Inheritance Tax for UK Nationals Living Abroad: The Newly Introduced Residence-Based Regime

Associated Press

29-05-2025

05/28/2025, Paphos 8035 // PRODIGY: Feature Story //
Following Labour's formation of a new government, Chancellor Rachel Reeves hinted strongly at proposals to rethink inheritance tax exposure for long-term overseas expatriates. This was borne out in the announcements made during the Autumn Budget, which came into force at the start of the 2025-26 tax year.
Coupled with reforms to the non-dom tax regime and Overseas Transfer Taxation on cross-border pension transfers , these changes may significantly impact the tax planning and decisions made by expatriates splitting their time between the UK and other countries, and where they choose to base their primary homes.
Chase Buchanan Wealth Management , an international group of accomplished wealth managers and financial advisers, has explained the changes, how they may affect expatriates, and how the new residence-based inheritance tax scheme will work.
Changes to the UK's Domicile-Based Inheritance Tax System
Domiciliary status has long been a headache for expatriates, many of whom continued to bear some exposure to UK inheritance tax long after they had relocated overseas and settled as permanent tax residents in other jurisdictions.
That is because changing domicile can be complex and costly, and a proportion of expatriates simply didn't realise that their tax residency and domiciliary positions were two very different things, leaving families and heirs with sizable inheritance tax burdens they hadn't planned for.
From this tax year onward, the positive is that your domiciliary status is no longer relevant. Instead, HMRC will assess the inheritance tax liabilities linked to an estate based on how long the individual had been an overseas resident.
Currently, that means any UK citizen who has lived continuously overseas since 5th April 2015 or earlier will not have a UK inheritance tax obligation linked to assets based in another country. The exclusions apply to assets based in the UK, including residential real estate assets, which may still be subject to the tax.
The idea is that once a long-term overseas expat has been a resident elsewhere for 10 years, their estate and beneficiaries will no longer be liable for UK inheritance tax against their non-UK assets. However, the opposite also applies. Therefore, non-UK assets will fall within the scope of British inheritance tax following ten years of UK residency if a foreign national from elsewhere, or a British expat, decides to return.
How British Expats Will Be Assessed for UK Inheritance Tax Going Forward
It is essential to reiterate that the new scheme does not mean that being classed as an overseas resident automatically exempts any British citizen, and their estate, from inheritance tax. Instead, it means that when an expatriate settles in another country, their assets outside of the UK may be excluded from the scope of UK inheritance tax from ten years onward.
Much will depend on the specifics of their tax residency position and whether they meet the criteria to be considered long-term overseas residents.
This is ascertained using the Statutory Residence Test, which HMRC and the UK authorities already use to determine whether an individual is a tax resident in the UK and, therefore, subject to British taxation against their worldwide income and assets.
Other countries use similar rules to decide whether a foreign national resident is exposed to domestic tax only on their locally based assets and income sources, or against all of their wealth and earnings.
While the system is fairly complex and involves a series of tests, which look at aspects such as the individual's primary home, where their main income arises, the location of their immediate family members, and their investment or business interests, the Chase Buchanan team can, of course, assist with this.
What Does a Residence-Based UK Inheritance Tax System Mean for Expatriates?
The ramifications may vary between individual estates, families, and taxpayers. Still, the immediate takeaway, as we've mentioned, is that a person who has lived abroad for at least ten years is unlikely to now have any inheritance tax levied on their estate, at least against assets held outside of the UK.
Likewise, an expatriate might decide to restructure their assets, set up trusts and other funds, and gift non-UK assets to loved ones and family members without any concerns about how this could affect their beneficiaries' future tax liabilities.
We also expect these reforms to have a material effect on decision-making, particularly for expatriates who may have been considering a return to the UK and those currently planning a relocation and making decisions about whether to liquidate, sell, or transfer UK assets to another tax jurisdiction.
That said, it remains crucial to be conscious of succession, inheritance, wealth, and estate taxes in other countries. Being exempt from UK inheritance tax or with a minimal liability by no means limits the tax obligations that could arise in a person's country of residency or affect their nominated heirs.
Expatriates who opt to remain non-UK tax residents may no longer need to factor in UK inheritance tax or make decisions about whether to work through the process of establishing a new domicile. However, they will still need to ensure they are fully conscious of how the Statutory Residency Test works, and how, for instance, retaining a UK home may influence the outcomes of that assessment.
How Does the New Foreign Income and Gains Regime Factor Into Inheritance Tax Reforms?
As a final note, one of the additional announcements relates to the Foreign Income and Gains (FIG) regime, which also took effect from 6th April 2025. This rule means that expatriates who have been non-residents for ten continuous years and choose to return to the UK can take advantage of a four-year exemption.
During that initial four years, they may be able to claim UK tax relief against foreign incomes and gains, including those they receive personally and through a trust. This is in a bid to incentivise affluent expatriates to consider a return and make it more tax-efficient to relocate to the UK and bring investment assets and wealth with them.
As with all of the topics discussed here, the benefits, tax efficiencies, and impacts on your overall tax position should always be reviewed with help from an experienced global tax adviser.
Read more about Chase Buchanan - Experienced Tax Specialists at Chase Buchanan Wealth Management Reflect on the Changing 2025 Global Economic Landscape
About Chase Buchanan Private Wealth Management
Chase Buchanan is a highly regulated wealth management company that specialises in providing global finance solutions for those with a global lifestyle. We are global financial advisers, supporting expatriates around the world from our regulated European headquarters, and local offices across Belgium, Canada, Canary Islands, Cyprus, France, Malta, Portugal, Spain, UK and the USA.
All investments carry risk, including the potential loss of capital. You should carefully consider whether investing is suitable for you, taking into account your personal circumstances, financial situation, and risk tolerance.
Chase Buchanan Ltd is authorised and regulated by the Cyprus Securities and Exchange Commission with CIF Licence 287/15.
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