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Estate Planning for International Clients: Advisor Considerations and Cross-Border Complexities

· 18 min

Executive Summary

The Finance Act 2025 replaced the UK's domicile-based inheritance tax framework with a residence-based long-term resident test from 6 April 2025, creating a paradigm shift for advisors managing cross-border estates. The new regime introduces a 10-out-of-20-year residence threshold, graduated tail provisions of 3 to 10 years for departing residents, and dynamic excluded property rules for foreign trust assets that fluctuate with the settlor's residence status rather than remaining fixed at settlement. With the UK maintaining inheritance tax double taxation conventions with only 10 jurisdictions, most international estates must rely on unilateral relief under uncertain conditions. The inclusion of pension death benefits within the inheritance tax estate from April 2027 compounds these complexities. This article examines the operational, technical, and strategic implications for wealth management professionals advising internationally mobile clients.

1. Introduction: The End of Domicile as an Inheritance Tax Connecting Factor

For decades, the concept of domicile served as the principal connecting factor determining an individual's exposure to UK inheritance tax on worldwide assets. The Finance Act 2025 dismantled this framework, replacing it with a long-term UK residence test that took effect on 6 April 2025.1 The shift represents more than a technical recalibration. It fundamentally alters the data requirements, monitoring obligations, and advisory architecture that wealth management firms must maintain for internationally mobile clients.

Under the previous regime, advisors could obtain a domicile opinion -- often a one-time legal assessment based on intention, family connections, and settled purpose -- and rely on it for years absent material changes in circumstance. The residence-based regime demands something altogether different: a continuous, evidence-based assessment of physical presence in the UK, governed by the Statutory Residence Test under Finance Act 2013, Schedule 45.2 For advisors accustomed to the relative stability of domicile assessments, this transition requires both conceptual reorientation and operational investment.

The October 2024 HMRC Technical Note framed the policy objective as removing the "outdated concept of domicile" and creating an "internationally competitive" tax regime.3 Whether the new framework achieves that competitiveness remains contested among practitioners. What is beyond dispute is that the regime introduces new planning horizons, new compliance burdens, and new risk exposures that cross-border advisory firms must address systematically.

The frozen nil-rate band of GBP 325,000 through 2030-31 intensifies these pressures. As nominal asset values continue to rise, a greater proportion of international estates will breach the threshold, making the interaction between the long-term resident test, treaty relief, and pension inclusion an increasingly material concern for advisory practices serving globally mobile clients.

2. The Long-Term Resident Test: Mechanics, Tail Provisions, and Transitional Rules

The 10/20-Year Threshold

An individual becomes a long-term UK resident for inheritance tax purposes if resident in the UK for at least 10 of the 20 tax years preceding the relevant year.1 Residence for each year is determined by the Statutory Residence Test, which applies automatic tests (the 183-day rule being the most commonly triggered) and, for borderline cases, a sufficient ties test evaluating family, accommodation, work, 90-day history, and country connections.4

The long-term resident test creates objective, calculable planning horizons -- a marked departure from the subjective domicile inquiry. An individual can determine, with reasonable precision, when UK inheritance tax exposure will commence upon arrival and when it will cease after departure. This objectivity is, in principle, advantageous for advisory planning. In practice, however, the Statutory Residence Test demands meticulous day-counting and tie-tracking that creates substantial compliance infrastructure requirements for mobile clients.

The sufficient ties test merits particular attention for cross-border advisors. An individual spending fewer than 183 days in the UK may nonetheless be UK resident if sufficient connecting factors exist. The family tie (spouse, civil partner, or minor child resident in the UK), the accommodation tie (accessible UK accommodation used for at least one night), the work tie (substantive UK employment of 40 or more days), the 90-day tie (spending 90 or more days in the UK in either of the preceding two tax years), and the country tie (no other country in which more days are spent) each contribute to the overall assessment.2 For clients with ongoing UK business interests, family in the UK, or retained UK property, the sufficient ties test can produce unexpected residence outcomes that feed directly into the long-term resident calculation.

