New UK Inheritance Tax Rules for Non-Doms: What You Need to Know for 2025

On 30 October 2024, the UK government announced sweeping updates to the inheritance tax rules affecting UK residents who are not domiciled in the UK—commonly known as “non-doms.” 

Below, I’ll break down the main changes in a straightforward way to help you understand what these new rules could mean for you.

What Are the New Non-Dom Tax Rules?

The changes introduce a shift from domicile-based inheritance tax (IHT) to a residence-based system. 

This means that how long you’ve lived in the UK will now determine your IHT liability, regardless of whether you’re considered domiciled here.

The Current Rules: How IHT Works Today

Under the current system, your liability for IHT depends on your domicile and the location of your assets. 

Here’s a quick overview:

• UK Domicile: If you’re domiciled in the UK, you’re liable for IHT on your worldwide assets.
• Non-UK Domicile (Non-Dom): If you’re domiciled outside the UK, IHT only applies to your UK assets.

After someone has been a UK resident for 15 of the last 20 tax years, they become “deemed domiciled” for tax purposes and are liable for IHT on their worldwide assets. 

However, this structure will soon change.

Non-Dom Tax Changes: Key Points of the New Rules

From 6 April 2025, the UK will apply a residence-based test to determine IHT liability for non-doms. 

Here’s how it will work:

Residence-Based IHT Test

If you’ve been UK-resident for 10 out of the last 20 tax years before a “chargeable event” (like death or transferring assets into a trust), you’ll be treated as a “long-term resident” and liable for IHT on your worldwide assets.

How is UK residency determined?

For those under 20 years of age, the criteria are different: they’ll be classed as long-term residents if they’ve been UK tax-resident for half their life.

The main takeaway? 

Domicile status will no longer affect IHT liability for non-doms; it’s all about how many years you’ve lived in the UK.

What About Split Years and Overseas Residency?

If you’re living between the UK and another country and qualify as a resident under a tax treaty with that country, you’re still counted as UK tax-resident for the purpose of these IHT changes.

In cases where you enter or leave the UK part-way through the tax year, the entire year counts as UK residence for the new IHT long-term resident test.

Leaving the UK: The IHT “Tail”

Once you’re classed as a long-term resident for IHT, you’ll remain liable for IHT on worldwide assets until you’ve been non-UK resident for a certain period:

• 10 years if you lived in the UK for 20+ years
• 3 years if you were UK-resident for 10–13 years
• 1 additional year for each year beyond 13, up to 10 years total

Essentially, once you’ve been away from the UK for 10 consecutive years, your long-term residence status will reset.

How Do These Non-Dom IHT Changes Affect UK-Domiciled Individuals?

These new rules also apply to UK-domiciled individuals. 

If you’ve been non-resident in the UK for 10 years or more, you’ll only be liable for IHT on UK assets, even if you still have UK domicile ties.

Transitional IHT Rules for Non-Doms in 2025-26

There will be transitional rules that will apply to those who are non-UK tax residents in the 2025-26 tax year and are not UK domiciled on 30 October 2024. 

The IHT status of these individuals will be determined under the existing tests. 

The new rules, i.e. 10 years of UK tax residence in the last 20, will apply if they subsequently return to the UK.

This means that individuals who have already left the UK, or who cease to be UK resident by 6 April 2025, will be subject to an IHT as follows:

• If they are not deemed-domiciled on 6 April 2025 (ie were not resident in 15 or more of the previous 20 tax years), then they will not have an IHT tail, or
• If they are deemed-domiciled on 6 April 2025, they will be subject to the current three-year IHT tail, regardless of the number of tax years they had been UK tax resident for prior to leaving. This will therefore apply to those deemed doms who left the UK after 6 April 2022.

These transitional provisions will not apply to individuals who are UK domiciled under common law on 30 October 2024.

Non-Dom Spousal Exemption Changes

Currently, spouses and civil partners can transfer assets IHT-free if both are UK-domiciled. 

For UK and non-dom spouses, transfers up to £325,000 are exempt unless the non-dom spouse elects to be treated as UK-domiciled.

Further reading: How does UK inheritance tax work when a spouse is non-domiciled?

From April 2025, a non-dom spouse will be able to elect to be treated as a long-term resident, with the election lasting until they’ve been non-UK resident for 10 years. 

