UK inheritance tax and long-term residence rules for trusts

A U.S. citizen scenario

Consider a U.S. citizen who has lived in the UK and settled non-UK property into a trust. The questions are whether the settlor is long-term UK resident when a charge arises, whether departure changes that status, and whether particular property qualifies for transitional treatment. Foreign property settled before the settlor became long-term UK resident can enter the UK inheritance tax framework when that residence status changes.^[1]

For this inheritance tax question, the starting point is UK tax residence history. A residence timeline and an asset contribution timeline therefore answer different parts of the question.^[2][1]

Local treatment: the operative residence test

From 6 April 2025, long-term UK residence replaced domicile and deemed domicile as the general basis for determining inheritance tax exposure on overseas assets. A person is long-term UK resident if UK tax resident for the previous 10 consecutive years or for at least 10 years within the previous 20 years. Transfers or deaths before that commencement date require the earlier rules.^[2]

For the illustrative settlor, the first step is to assemble the relevant UK tax residence history before considering the trust’s location or governing law. Older explanations that use domicile alone as the continuing test for foreign settled property are superseded for this purpose, subject to the historical and transitional provisions described below.^[2][1]

There is also a transitional residence exception: a person will not be long-term UK resident if they lacked UK domicile or deemed domicile on 30 October 2024, are non-resident in the tax year from 6 April 2025 to 5 April 2026, and do not return to the UK. All of those conditions matter.^[2]

Leaving the UK and the continuing residence period

Leaving the UK does not necessarily end long-term UK residence immediately. The status can continue for up to 10 tax years after departure, with a shorter period where the person was not UK resident for all of the previous 20 years. The continuation is 3 years for 10 to 13 years of prior residence, 4 years for 14 years, and 5 years for 15 years.^[2]

A separate transitional rule applies where the person had deemed UK domicile on 30 October 2024, is non-resident for the tax year from 6 April 2025 to 5 April 2026, and does not return. Long-term UK residence then ends after 3 years of non-residence. Which residence provision applies therefore comes before any projection of a trust charge.^[2]

After 10 consecutive years of non-residence, a return to the UK resets the long-term residence test. Only the return year and future residence years count toward that renewed test. HMRC guidance directs settlors to tell trustees when long-term residence status changes, because separate trust charges may arise.^[2]

Foreign settled property and the settlor’s death

From 6 April 2025, foreign settled property generally has excluded property status only while the settlor is not long-term UK resident. Settling property while domiciled outside the UK, or before becoming long-term UK resident, does not preserve that status indefinitely. HMRC applies the residence test to settlements regardless of when property entered them, subject to deceased-settlor and transitional provisions.^[1]

If the settlor dies on or after 6 April 2025, their long-term residence status at death determines the continuing treatment of the settled property. Foreign settled property remains excluded property for the trust’s duration if the settlor was not long-term UK resident at death. If the settlor was long-term UK resident, UK and non-UK settled assets remain within inheritance tax scope for that duration.^[1]

For a settlor who died before 6 April 2025, HMRC retains the historical domicile test when property entered the settlement. Qualifying interests in possession require additional care: the beneficiary’s long-term residence can also matter, except where the settlor died before that date. A beneficiary’s position is therefore separate from the settlor’s position.^[1]

Transitional treatment for existing settled property

The transitional provisions concern specified excluded property comprised in a settlement immediately before 30 October 2024. HMRC includes qualifying foreign property and certain Authorised Unit Trust or Open-Ended Investment Company holdings. The property must also satisfy the relevant property category at the charge date; the settlement’s age alone does not establish eligibility.^[3]

Qualifying property receives relief from gift with reservation provisions and certain qualifying interest in possession charges. For an existing qualifying interest in possession, the protection covers its ending or the beneficiary’s death. After that interest ends, the new residence rules govern the subsequent position. These provisions do not remove every possible trust charge.^[3]

Relevant property charges on qualifying specified property are capped at £5 million per ten year cycle. For the first relevant period, from 6 April 2025 to the first or next trust anniversary, HMRC prorates the cap using £125,000 for each whole successive quarter. Tax paid on proportionate charges reduces the available cap, and returns remain required after the cap is reached.^[3]

UK situs assets and indirectly owned UK residential property do not receive this transitional treatment, even if later sold into foreign property. Additions or new settlements made on or after 30 October 2024 cannot qualify. A later addition does not, by itself, remove qualifying treatment from original property that continues to meet the conditions.^[3]

U.S. treatment: a separate tax inquiry

UK inheritance tax and U.S. estate and gift tax are different systems. UK excluded property treatment does not establish a U.S. exemption, and HMRC’s guidance does not determine the illustrative citizen’s U.S. liability. U.S. estate inclusion, gift treatment and reporting remain separate questions. The U.S.-UK estate and gift tax convention is a different instrument from the income tax treaty, and its interaction with the 2025 UK residence-based regime needs its own analysis.^[2][1]

The U.S. analysis turns on the actual trust terms, retained rights, contributions and proposed transactions. The UK residence calculation cannot settle those questions. This guide concerns trusts; a foundation requires its own classification analysis before trust conclusions are applied.

Records and chargeable events

Each asset’s history connects to the relevant event. Inheritance tax may arise on transfers into trusts, on distributions or other exits, and on ten year anniversaries. Different assets within the same trust can receive different treatment, so a single description of the trust may be insufficient.^[4]

For chargeable events on or after 6 April 2025 where transitional provisions apply, schedule D31b is completed alongside the relevant IHT100 series form. Residence records, contribution dates, asset descriptions and evidence supporting transitional eligibility are what explain the calculation and the filing position.^[5]

Scope and status

From 6 April 2025, UK inheritance tax on non-UK assets uses a long-term UK residence test (at least 10 of the previous 20 tax years). Trust treatment and transitional protection depend on the settlement.

Questions and answers

Related pages

• United Kingdom trusts and U.S. reporting requirements: United Kingdom trust guidance for a U.S. citizen, covering local taxation, inheritance tax residence rules, U.S. reporting duties and treaty considerations.
• UK trust taxation compared with U.S. treatment: UK trust taxation for a U.S. citizen, covering trustee income tax, capital gains, inheritance tax, U.S. classification and cross-border reporting questions.
• When Trust Transfers Are Completed Gifts: How dominion and control, reserved powers, and retained use, enjoyment, or income relate to completed gifts and estate inclusion for a U.S. citizen's trust.
• Income tax ownership and transfer taxes: Grantor trust rules decide who reports trust income, while gift and estate tax rules test completed gifts and estate inclusion, so an IDGT can separate them.