Graduated Tail Provisions

The tail provisions represent one of the most significant features of the new regime for long-established UK residents. Upon ceasing UK residence, an individual remains within scope for UK inheritance tax for a graduated period determined by total years of prior UK residence.5 The minimum tail is 3 years (for those resident for 10 to 13 years), scaling by one additional year per year of residence, to a maximum of 10 years for those resident for 20 or more years.

This graduated structure is materially more onerous than the old deemed domicile regime for long-established residents. Under the previous 15/20-year deemed domicile rule, an individual who had become deemed domiciled could exit UK inheritance tax scope after just 3 years of non-residence (by shedding deemed domicile under the 3-year non-residence rule).6 Under the new regime, a 25-year UK resident faces a full 10-year tail -- more than triple the previous exit period. Only 10 consecutive years of non-UK residence fully reset the long-term resident clock.

To illustrate the practical impact: consider an individual who arrived in the UK in 2000, became long-term resident by 2010, and departed in 2025 after 25 years of continuous residence. Under the old regime, this individual could have exited UK inheritance tax scope by 2028 (3 years after departure). Under the new long-term resident tail, the same individual remains within UK inheritance tax scope until 2035 -- a 10-year tail reflecting 20-plus years of prior residence. During that entire tail period, worldwide assets remain exposed to UK inheritance tax at 40 per cent above the nil-rate band, trust charges continue to apply based on the settlor's status, and any pension death benefits (from April 2027) form part of the UK inheritance tax estate.

Transitional Rules for 2025-26

The Finance Act 2025, Schedule 13 contains transitional provisions for individuals non-UK resident in 2025-26 who were not UK-domiciled on 30 October 2024.7 These individuals have their inheritance tax status assessed under the pre-April 2025 deemed domicile rules for the 2025-26 transitional year. If they subsequently return to the UK, the new long-term resident rules apply from 2026-27 onwards.8

Advisors must identify clients falling within this transitional window promptly. The practical consequence is that some formerly deemed-domiciled individuals who left the UK before 6 April 2025 may find themselves outside UK inheritance tax scope under the transitional rules, whereas the new long-term resident test would have kept them within scope had it applied immediately. This creates a brief but potentially significant planning advantage for those who timed their departure appropriately.

Where proportionate inheritance tax charges arise on 6 April 2025 due to changes in excluded property status -- for example, foreign settled property moving from taxable to excluded, or vice versa -- HMRC has confirmed that specific provisions apply to calculate the appropriate charge or relief.9

The Young Persons Modification

For individuals under 20 years of age, the long-term resident test is modified: the threshold is 50 per cent of the tax years since birth rather than 10 out of 20.1 This prevents minors from becoming long-term residents purely by virtue of parental decisions about residence during childhood, though advisors working with internationally mobile families should factor this modified calculation into broader family planning.

3. Dynamic Trust Taxation: Excluded Property in a Post-Domicile World

The Fundamental Shift

Under the previous regime, the excluded property status of foreign settled property was fixed at the date of settlement. A non-domiciled settlor establishing an offshore trust with foreign assets before becoming deemed domiciled could rely on that trust's excluded property status indefinitely, regardless of subsequent changes to the settlor's domicile status.

The Finance Act 2025 eliminated this certainty. From 6 April 2025, excluded property status depends on the settlor's long-term resident status at the date of each relevant inheritance tax charge -- not at settlement.10 This transforms trust taxation from a static assessment into a dynamic, ongoing monitoring obligation. Each ten-year anniversary charge and each proportionate charge must be evaluated against the settlor's current long-term resident status at the date that charge arises.

For qualifying interest in possession settlements, the position is further complicated: where the settlor is alive, both the settlor and the beneficiary must be non-long-term residents for excluded property status to apply.11 This dual-status requirement introduces additional monitoring complexity for trusts with beneficiaries in different jurisdictions. A trust that benefits a non-long-term-resident beneficiary will nonetheless lose excluded property status if the settlor has become long-term resident, and vice versa.

Transitional Protection

Schedule 13 of the Finance Act 2025 provides limited transitional protection for property comprised in settlements made before 30 October 2024.12 Where foreign settled property qualified as excluded property under the old regime immediately before 6 April 2025, it retains that status under transitional rules -- but only for so long as the settlor remains non-long-term resident. The moment the settlor becomes long-term resident (or, for those already long-term resident, upon the next relevant charge), the transitional protection falls away.

