UK Expatriate Regime (UK expatriate tax rules)
Prior to 6 April 2025, the worldwide estates of individuals born in the UK remained subject to UK inheritance tax (IHT) unless they had succeeded in shedding their UK domicile of origin by acquiring a new domicile of choice in a distinct jurisdiction. Establishing a domicile of choice involved moving to a country and forming a permanent or indefinite intention to remain there.
This created difficulties for globally mobile British individuals who did not settle in any one location or for expats who had succeeded in establishing a domicile of choice but then left that location and, in doing so, reactivated their UK domicile of origin. It was not possible to obtain a domicile ruling from HM Revenue & Customs (HMRC), leaving the IHT position of many British expats uncertain.
'Long-Term Resident' Regime
From 6 April 2025, the UK government replaced ‘domicile’ as a connecting factor for liability to applicable UK taxes, including inheritance tax (IHT), and introduced a new residence-based regime in its place.
Individuals who have been UK resident for at least 10 out of the past 20 tax years are now classified as ‘Long-Term Residents’ (LTR) and exposed to IHT on their worldwide assets. Equally, individuals who have been resident outside the UK for at least 10 of the last 20 years are now classified as non-UK LTRs.
To ensure that LTRs do not escape UK tax obligations immediately upon leaving the UK, the legislation includes a ‘tail’ provision. This provides that the worldwide estate of an LTR will remain subject to UK IHT for between three and 10 years after they cease to be a UK resident.
The length of the tail depends on the duration of the individual’s residence in the UK. The minimum length of the tail is three years, which applies to individuals who were UK residents for 10 to 13 of the past 20 UK tax years. The length of the tail then increases by one tax year for each additional year of residence, up to a maximum of 10 years.
UK expats who do not meet the criteria for LTR status will therefore remain liable for IHT only on their UK situs assets – pensions, property and investments – and/or indirectly held UK residential property interests, including connected “relevant loans”.
This aligns with the previous system, under which non-UK domiciled individuals were subject to IHT on their UK situs assets but their non-UK assets were out of scope for IHT purposes.
Residence for UK tax purposes – Statutory Residence Test
UK tax residence is determined by the Statutory Residence Test (SRT), which is relevant from 6 April 2013 onwards. Residence is assessed for each UK tax year, which runs from 6 April in one year to 5 April the following year.
The SRT takes into account the amount of time you spend and, where relevant, employment in the UK, as well as the connections you have with the UK. It is split into the following parts:
- Automatic Overseas Tests – If an individual meets any of these criteria, such as spending fewer than 16 days in the UK in a tax year, they are automatically non-resident.
- Automatic UK Tests – if someone satisfies any of these criteria, such as having their only home in the UK and available to them for more than 90 days (and spending at least 30 days there), they are automatically resident.
- Sufficient Ties Test (STT) – if neither the overseas nor UK tests resolve an individual’s status, then the number of ‘ties’ they have to the UK (such as family, accommodation, work, time spent in the UK in prior years, spending more days in a foreign country than the UK) are examined.
If however you have been in the UK for 183 or more days, you are a UK resident. There is no need to consider any other tests.
You will also be considered resident in the UK for a tax year and at all times in that tax year if you do not meet any of the Automatic Overseas Tests or you do meet one of the Automatic UK Tests or the STT.
Foreign Income and Gain (FIG) Regime
Previously, British expats returning to the UK were defined as ‘formerly domiciled residents’ and were ineligible for the remittance basis. They were immediately subject to UK tax on their worldwide income and gains on the arising basis on their return to the UK.
From 6 April 2025, however, where a British expat returns to live in the UK having been non-UK resident for at least 10 consecutive UK tax years they will be able to benefit from the new foreign income and gains (FIG) exemption regime.
Under the regime, eligible individuals will not be subject to UK tax on their FIG in the first four years of UK residency provided they make a claim in their UK tax return with respect to those FIG that they wish the regime to apply to.
For British expats who return to live in the UK having been non-UK resident for fewer than ten consecutive UK tax years, the four-year FIG regime will not be available, and they will pay UK tax on their worldwide income and gains on an arising basis from the year of their return, subject to any relief available under applicable double taxation agreements.
Inheritance Tax
Previously, the transfer of assets to a trust by an individual with a UK domicile generally gave rise to an immediate IHT liability, as well as ongoing IHT consequences. It therefore held risks for British expats setting up trusts if their domicile status was uncertain.
With IHT now based solely on residence, internationally mobile individuals have certainty as to whether IHT applies to their non-UK assets. Individuals who have been non-UK resident for 10 years by 6 April 2025 can take advantage of this change with immediate effect.
Certainty of IHT treatment of non-residents creates opportunities for expats who have been non-UK resident for a sufficient period to be classified as a non-LTR to set up an overseas excluded property trust (offshore trust) with non-UK situated assets after 6 April 2025 without an immediate 20% IHT entry charge. This may be advantageous for asset protection or succession planning, as well as managing assets for future generations.
Subject to the tax regime in their current country of residence, gains and income accumulated within the trust may also not be exposed to personal taxation. Many countries, even EU states such as Italy, Greece, Cyprus and Malta, have non-domicile tax regimes that only impose tax on income and gains that are either sourced locally or are remitted to the country of residence. Income and gains that remained within an offshore trust would not therefore be subject to taxation.
Consideration needs to be given to the IHT treatment of the trust if the expat returns to live in the UK. A trust that is not initially subject to IHT will be brought within the scope of the tax if the settlor resumes residence in the UK and meets the 10 out of 20 years test.
Where the trust is created or funded after 30 October 2025, the settlor would need to be excluded from benefit under the terms of the trust, if the value of the trust is to be excluded from their estate once they are an LTR.
Non-LTRs will also be able to make gifts of non-UK assets to other family members without a charge to IHT regardless of whether they survive the gift by seven years.
Maintaining non-LTR status
British expats living abroad can take advantage of this favourable new regime to return to the UK for a short period, for business reasons, to care for elderly parents or to cease being resident in another jurisdiction for foreign tax planning reasons.
With the UK’s new statutory residence test in place, individuals will have certainty as to their residence status, so that they can clearly identify their first year of residence and the steps necessary to cease UK residence again, if desired.
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