Inheritance tax has always been a thorny issue, particularly for internationally mobile families. Here, our Head of Tax, Andrew Diver, explains how 2025 changes mean people who once thought themselves immune may find the UK inheritance tax clock ticking the moment they step off the plane.
For years, the word “domicile” carried almost mystical significance in the world of UK tax.
If you were “non-domiciled” (your permanent home was considered to be outside Britain) you could spend decades living here, sending your children to British schools, buying a house in London, even running a business from Mayfair, yet still keep your overseas wealth outside the inheritance tax net.
But that long-standing distinction disappeared in April 2025.
In its place came a new regime where residence - a far more measurable concept - decides who is caught.
The tool for working that out is the Statutory Residence Test (SRT), something that tax advisers and many expatriates already know from income and capital gains tax. The big change is that the same test now controls when inheritance tax applies.
The 10/20 rule
At the heart of the new regime is the so-called 10/20 rule.
This means that once someone has been resident in the UK for 10 tax years out of the previous 20, they become a “long-term resident” and their worldwide estate falls within UK inheritance tax and the rate is the familiar 40%.
Until that milestone is reached, only UK assets are taxable.
But don’t think that moving abroad offers an immediate escape route. A “tail” lingers, keeping worldwide liability in place for between 3 and 10 years depending on how long you lived in the UK before leaving.
This subtle shift in emphasis may sound technical, but its effects are profound. People who once thought they were safe suddenly aren’t. And the countdown starts sooner than many imagine.
In practice
On paper the rules look deceptively straightforward. Years one to ten? Only your UK assets are in the firing line. Year 11 onwards? Everything you own worldwide is potentially subject to 40% inheritance tax. Leave the UK? Well, you may find that exposure follows you around for years afterwards.
But life rarely plays out as neatly as legislation.
Take James, for example. An American executive whose main base is Dubai, he travels frequently but spends about 60 days a year in London. He rents a flat in Knightsbridge and his children are enrolled in British schools.
Under the SRT, those factors are more than enough to make him UK resident. So, from day one, the inheritance tax clock starts ticking.
For the first nine years, his exposure is limited to UK assets - the London flat, perhaps some investments held through UK platforms. Come year 10, however, his entire international business empire is suddenly inside the net.
The same thing can happen to returning Britons.
Families who move back after long periods abroad often assume that “coming home” won’t change much. In fact, the moment residence is established the clock resets, and the countdown to worldwide exposure begins.
That’s why understanding the day-counting and tie rules of the SRT is so critical. It isn’t just about income or capital gains anymore. It’s about whether your heirs face a big bill on wealth scattered around the globe.
The American dimension
For US citizens, the picture becomes even more tangled.
The United States is unusual in taxing its citizens’ worldwide estates wherever they live. So, an American who relocates to Britain in 2025 already faces US estate tax from the outset.
The top rate is similar to the UK’s at 40%, but the exemption threshold is far more generous – more than $13 million in 2024, although this is scheduled to fall by half in 2026.
The upshot? For the first decade in the UK, an American like James may only face British inheritance tax on UK assets, but the US is still assessing his entire estate. Once the 10-year UK threshold is crossed, both systems apply worldwide taxation at once.
There is a UK–US estate tax treaty, which helps to an extent.
It prevents the same property from being taxed twice and allows credits to be given where tax has already been paid in the other country. It also contains specific rules for spouses of different nationalities. But it doesn’t resolve everything.
The biggest issue is thresholds. Someone with an estate of around $10 million for example, may be comfortably below the US exemption but still firmly above the UK’s nil-rate band, triggering a large UK bill.
Valuations are performed in different currencies, which can create mismatches when exchange rates swing.
And that’s not all. Trusts - often used to ring-fence assets - are treated very differently in each system. A trust that protects family wealth from UK inheritance tax may provide no shelter at all in the US, and vice versa.
Transition and opportunity
The government recognised that abolishing the old domicile rules would create upheaval. To soften the blow, it introduced a transitional measure: the Temporary Repatriation Facility (TRF).
This facility allows people to bring into the UK their pre-April 2025 foreign income and gains at a reduced flat tax rate of 12% in the first two years, rising to 15% in the third. Once those funds have been taxed under the TRF, they can be used freely in Britain without further liability.
That sounds attractive, but there is a catch. Assets brought onshore under the TRF are then within the scope of UK inheritance tax immediately, not after the 10-year grace period.
Families therefore need to weigh the short-term benefit of low tax rates against the long-term consequence of wider inheritance tax exposure.
Planning across two systems
What, then, should families actually do?
For non-US citizens, the early years of UK residence remain a window of opportunity.
Gifts and restructuring before the 10th year can reduce future exposure. Excluded property trusts created before the October 2024 cut-off may continue to protect assets. Couples where one spouse is non-UK domiciled should explore how the spousal exemption interacts with the new residence rules.
For US citizens, the problem is starker: worldwide estate tax never disappears. The best approach is therefore not to avoid inheritance tax altogether - which may be impossible - but to coordinate the two systems so that reliefs and credits work effectively. That requires careful timing of gifts, thoughtful structuring of trusts, and, often, cooperation between advisers in both countries.
And remember, leaving the UK is not an instant cure. The “tail” rules mean inheritance tax exposure continues for several years after departure. Families planning to relocate need to understand how long they remain in the UK net and plan accordingly.
Why the Statutory Residence Test now matters more than ever
When the SRT was first introduced in 2013, it was hailed as a way of bringing clarity to the murky world of tax residence. Instead of fuzzy judgments, taxpayers finally had a set of rules based on days, ties, and connections. For many, it was a box-ticking exercise.
Fast forward to today, and the SRT has become something much weightier. It now decides not just where you pay income tax or capital gains tax, but when your entire worldwide estate becomes subject to UK inheritance tax.
For Americans in Britain, that means living under two ticking clocks at once. For everyone else, it means the SRT has gone from being a background calculation to a central part of estate planning.
The message is clear: don’t assume you are safe because you’ve only just arrived, or because your “home” is elsewhere.
Once the Statutory Residence Test catches you, the inheritance tax clock starts. Understanding your status, using the planning window, and taking advice that spans both UK and overseas rules is the only way to stay ahead.
In conclusion, if you have international connections, now is the time to take stock. Because once the two systems collide, it is too late to go back.
This article is for general information only. Tax outcomes vary depending on personal circumstances. Readers should seek professional advice. Neither the author nor publisher can accept responsibility for losses arising from reliance on its content.