LLP for informational purposes only. The information contained in this publication should not be construed as legal advice. Any questions or further information regarding the matters discussed in this publication can be directed to your regular contact at Laytons LLP or Laytons’ Private Wealth & Philanthropy team.