Advisory firms must map existing trust structures against the new dynamic rules and establish monitoring protocols. A trust that was safely excluded property for 20 years under the domicile regime may now face inheritance tax charges if the settlor has maintained UK residence. The one-time "set and forget" assessment of excluded property status is no longer tenable. Firms should consider building annual review cycles for all trust structures linked to internationally mobile settlors, with automated alerts triggered by changes in the settlor's residence status or the approach of ten-year anniversary dates.

4. Double Taxation Relief: Treaty Limitations and Unilateral Relief

The 10-Country Treaty Network

The UK maintains inheritance tax double taxation conventions with only 10 jurisdictions: the Republic of Ireland, the United States, South Africa, France, the Netherlands, Sweden, Switzerland, Italy, India, and Pakistan.13 This is a remarkably narrow network given the global mobility of high-net-worth individuals and the breadth of the UK's income tax treaty arrangements. For the majority of cross-border estates -- those involving jurisdictions outside this list -- relief from double taxation depends entirely on unilateral mechanisms.

Many of these treaties predate the inheritance tax regime itself, having been negotiated during the estate duty era before 1975. As the STEP Journal has observed, these conventions are "outdated, inconsistent with modern law and in need of reform."14 They were not designed to accommodate modern trust structures, let alone the new residence-based regime.

Treaty Interpretation Under the Long-Term Resident Regime

The Finance Act 2025 provides that where a double taxation convention references "deemed domicile," this term is now interpreted as meaning long-term UK residence.15 However, the practical application of this statutory mapping is untested. Treaties negotiated on the basis of domicile -- a concept rooted in intention and family connection -- may produce anomalous results when the connecting factor becomes a purely quantitative residence test.

Where a treaty allocates taxing rights based on domicile as understood at the time of negotiation, and the counterpart jurisdiction continues to apply a domicile concept, there is scope for misalignment. An individual might be treated as domiciled in one jurisdiction under its domestic law while simultaneously being a long-term UK resident under the Finance Act 2025, with neither treaty nor domestic legislation providing clear priority rules for the resulting conflict.14

Advisors should treat treaty-based outcomes as uncertain in these circumstances and ensure that clients with estates spanning treaty jurisdictions receive dual-qualified tax advice. Reliance on a treaty alone, without analysis of how the counterpart jurisdiction interprets the interaction, carries material risk.

Unilateral Relief Under IHTA84/S159

For estates involving non-treaty jurisdictions, unilateral relief under Section 159 of the Inheritance Tax Act 1984 provides a credit for foreign tax paid on assets situated in the foreign jurisdiction.16 The relief is limited in several respects: it applies only to assets sited abroad under UK situs rules; it credits only actual foreign tax paid (not theoretical entitlement); and it cannot exceed the UK inheritance tax attributable to those assets.

The practical limitation is that UK situs rules may classify assets differently from the foreign jurisdiction. Bank accounts, for instance, are sited where the branch maintaining the account is located under UK rules, which may differ from the approach taken by the foreign jurisdiction's tax authority. Shares in a company are sited where the share register is maintained -- a rule that can produce unexpected results for shares in companies with registers in multiple jurisdictions. These situs mismatches can result in double taxation that neither treaty nor unilateral relief fully addresses, and advisors should document the potential exposure as part of the estate planning file for each cross-border client.

5. Pension Death Benefits from April 2027: Cross-Border Complications

The Inclusion Framework

From 6 April 2027, most unused pension funds and pension death benefits will be included in the deceased's estate for inheritance tax purposes.17 The government estimates that 213,000 estates will hold inheritable pension wealth in 2027-28, with approximately 10,500 estates newly brought into inheritance tax liability and a further 38,500 already-liable estates facing an average additional charge of approximately GBP 34,000 when pension assets are included.18

Personal representatives -- not pension scheme administrators -- will bear liability for reporting and paying inheritance tax on pension components.18 This allocation of liability is significant for cross-border estates. Where personal representatives are located outside the UK, or where the deceased held pensions in multiple jurisdictions, the coordination burden becomes substantial. Pension administrators may withhold up to 50 per cent of taxable death benefits for up to 15 months to facilitate inheritance tax payment, but this mechanism assumes a cooperative relationship between administrators and personal representatives that may not exist across borders.

