As of 6 April 2025, the UK’s inheritance tax (IHT) regime has become subject to a significant transformation. These changes are particularly relevant for international couples, where one spouse or civil partner may not be permanently settled in the UK. If you or your partner have cross-border ties, it’s essential to understand how these reforms could affect your estate planning.
What’s Changing?
The key shift is the replacement of the concept of “domicile” with “long-term UK residence” for IHT purposes. Under the current rules, transfers between spouses or civil partners are fully exempt from IHT if both are UK-domiciled. If one spouse is not UK-domiciled, the exemption is capped at the nil-rate band (currently £325,000).
From April 2025:
A person will be treated as UK-resident for IHT if they have been UK tax resident for at least 10 of the previous 12 tax years.
The full spouse exemption will only apply if both spouses meet this long-term residence test.
If one spouse does not meet the test, the exemption will be limited, similar to the current cap for non-domiciled spouses.
Key Implications for International Couples
Mixed-Residency Couples
If one spouse is a long-term UK resident and the other is not, the IHT exemption for transfers between them will be restricted. This applies to both lifetime gifts and transfers on death.
Cumulative Transfers
The exemption cap applies to the total value of all transfers made to a non-long-term-resident spouse. If the cumulative value exceeds the nil-rate band, the excess may be subject to IHT.
Post-Departure Exposure
Even if a spouse leaves the UK, they may remain within the UK IHT net for up to 10 years after departure. This is known as the “tail” rule, and it means that worldwide assets may still be subject to UK IHT during this period.
Election for UK Treatment
In some cases, a non-UK-resident spouse may elect to be treated as UK-resident for IHT purposes, potentially unlocking the full spouse exemption. However, this decision should be made with professional advice, as it may have wider tax implications.
What Should You Do?
If you or your spouse have international ties, are not both long-term UK residents, or are planning to leave or return to the UK, now is the time to review your estate planning. Consider:
- Reviewing your residency history and future plans.
- Assessing whether a domicile election or lifetime gifting strategy is appropriate.
- Updating your wills and trust structures to reflect the new rules in the UK. If you or your partner have cross-border ties, it’s essential to understand how these reforms could affect your estate planning.
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