# Trusts and Inheritance Tax: UK IHT After the 2025 Reform > How UK inheritance tax (40%) affects trusts and non-residents after the 6 April 2025 reform: transition to residence-based regime, long-term resident 10 of 20 years. Author: Алёна Дунаева — юрист, Family Office (https://wiki.private.law/authors/dunaeva) Last modified: 2026-07-21T17:16:00.000Z Canonical: https://wiki.private.law/en/trusts-inheritance-tax Topics: structures Jurisdictions: uk Semantic tags: company --- ## Concept UK inheritance tax (IHT) takes 40% of the value of an estate above the nil-rate band of £325,000. That threshold has been frozen at this level since 2009 and, following Budget 2025, will stay there until at least April 2031; a home passing to direct descendants adds a residence nil-rate band of £175,000. Freezing the bands while asset prices rise makes the tax steadily more widespread: in 2025/26 HMRC collected a record £8.5bn — its fifth record in a row. Trusts have historically been the main tool for smoothing IHT, but they answer to a tax regime of their own — relevant property — with its own charges. > 🍓 Since 6 April 2025 UK IHT is residence-based: worldwide assets come into charge once you have been UK tax-resident for 10 of the last 20 years. Domicile as a criterion has been abolished. ## 2025 Reform: From Domicile to Residence Technically, long-term resident status is counted in tax years, determined through the [statutory residence test](https://wiki.private.law/en/uk-tax-residence), and years before the reform count too. Domicile, intentions and citizenship no longer feature in the test — the arithmetic of 10 out of 20 does the work. For anyone under 20 the criterion is softer: residence in at least half of the tax years since birth. Spousal relief has also been rebuilt. Transfers to a spouse who is a long-term resident are exempt without limit; transfers to a spouse without that status are capped at £325,000 over a lifetime. The way out is an election: the recipient spouse voluntarily treats themselves as a long-term resident, the relief becomes full, and in exchange their worldwide assets enter the orbit of IHT. The election ceases after ten consecutive years of non-residence. ### "Tail" After Departure Having left the UK, a former long-term resident stays within the orbit of IHT for another three to ten years. The length of the "tail" depends on tenure: three years at 10–13 years of residence, then one further year for each additional year of residence, reaching the full ten after 20 years. The date of departure becomes a calculated figure: one extra year of residence shifts the planning horizon by a year. We cover the mechanics of exit in the article on [leaving the UK](https://wiki.private.law/en/uk-leaving). ## Relevant Property: Trust Regime Assets in discretionary trusts are taxed under the relevant property regime: a 20% entry charge on the amount above the nil-rate band when assets pass into trust, a periodic charge of up to 6% every ten years, and an exit charge when assets are taken out. Since 6 April 2025 the reach is tied to the settlor's status on the date of the particular charge, and the date the trust was created decides less in itself: while the settlor is a long-term resident, the trust's worldwide assets sit inside the regime; once they cease to be, foreign assets leave it (usually with an exit charge). > ⚙️ Trusts created before 30 October 2024 keep grandfathering under the gift with reservation rules: foreign assets settled into them by an ex-non-dom settlor do not fall into their estate on death. Periodic and exit charges still accrue, however, for as long as the settlor is a long-term resident. The whole calculation rests on dates: the status of the property on 30 October 2024 and the settlor's status at each ten-year anniversary. Budget 2025 (26 November 2025) added a significant concession: for property that was excluded property on 30 October 2024 and sits outside the UK at the charge date, trustees can elect a cap — relevant property charges on it are limited to £5m per ten-year cycle (the new s.75B IHTA 1984, retroactive to 6 April 2025). For large legacy trusts the ceiling cost of holding the structure is now known in advance. New trusts, and trusts of settlors without prior non-dom status, pay without any limit. ## Gifts and Insurance: The Classics Still Work Lifetime gifts to individuals remain potentially exempt transfers: survive seven years and the gift drops out of the estate; death in the fourth to seventh year gives taper relief on the tax rate. A transfer into trust is a chargeable lifetime transfer with a 20% entry charge above the nil-rate band, and because of cumulation the sequence "trust first, then gifts" can cast a tax shadow up to 14 years back. Regular gifts out of current income (normal expenditure out of income) are exempt at once, without the seven-year wait — an underrated tool for high-income families. Life insurance solves the adjacent problem — liquidity. A whole-of-life policy written into trust stays outside the estate and gives heirs the money to pay the 40% without a forced sale of property or a business; the premiums usually fit within the exemption for regular gifts out of income. More on this in the article on [life insurance in succession planning](https://wiki.private.law/en/life-insurance-succession). ## Horizon 2027–2031 From here the IHT net stretches further. From 6 April 2027 unused pension funds (DC) and most death benefits are brought into the estate — on HMRC's estimate, adding some 10,500 taxpaying estates a year. The thresholds are frozen until April 2031, and the OBR expects the take to rise to around £14.5bn by 2030/31. For those who have moved to the UK, IHT works in tandem with the [FIG regime](https://wiki.private.law/en/uk-fig-regime) on income and gains — residence planning is worth assembling as a whole, along both lines. > 🧭 A working checklist: a residence timeline under the statutory residence test for the last 20 years; an inventory of trusts with their creation dates and nearest ten-year anniversaries; a decision on the £5m cap for legacy structures; and a recalculation of wills and insurance liquidity under the residence-based regime. ## Practical Takeaway > 🔗 **Related** > [life insurance](https://wiki.private.law/en/life-insurance-succession) · [Succession planning](https://wiki.private.law/en/succession-planning) · [Asset protection trusts](https://wiki.private.law/en/asset-protection-trusts) · [UK tax residence](https://wiki.private.law/en/uk-tax-residence) · [FIG regime](https://wiki.private.law/en/uk-fig-regime) · [Leaving the UK](https://wiki.private.law/en/uk-leaving) For UK-connected families, trusts continue to work — [succession planning](https://wiki.private.law/en/succession-planning) simply calls for a recalculation under the residence-based regime: who in the family becomes a long-term resident and when, which assets sit in which trusts and with what dates, and where the liquidity for the 40% will come from. Those who have left should fix the length of their own "tail" and resist dismantling old excluded property trusts in haste: grandfathering and the £5m cap often make holding a structure cheaper than unwinding it. > 💡 The essence of the post-2025 regime: the tax follows residence, and the protection of old trusts follows dates. Three control points: long-term resident status, 30 October 2024 and the trust's ten-year anniversaries. > ⚠️ 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 charge. **🧭 Check your case**: [Succession Navigator](https://wiki.private.law/en/succession-planning) — which law applies, where forced heirship and taxes arise. This material is for reference purposes only and does not constitute individual legal advice. --- ## Sources - [GOV.UK — trusts and taxes](https://www.gov.uk/trusts-taxes) - [Inheritance Tax Act 1984 — legislation.gov.uk](https://www.legislation.gov.uk/ukpga/1984/51/contents) --- ## Factual claims - UK inheritance tax (IHT) takes 40% of the value of an estate above the nil-rate band of £325,000. - 🧭 Check your case: Succession Navigator — which law applies, where forced heirship and taxes arise.