Financial focus on the end of domicile

The concept of domicile – or in simple terms where you would consider your natural home – has been part of our tax system since 1799.  For those with non-UK domicile, it largely affected  whether your non-UK situated assets would be assessable to UK Inheritance Tax (IHT) when you died

From April 2025, the concept of domicile has been abandoned.  Instead, the concept of long-term residence needs to be considered.

Whether you are resident in the UK for a tax year is now determined by the 2013 Statutory Residence Test rules which apply a series of tests to give a categoric ruling: an Automatic Overseas Test; an Automatic (UK) Residency Test and if the first two do not give an unequivocable answer, a Sufficient Ties Test.  Any one of these tests can be affected by the number of days spent in the UK in the tax year and your residency position for up to three years previously. 

Once you have determined your yearly residency position, your long-term residency position can be calculated.  If you have been in the UK for 10 out of 20 years (not necessarily consecutively), you become classed as long-term resident and liable to UK IHT on worldwide assets on death.  On leaving the UK (permanently) there is now a run-off period ranging from three to ten years before you lose the “long-term UK residency” status.  The run-off period is also determined by the length of time that you have been here.

There is some good news for returning ex-pats:  whereas before you ran the risk of reacquiring UK domicile (and thus exposure to UK IHT on worldwide assets) after having been classed as UK resident for as little as one year, now you have to be resident for 10 out of 20 years.  For others, possibly not so good news: under the old rules you acquired UK domicile (and worldwide UK IHT exposure) after 15 out of 20 years’ residency in the UK.  Now the bar has been lowered to only ten years, potentially exposing you to a greater IHT exposure. If you previously had held non-UK domicile status, you should look to recheck your residency status.  The change to long-term residency status looks back 20 years and makes reliance on the 2013 Statutory Residency Tests.  Before 2013, of course, you were likely to have recorded your residency presence and thus domicile status under the pre 2013 residency rules.  These now have to be recalculated.  There are some limited transitionary reliefs available but probably only for a short while.

Specialist advice should always be sought prior to taking any action on matters discussed in this article.