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    TaxKilnUK tax guidance
    TaxKilnUK tax guidance

    Moving Abroad → April 2025 IHT reform + LTR

    April 2025 IHT Reform + Long-Term Resident (LTR) Test — Post-Domicile Era

    From 6 April 2025, UK Inheritance Tax shifted from domicile-based to residence-based scope. The Long-Term Resident (LTR) test: an individual is LTR if UK-resident in at least 10 of the previous 20 tax years. LTRs face worldwide IHT scope on their estate. Post-departure: IHT 'tail' continues for 3-10 years depending on total UK residence — only UK-situs assets remain in scope after the tail expires. Spousal exemption mechanics changed: residence-based cap replacing domicile-based cap.

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    In plain English

    Before 6 April 2025: UK IHT scope depended on 'domicile' — a slippery common-law concept centred on permanent home and intent. Long-term UK residents could remain non-domiciled and shelter foreign assets from UK IHT. Deemed-domicile rules caught people after 15/20 years of UK residence but the structure was opaque + heavily abused. From 6 April 2025 (Finance Act 2025): domicile-based IHT is replaced by a residence-based test. You're a Long-Term Resident (LTR) if you've been UK tax-resident in at least 10 of the previous 20 tax years. LTRs are within UK IHT scope on their WORLDWIDE estate (not just UK assets). Leaving the UK doesn't immediately end LTR status. The IHT 'tail' continues for between 3 and 10 years depending on how long you were UK-resident before departure (sliding scale, FA 2025 Sch 1). Only AFTER the tail expires does your worldwide estate fall out of UK IHT — UK-situs assets (UK property especially) remain in scope indefinitely regardless of residence. The spousal exemption was also re-engineered. Pre-2025: spousal transfers from UK-dom to non-UK-dom spouse capped at £325k unless the non-dom elected for UK-dom treatment. Post-2025: cap depends on LTR status of both parties. Election mechanisms remain available.

    How it works

    LTR test mechanics — 10/20 test + worldwide IHT scope

    From 6 April 2025, the IHT residence test (FA 2025) replaces domicile: • You are Long-Term Resident (LTR) for IHT if you've been UK tax-resident (under SRT) in at least 10 of the 20 tax years immediately preceding the relevant tax year. • LTR = worldwide assets within UK IHT scope (subject to DTT relief if applicable). • Not LTR = only UK-situs assets within UK IHT scope (subject to DTT). The 20-year lookback is rolling — assessed at each relevant time (death, lifetime chargeable transfer, anniversary charge for trusts etc.). Years pre-6 April 2025 count toward the 10/20 test using historic residence facts (SRT for years 2013/14 onwards; pre-SRT residence tests for earlier years).

    IHT tail post-departure — 3-10 year sliding scale

    Leaving the UK doesn't immediately end LTR status. The 'tail' continues per FA 2025 Sch 1: Total years of UK residence in the 20 years pre-departure → Tail length after ceasing UK residence: • 10-13 years → 3-year tail • 14-15 years → 4-year tail • 16-17 years → 5-year tail • 18-19 years → 6-year tail (approximate; check exact table) • 20 years → 10-year tail (maximum) During the tail: worldwide assets remain in UK IHT scope. After the tail expires AND you remain non-UK-resident: only UK-situs assets in scope. UK-situs always: UK land/property; UK bank accounts; UK-listed shares (some carve-outs for AIM + qualifying); UK-incorporated companies in some cases. UK-situs assets remain in IHT scope INDEFINITELY for non-LTR non-residents — UK property especially has no exit route from UK IHT short of disposal.

    Spousal exemption — pre-2025 £325k cap vs post-2025 LTR mechanics

    Pre-6 April 2025: transfers from UK-domiciled spouse to non-UK-dom spouse capped at £325k. Non-dom spouse could elect for UK-dom treatment (s.267ZA IHTA 1984) → unlimited spousal exemption but worldwide estate within UK IHT scope. Post-6 April 2025: • Both LTR → unlimited spousal exemption (as before for domiciled-to-domiciled) • LTR transferor → non-LTR transferee → cap applies (£325k by reference; verify current figure in FA 2025 + subsequent Finance Acts) • Election to be treated as LTR for IHT purposes by non-LTR spouse available — same trade-off as old s.267ZA election (unlimited spousal exemption vs worldwide estate in scope) Planning: the election locks worldwide IHT scope for the electing spouse during a 'tail' period that mirrors LTR tail mechanics. Reversal possible but with continuing tail.

