How does UK inheritance tax work when a spouse is non-domiciled?
Updated 17 Oct 2025
Inheritance Tax – Non-Domiciled Spouse
For UK inheritance tax, one of the most valuable exemptions available is the spouse exemption.
Provided both spouses’ long-term residence status is the same, the amount of the spouse exemption is unlimited.
However, if your spouse isn’t British, UK IHT rules are not so simple and could have a far bigger impact on your family than you realise.
Until recently, the system depended on domicile, a concept most people (and even many financial advisers) find confusing.
But from 6 April 2025, the UK inheritance tax system has shifted to a residence-based model, introducing the concept of the “long-term resident” (LTR).
This change affects how much of your estate is exposed to IHT and also how transfers between spouses are treated.
🔍 Key Takeaways from This Post
- Before 2025, IHT exposure was based on domicile. Transfers between a UK-domiciled spouse and a non-domiciled spouse were capped at £325,000 unless the non-dom elected to be part of the UK tax regime.
- From 6 April 2025, the UK now uses a residence-based test; anyone resident for 10 of the last 20 years becomes a long-term resident (LTR) and faces IHT on worldwide assets.
- The spousal exemption cap still applies where one spouse is not LTR. The non-LTR spouse can elect to be treated as LTR to gain the full exemption, but at the cost of global IHT exposure.
- There’s a “tail period” of up to 10 years after leaving the UK, during which you may still be caught by UK IHT.
- From April 2027, unspent pension funds will be brought into the IHT net — a major change that could affect inheritance strategies for expats.
- Mixed-nationality couples should review their residence histories, wills, pensions, and gifting strategies as soon as possible to avoid expensive mistakes.
| Feature | Old System (Before April 2025) | New System (From April 2025) |
|---|---|---|
| Basis of IHT liability | Domicile (or deemed domicile) | Residence – “Long-Term Resident” (LTR) |
| When worldwide assets taxed | Once UK-domiciled or deemed domiciled (15/20 rule) | Once UK-resident for 10 of the past 20 years |
| Spousal exemption (UK to non-dom) | Limited to £325,000 unless non-dom elects into UK domicile | Limited to £325,000 unless non-LTR spouse elects into UK LTR status |
| IHT exposure after leaving UK | Ends when domicile ceases | Continues for 3–10 years (“IHT tail”) |
| Pensions and IHT | Generally outside IHT | Included in IHT from April 2027 |
How UK Inheritance Tax Worked for Non-Dom Spouses (Before 2025)
Under the pre-2025 regime, UK inheritance tax was based on domicile.
If both spouses were UK-domiciled, there was no limit on what they could transfer tax-free, either during life or on death.
However, where one spouse was non-domiciled, the IHT spousal exemption was capped at £325,000.
That meant:
- A UK-dom spouse could only leave £325,000 tax-free to a non-dom spouse (in addition to their regular £325,000 personal allowance).
- Anything above that could attract 40% inheritance tax.
- The non-dom spouse could elect to be treated as UK-domiciled for IHT, giving them the full spousal exemption, but this brought their worldwide estate into the UK tax net.
What’s Changed Under the 2025 Residence-Based IHT Rules
From 6 April 2025, the UK abolished domicile for IHT purposes and replaced it with a residence-based test.
What Is a “Long-Term UK Resident”?
You’ll be treated as a long-term resident (LTR) if you’ve been UK tax resident for at least 10 of the previous 20 tax years.
Once you become an LTR:
- Your worldwide assets fall within UK IHT, not just your UK ones.
- If you leave the UK, you remain within the IHT net for a “tail period” of 3–10 years (depending on how long you lived there).
- After 10 years of non-residence, your exposure resets and only your UK situs assets remain subject to UK IHT.
What About Spouses Under the New Rules?
The old domicile-based cap has been replaced with a residence-based cap.
- If a UK LTR spouse transfers assets to a non-LTR spouse, the exemption remains limited to the nil-rate band (£325,000).
- The non-LTR spouse can elect to be treated as an LTR for IHT, removing the cap, but bringing their global estate into the UK tax net.
- If neither spouse is an LTR, then only UK assets are subject to IHT.
Quick Glossary – Key Terms
- Non-dom
- Someone not domiciled in the UK for tax purposes.
- Long-term resident (LTR)
- Someone who has been UK tax resident for at least 10 of the past 20 years.
- Nil-rate band
- The first £325,000 of an estate that’s exempt from inheritance tax.
- IHT tail
- The 3–10 year period after leaving the UK during which worldwide assets may still be taxed.
How the Pension IHT Rules Will Change in 2027
From 6 April 2027, unspent pension funds and death benefits will start to fall within the scope of inheritance tax (IHT) — a significant change for retirees and expats alike.
It means:
- Unused pension pots could be taxed at 40% on death.
- Those planning to pass pensions directly to a non-dom spouse or children should review their plans carefully.
- Drawing pension funds earlier than originally planned may become a more strategic option for expats seeking to reduce future IHT exposure.
Case Study 1: James and Anna (UK & Poland)
James, 68, is a retired British engineer living in Surrey. His wife Anna, 61, is Polish and moved to the UK 16 years ago.