This adjustment means more careful planning will be needed for cross-border couples.

Lifetime Gifts and IHT

Currently, gifts are exempt from IHT if the donor survives seven years after making the gift. 

Under the new rules:

• Gifts made by non-long-term residents stay outside IHT even if the donor later becomes a long-term resident.
• Gifts made by long-term residents are subject to IHT, even if the resident status changes before the donor’s death.

UK Double Tax Treaties

The UK’s inheritance tax treaties with other countries remain unchanged, but non-doms looking to reduce IHT exposure may still need to consider domicile status under these treaties.

Additional Non-Dom IHT Changes

The government has also announced updates to Agricultural Property Relief (APR) and Business Property Relief (BPR) for farming and business assets. 

Additionally, pension funds and death benefits will be included in the deceased’s estate from April 2027 and therefore, subject to IHT.

Case Study: How the New IHT Rules Impact Rafael, a Non-Dom Senior Executive

To illustrate the impact of the recent changes to the UK inheritance tax (IHT) regime for non-domiciled individuals, let’s consider Rafael’s situation.

Background on Rafael

• Name: Rafael
• Occupation: Senior executive at a global pharmaceutical firm
• Residence: London, UK
• Arrival in the UK: 1st May 2012
• Family: Lives in London with his family
• Domicile: Rafael remains domiciled outside the UK.

As an expat who has spent over 10 years in the UK, Rafael will now be classified as a long-term resident under the new rules.

This will affect how his worldwide assets are treated for inheritance tax purposes.

Current IHT Treatment (Before 6 April 2025)

Under the current rules, Rafael is liable for IHT only on his UK-based assets since he is not UK-domiciled. 

His foreign assets remain outside the scope of IHT, offering some protection for his overseas wealth.

• Taxable Assets in the UK: Rafael’s UK-based assets, including any UK property or investments, are subject to IHT.
• Non-Taxable Assets: His assets outside the UK are exempt from IHT, allowing him to protect family wealth from UK tax obligations.

New IHT Rules (Effective from 6 April 2025)

With the changes effective from April 2025, Rafael’s IHT obligations will shift significantly. 

Since he has been resident in the UK for over 10 of the last 20 years, he now qualifies as a long-term resident. 

This new status means he will be treated similarly to a UK-domiciled individual for IHT purposes, and his worldwide assets will fall under IHT.

Key Changes for Rafael

1. Worldwide IHT Liability: Rafael’s overseas assets are now included in his IHT calculation, exposing his global wealth to the UK tax system.
2. Exit Strategy: If Rafael wants to limit his IHT liability to UK assets only, as someone who’s been in the UK between 10–13 years, he would need to leave the UK and remain non-resident for 3 consecutive tax years to reset his long-term resident status.

Practical Impact on Rafael’s Estate Planning

The new IHT regime means Rafael must now carefully consider how he manages his estate, particularly his non-UK assets. Here’s how this impacts his planning:

• Additional Tax Exposure: Rafael’s global assets will now be subject to the 40% IHT rate if he passes away while still classified as a long-term UK resident. For a high-net-worth individual with significant overseas holdings, this could mean a substantial tax liability.
• Exit Timeline: If Rafael wishes to protect his overseas assets, he needs to factor in the 3-year exit period. During this time, his worldwide assets will remain within the UK IHT scope. Only after 3 consecutive years of non-residency would his non-UK assets be excluded again.
• Lifetime Gifts: If Rafael decides to make lifetime gifts to reduce his estate, these gifts will only fall outside IHT if he makes them while not a long-term resident. If he gifts assets while a long-term resident, they will remain liable for IHT if he passes away within seven years of the gift.

Strategic Options for Rafael

Given these new rules, Rafael may consider several strategies:

1. Re-evaluating Residency: Rafael could consider relocating outside the UK if he wants to minimise his IHT liability on global assets. However, he would need to remain non-resident for a full 3 years to fully “reset” his IHT exposure.
2. Using Exemptions and Reliefs: Rafael might explore using other tax exemptions available to non-doms, such as investments in certain excluded property or potentially gifting assets that fall outside IHT if done strategically.
3. Revisiting Estate Planning: Rafael may want to work with a financial adviser to update his estate plan to minimise his IHT exposure, especially concerning his foreign assets, given the shift to a residence-based test.