    4-year FIG regime + LTR interaction

    Separate from IHT — the FA 2025 4-year Foreign Income and Gains (FIG) regime replaces the remittance basis for IT + CGT purposes. Available to anyone who's been NON-UK-resident for the 10 tax years immediately preceding becoming UK-resident. Key interaction with IHT: • FIG eligibility doesn't depend on LTR status — they're separate tests. • Becoming UK-resident under FIG starts the LTR clock ticking — after 10/20 years you'd become LTR. • Existing non-doms transitioning from remittance basis at 6 April 2025: transitional relief on rebasing + temporary repatriation facility (TRF) for past unremitted income/gains. IHT planning for FIG users: use the 10-year window of non-LTR status to plan worldwide gifts, life assurance written in trust, structuring of foreign assets before LTR status crystallises.

    Who this applies to + key conditions

    Statute + manual references

    Primary: Finance Act 2025 (April 2025 non-dom + IHT reform); IHTA 1984 (as substantially amended by FA 2025)

    Related: FA 2025 Schedule 1 (LTR test + IHT tail table); IHTA 1984 s.18 + Schedule (spousal exemption); IHTA 1984 s.267ZA (deemed-domicile election — pre-2025 mechanic still relevant for transitional cases); ITA 2025 (4-year FIG regime for IT/CGT — see returning-to-UK)

    HMRC manual: IHTM47000 series (post-April 2025 LTR mechanics)

    Common mistakes + traps

    Worked example

    David (30 years UK residence) emigrates to Dubai October 2025 — full IHT tail calculation

    David is 55. UK-resident continuously since age 25 (30 years). He moves to Dubai 1 October 2025 (split-year Case 1 — see /moving-abroad/srt). Worldwide assets c.£3m — UK home £600k (rented out post-departure), UK ISAs £400k, UK pension £700k, Dubai-purchased property £900k, global investment portfolio £400k.

    1. Step 1 — LTR status at departure: UK-resident 30+ years → well past 10/20 test → LTR.
    2. Step 2 — IHT tail length: 20+ years UK residence → 10-year maximum tail per FA 2025 Sch 1.
    3. Step 3 — Tail period: from 2026/27 (first full non-resident year) → ends after 2035/36 (10 years).
    4. Step 4 — During tail (2026/27 through 2035/36): worldwide estate in UK IHT scope. If David dies in this window — £3m estate × 40% above NRB/RNRB allowances (~£500k for individual including RNRB) → ~£1m UK IHT liability on worldwide assets.
    5. Step 5 — After tail expires (from 2036/37 onwards): only UK-situs assets in scope. UK home £600k + UK ISAs £400k + UK pension (likely UK situs but pension trust mechanics complex) = ~£1m UK-situs estate. UK IHT on £500k above NRB at 40% = £200k.
    6. Step 6 — Planning options during tail: gifts out of estate (7-year PET clock + tail interaction — verify FA 2025 mechanics); life assurance written in trust to fund IHT liability; review domicile of any non-LTR spouse + election trade-off; consider disposing UK situs assets pre-death if tail-permanent destination.

    Outcome: David's IHT exposure DOESN'T immediately end on emigration. Worldwide IHT scope continues until 2035/36 inclusive. Post-2036/37: only UK-situs (~£1m) in scope assuming UK home retained. Estimated potential IHT swing: ~£1m liability during tail vs ~£200k post-tail (excluding planning). High-net-worth cross-border estate planning specialist (STEP-affiliated) warranted — this is not self-serve territory once worldwide estate >£1m.

    How this connects to the rest of the framework

    Statutory Residence Test →

    LTR test references SRT residence outcomes for each year in the 20-year lookback — SRT is the input layer for the 10/20 LTR test.