Cross-Border Pension Coordination

For internationally mobile clients who have accrued UK pension benefits but departed the UK while remaining within the long-term resident tail, the interaction of pension inheritance tax with foreign succession and tax rules requires careful analysis. A departing long-term resident with a UK defined contribution pension who dies within the tail period will have that pension included in the UK inheritance tax estate, potentially triggering tax in both the UK and the jurisdiction of residence at death.

The spouse and civil partner exemption is maintained for pension death benefits, as is the charity exemption.17 Death-in-service benefits and dependants' defined benefit pensions are excluded. Advisors should review pension death benefit nominations and expression-of-wish forms for international clients to ensure alignment with the post-April 2027 framework, noting that nomination to a non-long-term-resident spouse may engage the GBP 325,000 cap unless an election for unlimited exemption has been made.19

The Spouse Exemption Election for Cross-Border Couples

The revised spouse exemption framework is particularly consequential for cross-border couples. Where one spouse is long-term resident and the other is not, the non-long-term-resident spouse may elect to be treated as long-term resident for inheritance tax purposes, thereby enabling the unlimited inter-spouse exemption.3 Without such election, transfers are capped at GBP 325,000 -- a level set by Finance Act 2013, replacing the previous GBP 55,000 limit -- unless an election for unlimited exemption has been made.19

The election persists until the electing spouse has been non-UK resident for 10 consecutive tax years. Advisors must weigh the benefit of unlimited exemption against the consequence of bringing the electing spouse's own worldwide estate within UK inheritance tax scope. For couples where both spouses hold substantial non-UK assets, the election may create a net tax detriment that outweighs the exemption benefit on the first death.

6. Operational Implications for Advisory Firms

Residence Data Management: The 39-Year Challenge

The new IHT401a schedule introduced from April 2025 may require executors to provide HMRC with details of a deceased's tax residence for up to 39 years before death.20 This represents a transformational data requirement. Under the previous regime, a domicile assessment focused on qualitative factors -- intention, family ties, property ownership. The residence-based regime demands granular, year-by-year residence records stretching back nearly four decades.

Advisory firms must establish systems to collect, verify, and maintain this residence history from the point of initial client engagement. For existing clients, retrospective data gathering will be necessary. For clients who have lived in multiple jurisdictions, assembling evidence of residence status in each relevant tax year -- tax returns, visa records, travel documentation, property records -- is a substantial undertaking. The new IHT401a, D31a, and D31b schedules codify these requirements into mandatory reporting formats.20

Multi-Jurisdictional Advisory Networks

The combination of dynamic trust rules, limited treaty relief, and pension coordination demands advisory networks spanning multiple jurisdictions. No single firm, regardless of its international footprint, can provide definitive advice on how every jurisdiction will treat the inheritance tax consequences of a cross-border estate under the new UK regime. Advisory firms should formalise referral relationships with qualified practitioners in the jurisdictions most commonly relevant to their client base, and maintain clear engagement protocols that delineate which firm is responsible for each element of the cross-border advice. This includes establishing documented processes for information sharing, conflict checking across jurisdictions, and coordinated client communication to prevent contradictory or duplicative advice.

Multiple-Will Strategies

Multiple-will strategies -- under which a client executes separate wills to govern assets in different jurisdictions -- remain an important planning tool but carry revocation risk. Because the UK never opted into the EU Succession Regulation (Brussels IV), domestic conflict-of-laws rules continue to govern succession matters for UK estates.21 EU member states applying Brussels IV may apply habitual residence as the connecting factor, potentially bringing UK assets within the scope of a foreign will where the deceased was habitually resident in an EU state.

Advisors must ensure that multiple wills are drafted with explicit non-revocation clauses and coordinated across jurisdictions to prevent one will inadvertently revoking another. The absence of a European Certificate of Succession for UK estates adds a further layer of administrative complexity for cross-border probate.

