UK inheritance tax changes – overview
The UK government has implemented a huge overhaul of the inheritance tax regime, resulting in some genuinely positive benefits for expatriates and their families. Watch on to find out more.

Domicile & inheritance tax explained (the old system)
In decades gone by — and unknown to a lot of expatriates — UK inheritance tax (IHT) has always been based on something called your domicile of origin. For those of us born in the UK to a British father, we carried that domicile with us even if we lived abroad for many years.

In fact, your state of domicile has always been notoriously difficult to get rid of. So much so that any perceived connection to the UK upon your death, irrespective of where you were resident at the time, could have HMRC circling around your assets for their pound of flesh.

The IHT “tax trap” for expats
And this was the root cause of a tax trap that caught many families out — families who presumed that non-UK residency meant non-UK inheritance tax liability.

Richard Burton HMRC case
Perhaps the most famous case is that of the actor Richard Burton, who lived outside the UK for many years and likely presumed he had no IHT exposure. Only for his family to discover when he died that he was still deemed UK domiciled — in part owing to his wish to be buried in Wales with the Welsh flag draping his coffin — a case which HMRC ultimately won in the courts.

IHT rule changes from 2025: domicile to residency
Fast forward to 2025, and in a huge turn of events, the rules on inheritance tax have been changed from domicile to UK residency status. Now your IHT liability depends on whether or not you’re deemed a long-term UK resident upon your death — as well as where your assets are located.

What does that mean? If you’ve been non-UK resident for at least 10 out of the last 20 years when you die, your worldwide estate will no longer be subject to UK IHT. Fantastic, I hear you shout. But — hold the horses — there’s an important exception: your UK-based assets.

Unfortunately, everything above the £325,000 nil rate band (if not being passed to a spouse or civil partner — so your children, for example) can continue to be liable to IHT on UK-situated assets, irrespective of where you live.

That includes UK property (residential or commercial), UK investments including ISAs, UK bank accounts, and perhaps surprisingly, UK pensions from 2027.

What about UK assets?
So, just to reiterate: if you’ve lived 10 years out of the last 20 outside the UK and are therefore classed as non-UK long-term resident under the new rules, your worldwide assets will no longer be subject to UK inheritance tax when you die. But your UK-based assets can still be exposed unless you do something about it.

Overall, this is a very positive change. But what about those UK assets? For those of us resident in tax-friendly jurisdictions like the UAE, we can take action now to mitigate the negative effect this may have on our families in the future.

If you have investments left in the UK, there can be a strong case for liquidating and transferring those funds to a more appropriate investment vehicle outside the UK regime and therefore outside the scope of inheritance tax. This approach could arguably be applied to UK property as well — but do keep in mind the potential for non-resident UK capital gains tax. So in this case, it can be a somewhat subjective decision.

Furthermore, any unavoidable IHT liability should be planned for now with a funding strategy such as a universal life insurance policy, especially if you want to make sure your beneficiaries receive the full value of your UK estate.

Inheritance tax and UK pensions (from 2027)
Just a reminder that from 2027, UK pensions may also be potentially subject to IHT for non-UK residents. What about transferring to an offshore pension such as a QROPS? A 25% overseas transfer charge has taken the shine off that one.

Although it could be argued that 25% now is better than 40% inheritance tax further down the line if your sole objective with that pension is to pass it on to your children or other non-spousal beneficiaries.

The NT (nil tax) code option for expats
Another option is now on the table for residents of low or no tax countries. If your UK pension scheme allows it under flexible access rules, you could potentially cash in 100% and take the money out of the UK.

“What about all the tax at source on pensions?” I hear you cry. Here’s the thing: that can largely be nullified by obtaining a certain tax code from HMRC as a non-UK resident — the NT (nil rate) tax code.

To obtain this, you have to prove to the UK government that you’re resident in another country. Then once you have the NT code, you inform your UK pension provider. With a little administration, it can be possible to liquidate 100% of your pension and take those funds out of the UK and out of the reach of UK IHT.

Then you have the freedom with your adviser to construct a new financial strategy according to your needs. Even if you don’t wish to cash in your pension, it’s often sensible to look at the NT tax code if you plan to remain out of the UK and take retirement benefits.

Estate planning for children / non-spouse beneficiaries
However, if you have multiple retirement income sources and your main objective is to pass on the value of your UK pension to your children, collapsing that structure now is definitely worth considering in order to avoid the 40% inheritance tax exposure on your estate when you die.

Conclusion
It’s important to remember that the rules around residency and UK inheritance tax remain complex — and as ever, the devil is in the detail. If this is an area of concern, I’d urge you to get in touch via the contact details and we’ll set up an initial consultation.

That’s it for this video. I’m Pat Macdonald, an international financial adviser based in the UAE. I hope you found this information helpful, and I’ll see you in the next one.