Concept
UK inheritance tax (IHT) is charged at 40% on the value of an estate above the tax-free threshold (nil-rate band, £325,000). Trusts have historically mitigated IHT, but they carry their own tax regime—relevant property.
🍓 From 6 April 2025, UK IHT became residence-based: worldwide assets are subject to tax after 10 of the last 20 years of tax residence. Domicile as a criterion has been abolished.
2025 Reform: From Domicile to Residence
Until April 2025, IHT scope was determined by domicile. From 6 April 2025, the domicile concept for IHT has been abolished: the key is now long-term resident status—i.e., resident for at least 10 of the last 20 tax years. Such a person pays IHT on all worldwide assets.
"Tail" After Departure
Upon leaving the UK, a former long-term resident remains within the IHT orbit for a further three to ten years—depending on how many years they were resident. It is not possible to exit the tax immediately.
Relevant Property: Trust Regime
Assets in discretionary trusts are taxed under the relevant property regime: an entry charge, a periodic ten-year charge (up to 6%), and an exit charge when assets are withdrawn. The effect of the 2025 reform is that settling worldwide assets into a trust has become more expensive for long-term residents.
⚙️ Excluded property trusts created before loss of "protected" status, and transitional rules, require precise calculation by dates—especially for those who were not domiciled on 30 October 2024.
Practical Takeaway
🔗 Related
Life insurance · Succession planning · Asset protection trusts · Private foundations · Estate tax and US-situs
For UK-connected families, trusts still work, but their tax logic needs to be recalculated under the residence-based regime. Life insurance policies remain a classic way to provide heirs with liquidity to cover the 40% IHT.
💡 Liquidity for IHT is often provided through life insurance.
⚠️ The 2025 reform has made previous "non-dom" structures ineffective. Old trusts need to be reviewed: what worked before April 2025 may now create a tax liability.
This material is for reference purposes only and does not constitute individual legal advice.
Key factual claims
- UK inheritance tax (IHT) is charged at 40% on the value of an estate above the tax-free threshold (nil-rate band, £325,000).
- Until April 2025, IHT scope was determined by domicile.
- Assets in discretionary trusts are taxed under the relevant property regime: an entry charge, a periodic ten-year charge (up to 6%), and an exit charge when assets are withdrawn.