The Shift from Domicile Opinion to Residence Data Management

The operational paradigm has shifted fundamentally. The domicile opinion model -- a periodic legal assessment updated upon material changes -- has given way to a residence data management model requiring continuous tracking, annual verification, and systematic record-keeping. Firms that have historically managed international client estates on a domicile-opinion basis must invest in compliance infrastructure, staff training, and client communication processes that reflect the quantitative rigour demanded by the Statutory Residence Test and the long-term resident framework.

Conclusion

The residence-based inheritance tax regime enacted from 6 April 2025 offers international advisors greater certainty in some respects -- objective thresholds replace subjective domicile assessments -- while introducing new layers of operational complexity. The graduated tail provisions impose longer exit periods for established residents than the old deemed domicile rules, dynamic trust taxation eliminates the "set and forget" approach to excluded property, and the limited 10-country treaty network leaves most cross-border estates exposed to double taxation risk that unilateral relief may not fully address.

The inclusion of pension death benefits from April 2027 adds a further coordination requirement that will compound the challenges for cross-border estates. Advisory firms must respond by investing in residence data infrastructure, formalising multi-jurisdictional referral networks, and establishing ongoing monitoring systems for trust structures that were previously assessed once and left undisturbed. The transition from domicile to residence is not merely a change in the connecting factor for inheritance tax -- it is a change in the nature of the advisory relationship itself.

CPD Declaration

Estimated Reading Time: 18 minutes Technical Level: Advanced Practice Areas: Cross-border estate planning, inheritance tax advisory, trust taxation, international wealth management

Learning Objectives

Upon completing this article, practitioners will be able to:

  1. Evaluate the long-term resident test mechanics and graduated tail provisions to determine when internationally mobile clients enter and exit UK inheritance tax scope
  2. Distinguish between the static excluded property regime under the former domicile rules and the dynamic trust taxation framework introduced by the Finance Act 2025
  3. Assess the limitations of the UK's 10-country inheritance tax treaty network and the conditions under which unilateral relief under IHTA84/S159 applies
  4. Identify the operational data requirements arising from the IHT401a schedule and design compliant record-keeping frameworks for international client estates

SRA Competency Mapping

  • Technical legal practice: Maintaining current knowledge of inheritance tax legislation and its cross-border application (SRA Competence Statement, Section A3)
  • Working with other people: Coordinating multi-jurisdictional advisory teams to deliver integrated estate planning advice (SRA Competence Statement, Section B4)

Reflective Questions

  1. How would you restructure your firm's client onboarding process to capture the residence history data now required by the IHT401a schedule?
  2. What monitoring protocols would you implement to track changes in a settlor's long-term resident status and the consequent impact on excluded property status for existing trust structures?
  3. How does the limited scope of the UK's inheritance tax treaty network affect your approach to advising clients with assets in non-treaty jurisdictions?

Professional Disclaimer

The information presented reflects the regulatory and legislative position as of 2026-02-04. Regulations, tax rules, and professional guidance are subject to change. Readers should independently verify all information before acting and seek advice from appropriately qualified solicitors, financial advisors, or other professionals for their specific circumstances.

Neither WUHLD nor the author accepts liability for any actions taken or decisions made based on the content of this article. Professional readers are reminded of their own regulatory obligations and duty of care to their clients.

Footnotes

Footnotes

  1. Finance Act 2025, Part 2, Chapter 4 -- Inheritance Tax (2025). https://www.legislation.gov.uk/ukpga/2025/8/part/2/chapter/4 ↩ ↩2 ↩3

  2. HMRC RDR3 -- Statutory Residence Test guidance note (2013, updated 2025). https://www.gov.uk/government/publications/rdr3-statutory-residence-test-srt/guidance-note-for-statutory-residence-test-srt-rdr3 ↩ ↩2

  3. GOV.UK Technical Note -- Changes to the taxation of non-UK domiciled individuals (October 2024). https://www.gov.uk/government/publications/changes-to-the-taxation-of-non-uk-domiciled-individuals/technical-note-changes-to-the-taxation-of-non-uk-domiciled-individuals ↩ ↩2