Under the old rules, James could leave only £325,000 to Anna tax-free unless she elected into UK domicile — which she didn’t, as she wanted her Polish assets outside UK IHT.
Under the new rules, Anna is now a long-term UK resident, so there is no limit on what James can leave to her.
However, because it also means that Anna’s worldwide estate (including her Polish assets) could be caught by UK IHT.
When they move to Poland in 2026, she’ll still face UK IHT for at least six years — the “IHT tail”.
They now face choices about timing, gifting, and life insurance to manage exposure.
Thinking of Retiring Overseas?
Download my FREE checklist
Make your move stress‑free with our free Retiring Overseas Checklist. Clear steps, no fluff – just what you need to plan with confidence.
Case Study 2: David and Maria (UK & Spain)
David, a British architect, and Maria, his Spanish wife, lived in London for 16 years before moving to Alicante in 2024.
Because David has been UK-resident for more than 10 years, he’s classed as a long-term resident, and his worldwide estate remains within UK IHT for seven years after departure.
Maria, who lived in the UK for 9 years, is not a long-term resident. If David dies during that seven-year tail period, she could face a 40% IHT bill on UK and overseas assets unless she elects to be treated as an LTR.
Plain English summary: Even if you leave the UK, the IHT “tail” can follow you — sometimes for nearly a decade.
🧾 Action steps for mixed-nationality couples (2025 and beyond)
- Check your residence history — count how many of the past 20 years each spouse has been UK-resident.
- Review your spousal exemption position — if one is LTR and the other isn’t, the £325,000 cap applies unless you elect to align.
- Weigh the election carefully — it removes the cap but exposes worldwide assets.
- Plan your exit timing — the IHT “tail” lasts up to 10 years.
- Review pensions before April 2027 — as they’ll soon fall within IHT.
- Revisit wills and trusts — old “excluded property” trusts may lose protection.
- Consider life insurance — it can provide liquidity to cover IHT exposure.
- Keep detailed records — of residence, elections, and asset locations.
❓ FAQ: UK inheritance tax and non-dom spouses
- What is the UK inheritance tax threshold in 2025?
The nil-rate band remains £325,000 (last increased in 2009), but residence-based rules now determine worldwide asset exposure.
- How much can I leave to a non-dom spouse tax-free?
If you’re a long-term UK resident and your spouse isn’t, you can leave up to £325,000 tax-free unless they elect to be treated as a long-term resident (this is in addition to your £325,000 nil rate band).
- What is the difference between domicile and long-term residence?
Domicile is a legal concept based on long-term ties; long-term residence is purely based on tax years of UK residence.
- What happens if I leave the UK after being here 12 years?
You’ll likely remain within the UK IHT net for at least three years. This is known as the IHT “tail”.
- Can a non-UK resident avoid UK inheritance tax?
Only on non-UK assets. UK situs assets (e.g. property, shares in UK companies) remain subject to IHT.
- What is the “spousal exemption cap”?
It limits the amount that can pass tax-free between spouses when one is not a UK long-term resident. It is currently £325,000.
- How do I make the election to be treated as long-term resident
It’s a formal declaration to HMRC. Once made, your worldwide estate falls under UK IHT until you cease UK residence for at least 10 years.
- Are pensions subject to inheritance tax?
Not currently. However, from April 2027, unused pension funds and death benefits will be subject to IHT.
- Do the new rules affect trusts?
Yes — trust assets may lose “excluded property” status if the settlor becomes a long-term resident.
- How can mixed-nationality couples reduce inheritance tax?
Through coordinated planning: using life insurance, careful timing of residence, reviewing trusts, and understanding spousal election options.
📚 Further reading
🔗 What Are UK Situs Assets? What Every Long-Term Expat Needs to Know
🔗 Are UK Pensions Now Liable for Inheritance Tax? The New Pension IHT Rules Unpacked
🔗 Lifetime gifts and Inheritance Tax: How to notify HMRC
🔗 Inheritance Tax Planning For Expats: Using The PASTOR Framework to Effectively Manage Your Estate
🔗 Using gift allowances to reduce IHT: Six tips on using gifts to reduce inheritance tax
🧠 Final thoughts
For many couples, the new inheritance tax landscape will feel like a moving target.
But those who understand the 10-year residence rule, the IHT tail, and the spousal exemption limits can plan effectively, protecting their wealth and ensuring that more of it passes to loved ones, not HMRC.
Talk to an Expert
Getting reliable expat financial advice shouldn’t feel complicated — or out of reach.
I’m Ross Naylor, a UK-qualified Chartered Financial Planner and Pension Transfer Specialist with nearly 30 years’ experience helping British expats manage complex cross-border investments, estate planning, and tax-efficient retirement strategies.
I firmly believe your location in the world should never be a barrier to expert, independent, and transparent financial advice you can trust.
If you’re planning to retire abroad, return to the UK after living overseas, or simply want to understand your cross-border options, I’ll help you cut through the noise and gain the clarity you deserve — with trusted expat financial advice tailored to your life.
