Domicile or residence: which one decides your UK inheritance tax

Residence decides it now. Since 6 April 2025, UK inheritance tax has been based on where you've lived, counted in tax years. Domicile, the slippery "where is your permanent home really" concept that used to follow British expats around for life, no longer decides it. If HMRC classes you as a long-term UK resident on the day you die, your worldwide estate is in scope. If it doesn't, only your UK assets are.

That single change answers the question this article's title asks, but it opens the two questions that matter more: how do you count, and what does the counting mean for your family's bill? Both have precise answers, and for many expats reading this the answer is better than they think. HMRC collected a record £8.5 billion in inheritance tax in 2025-26, up from £3.5 billion in 2006-07, so it's worth twenty minutes to find out which side of the line you're on.

The old idea that won't die

For decades, the received wisdom in every expat bar was that your domicile of origin, the Britishness stamped on you at birth, meant HMRC would tax your worldwide estate forever unless you performed heroic feats of paperwork. Under the old rules there was truth in that: domicile was hard to shed, and a UK domicile kept your whole estate in the net however long you'd been in Alicante.

That world ended in April 2025. The new test contains no equivalent of the old domicile-of-origin trap. A Yorkshire-born, Yorkshire-sounding retiree who has spent the last fifteen years in Spain is simply not a long-term UK resident, and his Spanish flat, Spanish accounts and other non-UK assets are outside UK inheritance tax entirely. Where you were born, where your father was born, what you intend "ultimately": none of it now decides the tax. The counting does.

How to count your own years

Get a pen. The test is mechanical.

You are a long-term UK resident if you were UK tax-resident in at least 10 of the 20 tax years immediately before the tax year of your death. Tax years run 6 April to 5 April, and residence for each year is decided by the statutory residence test, which is itself mechanical: 183 or more days in the UK in a year makes you resident automatically, and below that a sliding scale of "ties" (family, accommodation, work, past visits) sets how many UK days you can spend before a year counts. Residence for income tax and this inheritance tax count use the same yearly verdicts, but they are different questions; being non-resident this year does not, by itself, get you out of inheritance tax.

Then there's the tail. Leaving the UK doesn't switch worldwide scope off at the door; it winds down. If you'd been UK-resident between 10 and 13 of the previous 20 years when you left, you stay a long-term UK resident for 3 more tax years. Each extra year of residence adds a year, so 15 years of residence means a 5-year tail, 18 years means 8, and anyone with 20 or more carries the maximum 10-year tail. And whatever your history, 10 consecutive complete tax years of non-residence ends it: from that point your foreign assets are excluded property, and the clock fully resets even if you later return.

Two worked examples at ordinary scale. A teacher who left the UK at 58 after a lifetime there carries the full 10-year tail: if she dies in year seven of her retirement in Cyprus, her worldwide estate is still in scope. Her neighbour, who left at 45 and has been gone 12 complete tax years, is out: his Cypriot villa and offshore savings are excluded property, and only his UK assets face inheritance tax.

One warning for returners: the reset only comes with 10 unbroken years away. Go back to the UK before that and your old resident years still count, so worldwide scope can resume as early as your second year home.

What never leaves the net

Now the caveat that the cheerful version of this story always buries. UK situs assets are within inheritance tax whatever your status and however long you've been away. The house in Manchester you kept and rented out. Your UK bank accounts and ISAs. Most UK shares. And from 6 April 2027, under legislation already passed, unused pension funds join the estate for inheritance tax purposes, which for many expats quietly puts their largest single asset back in the net regardless of any residence counting.

So the honest position for a typical long-gone expat is this: your foreign life is out, your British footprint is not. The nil-rate band still shelters the first £325,000, with the extra £175,000 residence band where a home passes to children, and both figures are frozen until April 2031, which is precisely how a record £8.5 billion gets collected from a "frozen" tax.

Two more wrinkles earn a sentence each. Married couples: transfers between spouses are unlimited only if the receiving spouse is also a long-term UK resident; if not, the spouse exemption is capped at £325,000 across your lifetime, with lifetime gifts above it treated as potentially exempt transfers and anything above it on death potentially taxable, though the receiving spouse can elect into UK scope to unlock the full exemption at the price of bringing their own worldwide assets in. And gifts: the seven-year rule still works the same, but whether a gift of a foreign asset is in scope at all depends on your status on the day you give it; a non-long-term-resident's gift of foreign assets is outside the net even if they die the next year, while gifts of UK assets are potentially chargeable for everyone.

Where domicile still earns its keep

Domicile hasn't vanished; it has retired to specialist work. It still decides which country's law governs succession to much of your estate, which is a wills question rather than a tax one, and it still runs through the UK's oldest double-tax treaties: the pre-1975 conventions with France, Italy, India and Pakistan operate on common-law domicile to this day, which can matter a great deal to families with roots in those countries. If either applies to you, that's specialist advice territory. For everyone else, domicile now belongs in the same drawer as your blood type: real and occasionally important, but it no longer decides the bill.

Your will doesn't change any of this, and that's the point

Here is the part almost every article on this subject skips. Nothing you write in any will, British, Spanish, Thai or otherwise, moves a single asset in or out of inheritance tax scope. Excluding a country from your will doesn't exclude it from HMRC. The tax follows your residence history and your assets' locations; the will decides who inherits, who administers, and how quickly your family gets access. They are separate rails, and a family needs both laid properly: the tax position you've just counted your way to, and a will (or a coordinated pair of wills) that reflects where you and your assets now live.

That second rail is the one you can fix this week, and it's the one most expats have left rusting: a will written in a semi in Surrey two decades ago, silently mismatched with a life now spread across two countries.

What to do now

1. Count your years: UK-resident tax years in the last 20, then complete tax years since you left. That tells you whether your foreign assets are in or out, and how long any tail has left to run.
2. List your UK situs assets: property, accounts, ISAs, shares, and, from April 2027, unused pensions. That's the part of your estate inheritance tax will always see.
3. If your spouse or civil partner isn't a long-term UK resident, check the exemption cap before assuming everything passes tax-free.
4. Keep the evidence: day counts, travel records, tax returns. The counting only protects you if it can be proven.
5. Bring your will up to date with the life you lead now. An Expat Legacy will is drafted under the law of England and Wales around expat circumstances, drafted so it and a local will elsewhere don't accidentally revoke each other, and reviewed by a person before release: £149 for a single will, £249 for mirror wills.

The tax counts your years whether or not you've counted them yourself. Do the sum once, write it down, and put your will on the right side of it.

Sources

• HMRC tax receipts and NICs for the UK, annual bulletin (gov.uk)
• HMRC Inheritance Tax Manual IHTM47020, long-term UK residence test (gov.uk)
• Tax on foreign income: residence (gov.uk)
• Inheritance Tax if you're a long-term UK resident (gov.uk)
• Inheritance Tax: unused pension funds and death benefits (gov.uk)
• Budget 2025 overview of tax legislation and rates (gov.uk)
• HMRC Inheritance Tax Manual IHTM47072, pre-1975 double taxation conventions (gov.uk)

Expat Legacy provides England and Wales wills and general information about cross-border estate planning. This is general information, not tax or legal advice for your circumstances; tax treatment depends on individual circumstances and may change. For complex estates, treaty questions or elections, take regulated tax advice. Position stated as at August 2026.