  4. HMRC Residence and FIG Regime Manual RFIG20000 (April 2025). https://www.gov.uk/hmrc-internal-manuals/residence-and-fig-regime-manual/rfig20000 ↩

  5. HMRC IHT Manual IHTM47020 -- Long-term UK residence test (2025). https://www.gov.uk/hmrc-internal-manuals/inheritance-tax-manual/ihtm47020 ↩

  6. GOV.UK -- Inheritance Tax if you're a long-term UK resident (2025). https://www.gov.uk/guidance/inheritance-tax-if-youre-a-long-term-uk-resident ↩

  7. Finance Act 2025, Schedule 13 (2025). https://www.legislation.gov.uk/ukpga/2025/8/schedule/13/data.xht?view=snippet&wrap=true ↩

  8. HMRC IHT Manual IHTM47021 -- Transitional provisions (2025). https://www.gov.uk/hmrc-internal-manuals/inheritance-tax-manual/ihtm47021 ↩

  9. HMRC IHT Manual IHTM47023 -- Charges on 6 April 2025 (2025). https://www.gov.uk/hmrc-internal-manuals/inheritance-tax-manual/ihtm47023 ↩

  10. HMRC IHT Manual IHTM27220 -- Foreign settled property excluded from IHT (2025). https://www.gov.uk/hmrc-internal-manuals/inheritance-tax-manual/ihtm27220 ↩

  11. HMRC IHT Manual IHTM47051 -- Foreign settled property: Qualifying Interests in Possession (2025). https://www.gov.uk/hmrc-internal-manuals/inheritance-tax-manual/ihtm47051 ↩

  12. HMRC IHT Manual IHTM47022 -- Transitional provisions: Excluded property at 30 October 2024 (2025). https://www.gov.uk/hmrc-internal-manuals/inheritance-tax-manual/ihtm47022 ↩

  13. GOV.UK -- Inheritance Tax: Double Taxation Relief (2025). https://www.gov.uk/guidance/inheritance-tax-double-taxation-relief ↩

  14. STEP Journal -- IHT treaties and trusts (December 2025). https://journal.step.org/tqr-december-2025/iht-treaties-and-trusts ↩ ↩2

  15. GOV.UK -- Reforming the taxation of non-UK domiciled individuals (2025). https://www.gov.uk/government/publications/tax-changes-for-non-uk-domiciled-individuals/reforming-the-taxation-of-non-uk-domiciled-individuals ↩

  16. HMRC IHT Manual IHTM27185 -- Unilateral Relief (2025). https://www.gov.uk/hmrc-internal-manuals/inheritance-tax-manual/ihtm27185 ↩

  17. GOV.UK -- Inheritance Tax: unused pension funds and death benefits (2024, updated 2025). https://www.gov.uk/government/publications/inheritance-tax-unused-pension-funds-and-death-benefits/inheritance-tax-unused-pension-funds-and-death-benefits ↩ ↩2

  18. GOV.UK -- IHT on pensions: liability, reporting and payment -- summary of responses (2025). https://www.gov.uk/government/consultations/inheritance-tax-on-pensions-liability-reporting-and-payment/outcome/inheritance-tax-on-pensions-liability-reporting-and-payment-summary-of-responses ↩ ↩2

  19. Finance Act 2025, Part 2, Chapter 4 -- spouse exemption amendments (2025). https://www.legislation.gov.uk/ukpga/2025/8/part/2/chapter/4 ↩ ↩2

  20. HMRC Trusts and Estates Newsletter (April 2025). https://www.gov.uk/government/publications/hm-revenue-and-customs-trusts-and-estates-newsletters/hmrc-trusts-and-estates-newsletter-april-2025 ↩ ↩2

  21. GOV.UK -- Cross-border civil and commercial legal cases: guidance for legal professionals (2021). https://www.gov.uk/government/publications/cross-border-civil-and-commercial-legal-cases-guidance-for-legal-professionals/cross-border-civil-and-commercial-legal-cases-guidance-for-legal-professionals ↩

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