The UK tax landscape for internationally mobile British nationals changed fundamentally from April 2025, with further significant changes taking effect from April 2027. The abolition of the remittance basis, the introduction of a new long-term residence test, and the decision to bring pension funds within the scope of inheritance tax for the first time in decades have together created a planning environment that looks very different from anything that existed before. For British expats with overseas trusts, offshore investment structures or significant pension savings, understanding what has changed, and acting on it, is now urgent.
From 6 April 2025, the UK abolished the remittance basis of taxation for non-domiciled individuals. In its place is a new regime based entirely on UK residence rather than domicile. Individuals who have been non-UK resident for the 10 consecutive tax years immediately before becoming UK resident can claim a Foreign Income and Gains (FIG) exemption for their first four years of UK residence, meaning their non-UK income and gains are not subject to UK tax during that initial period, regardless of whether they are remitted to the UK. After four years of UK residence, all worldwide income and gains become taxable in the UK in the normal way. There is no longer any benefit from keeping foreign income offshore. This eligibility condition is important: a British national returning to the UK after only five or six years abroad would not qualify for the FIG regime. For British expats living outside the UK, the IHT consequences of the accompanying changes to the long-term residence test affect them significantly.
From April 2025, an individual becomes subject to UK IHT on their worldwide assets if they have been UK resident for ten or more of the previous twenty tax years, regardless of their legal domicile. A British national who lived and worked in the UK for many years before moving to Dubai, Spain or Portugal may already satisfy the LTR test on the day they leave, meaning their worldwide assets remain within the scope of UK IHT for a further period even after departure. The tail period, how long you remain within UK IHT scope after leaving, depends on your residence history: 3 years if you were UK resident for 10-13 years, extending by one year for each additional year of residence up to a maximum 10-year tail if you were resident for 20 or more years. The planning implications of this are material for anyone with significant assets outside the UK.
Prior to April 2025, offshore trusts established by non-domiciled individuals (protected settlements or excluded property trusts) provided a mechanism to shelter non-UK assets from UK IHT effectively in perpetuity, provided the settlor remained non-UK domiciled. From April 2025, the IHT treatment of offshore trust assets is no longer determined by the domicile of the settlor, it is determined by whether the settlor meets the new long-term residence test at each ten-year anniversary charge date. For IHT purposes, excluded property status now depends on whether the settlor is a long-term UK resident, not their domicile. Trusts can fall in and out of the relevant property regime as the settlor's residence status changes, potentially triggering exit charges when assets transition between relevant property and excluded property. Any British national who established an offshore trust on the assumption that it would permanently shelter non-UK assets from IHT should have that trust reviewed as a matter of priority.
A short, complimentary call with a cross-border planning specialist can clarify your options, with no obligation.
From April 2027, unused pension funds will be included in the taxable estate for IHT purposes. Personal representatives (executors) are responsible for reporting and paying any IHT due on pension death benefits, though they can direct scheme administrators to pay tax directly to HMRC and can issue withholding notices to prevent premature distribution of funds. Currently, pension funds that remain undrawn at death pass to nominated beneficiaries outside the estate and free of IHT. For many British expats who have accumulated significant pension savings alongside other assets, the combined effect of the pension change and the LTR test creates a much larger potential IHT liability than would have existed under the old rules. This applies to all UK-registered pension schemes, including SIPPs and workplace pensions held by expats living abroad. Certain benefits remain excluded, including death in service benefits, dependants' scheme pensions, trivial commutation lump sums, and transfers to spouses or civil partners, which remain exempt under the spouse exemption rules.
Offshore investment bonds, widely used by British expats in low or zero-tax jurisdictions such as the UAE, are subject to UK income tax on gains when surrendered or assigned, if the policyholder is UK resident at that time or was UK resident during a relevant period. The time-apportionment relief rules provide some mitigation for years spent outside the UK. The 5% annual withdrawal allowance remains available, and top-slicing relief may reduce the tax on gains for individuals with fluctuating income. For expats who hold offshore bonds accumulated over many years, the question of when to take gains, whether to assign the policy before returning to the UK, and how the gain interacts with personal allowances and higher-rate thresholds is a planning decision that needs to be made well before any change in residence, not after.
A temporary repatriation facility (TRF) allows previously unremitted foreign income and gains arising before 6 April 2025 to be designated and taxed at a reduced rate of 12% for designations made in 2025/26 and 2026/27, rising to 15% for designations made in 2027/28. The facility closes on 5 April 2028; after this date, remittances of pre-April 2025 foreign income and gains will be taxed at normal rates of up to 45%. There is also a rebasing provision that allows individuals who were using the remittance basis on 5 April 2025 to rebase foreign assets to their market value on that date, reducing future capital gains tax exposure on non-UK assets held at that point. These transitional reliefs are time-limited and require action, they do not apply automatically.