    UK source income (non-resident) →

    IHT scope is independent of IT scope — you can be non-resident for IT (no UK source income tax beyond UK source) while still LTR for IHT (worldwide estate in scope during tail).

    Returning to the UK →

    Returning to UK during LTR tail restarts UK residence clock; returning AFTER 10+ years non-resident may qualify for 4-year FIG regime for IT/CGT (separate from IHT).

    Irish CAT plus UK IHT →

    Irish-resident beneficiaries of UK estates face Irish CAT (33%, Group A €400k post-2 Oct 2024) on top of UK IHT — unilateral credit caps at the Irish CAT amount.

    Frequently asked questions

    What happens if I miss the Self Assessment deadline?+
    The Self Assessment deadline is 31 January (online filing) for the previous tax year. Miss it and HMRC apply an automatic £100 penalty. Beyond that: £10 per day from 3 months late (capped at £900), 5% of tax due at 6 months late, and another 5% at 12 months late, under Schedule 55 of the Taxes Management Act 1970. If you have a genuine reason (serious illness, bereavement, technical issue with HMRC's systems) you can appeal with evidence; HMRC accepts reasonable excuse appeals in most genuine cases.
    Do I need an accountant or can I file Self Assessment myself?+
    Legally you can file Self Assessment yourself via gov.uk for free, most simple sole-trader returns (single income source, basic expenses) are realistic to self-file. An accountant adds real value when: your trading profit is above £40,000 (extraction-strategy decisions matter), you have multiple income streams (PAYE + self-employment + property + dividends), you've crossed the £90,000 VAT threshold, you're considering incorporation, or you have an HMRC enquiry. Expect to pay £400-£1,500/year for a typical sole-trader accountant; the cost is itself a deductible expense.
    How do payments on account work?+
    When your Self Assessment tax bill exceeds £1,000 for the first time, HMRC requires payments on account toward NEXT year's tax. Half the current bill is due 31 January (alongside the current bill); the other half is due 31 July. So your first January after crossing the threshold can hit with a double-bill: last year's balance + first payment on account. Adjust via Form SA303 if you expect next year's income to drop substantially. Payments on account don't apply if more than 80% of your tax is collected via PAYE.
    I left the UK in 2023 — am I affected by the April 2025 reform?+
    Yes. The reform applies to chargeable IHT events (deaths, lifetime chargeable transfers, trust anniversary charges) occurring on or after 6 April 2025 — regardless of when you left the UK. The 10/20 LTR test uses your historic residence record; the IHT tail length is calculated using your total pre-departure residence. So someone who left in 2023 after 20+ years UK residence carries a maximum 10-year tail measured from departure → tail expires around 2033/34.
    How does the LTR test interact with the IHT spousal exemption?+
    Both spouses LTR → unlimited spousal exemption (transfers between them IHT-free as before). LTR transferor → non-LTR transferee → cap applies (£325k reference; verify current Finance Act figure). The non-LTR spouse can elect to be treated as LTR for IHT purposes (mirrors the old s.267ZA election) — unlocks unlimited spousal exemption but pulls their worldwide estate into UK IHT scope for the election period + a tail. Trade-off depends on the size + situs of the non-LTR spouse's worldwide estate.
    Does the IHT tail apply if I never owned UK assets?+
    Yes — the IHT tail applies to LTRs' worldwide assets regardless of UK situs. So a long-term UK resident with primarily foreign assets who emigrates still carries up to a 10-year worldwide IHT tail. After the tail expires + while remaining non-UK-resident, ONLY UK-situs assets remain in scope. If you genuinely have no UK-situs assets at the end of the tail, your UK IHT exposure ends.
    Can I plan around the LTR tail?+
    Yes, but at moderate-to-high estate values it's specialist territory. Common planning levers: lifetime gifts (PET 7-year clock + interaction with tail mechanics — fact-sensitive); life assurance written in trust outside the estate to fund IHT liability; structured disposals or restructuring of foreign assets during the tail; spousal election trade-off; trust planning (settlor-interested + relevant property regime considerations). STEP-affiliated practitioners are the right professional category for cross-border estate planning. CIOT International Tax Committee + ICAEW Tax Faculty are equivalent for the tax-only dimensions.

    Free + regulated-body resources

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