The move away from domicile towards a residence based system changes the ground under a lot of existing trust and pension planning. Structures set up under the old rules are not automatically safe. Anyone with an overseas trust should have it reviewed against the new regime rather than assuming it still works.
Take this guide with you
Get the full guide as a PDF to read later or share — plus occasional updates when the rules covered here change.
No spam — just this guide and relevant updates. Unsubscribe any time.
The protected settlement rules that made offshore trusts effective IHT shelters for non-doms no longer apply in their previous form. Trusts established under the old regime may now generate ten-year anniversary charges and exit charges on non-UK assets that were previously sheltered. Reviewing existing trust structures is not optional, it is urgent for anyone who established a trust before April 2025 on the assumption that the old rules would continue.
The pension IHT change takes effect in April 2027, but the planning decisions it requires should be made well in advance. The interaction between pension funds, the nil-rate band, other estate assets and the LTR test means some individuals will need to restructure how they draw income from their pension, or revisit nominations, before the change applies. Last-minute decisions made in March 2027 are unlikely to be optimal.
The shift to a residence-based IHT system does not mean domicile no longer matters, it does in some contexts, particularly for older trusts and transitional provisions. But the primary driver of IHT exposure for most British expats going forward is residence history, not legal domicile. Planning built on an analysis of domicile alone is now incomplete.
For individuals who previously used the remittance basis and have unremitted foreign income or gains sitting offshore, the 12% temporary repatriation rate available in 2025-26 and 2026-27 may be materially cheaper than paying full income tax or capital gains tax on those amounts later. Missing this window because the decision felt complicated is a real cost.
The LTR test and the pension IHT change apply based on UK residence history, not current residence. A British national living in Dubai who spent fifteen years working in London before moving has already accumulated enough UK residence to be an LTR individual, meaning their worldwide assets, including their pension, may be within the scope of UK IHT even now. Current non-residence does not undo past residence.
Sarah had built a £750,000 SIPP and a sizeable offshore investment bond over two decades abroad, and always assumed her pension would pass to her children free of inheritance tax. The April 2027 change puts unused pension funds inside the taxable estate, and with her long UK residence history before moving, her worldwide assets were already within the scope of the new residence-based rules.
A full review modelled her combined estate as it would look from April 2027. She restructured her retirement income plan to draw on the pension earlier than she otherwise would, reducing the unused fund that would fall into her estate, and sequenced her offshore bond withdrawals around her planned return date to the UK rather than after it, when they would have been taxed far less favourably.
A significantly smaller projected estate when the 2027 rules bite, and a return to the UK planned around the tax calendar instead of colliding with it.
Illustrative example, not a real client.
Clarity Global Wealth helps British expats understand how the April 2025 and April 2027 changes interact with their specific situation, pension value, trust structures, offshore investments, UK property and intended beneficiaries. The analysis starts with a clear picture of UK IHT exposure under the new LTR test, then works through the pension position, any existing offshore structures, and the timeline for any planned return to the UK or change in circumstances. For clients with existing offshore trusts, we coordinate with the trust's legal advisers to assess what the new rules mean in practice and whether any restructuring or unwinding makes sense. For clients approaching the 2027 pension change, we model the combined effect on the estate and work through the options, whether that is drawing more from the pension now, adjusting nominations, or restructuring other assets to make the most of available allowances. The goal is to ensure that the changes that have already happened, and those still coming, are reflected in a plan that is coherent, documented and implemented, not just understood in theory. If your plans involve Spain or Portugal specifically, our guides on tax in Spain for expats and tax in Portugal for expats cover the residency and income tax position in each country.
Related guides: UK inheritance tax for expats, UK defined benefit transfers and returning to the UK.
This guide is provided for general information only and reflects our understanding of the rules as at the date of publication. It is not personal financial, investment, pension or tax advice, and should not be relied upon as such. Rules and tax treatment can change and depend on your individual circumstances and country of residence. You should always seek regulated advice specific to your situation before taking action.
Book a complimentary consultation to discuss your pensions, investments and cross-border financial planning.
A short call to understand your situation and discuss the planning options available to you.
Complimentary 30-minute consultation
Schedule a ConsultationWhy US shares and RSUs can expose expats to 40% US estate tax with a $60,000 exemption, why only around 16 countries have a treaty, and how the risk is managed.
Estate PlanningHow US estate tax affects British expats holding US shares or property in 2026: the $60,000 trap, the US-UK treaty that rescues you, and dividend withholding.
Estate PlanningA 2026 guide for UAE and GCC expats on life insurance structures, trust planning, Sharia succession rules, and protecting assets for beneficiaries across borders.
