Inheritance Tax Nightmares for Global Families

The United Kingdom is in the midst of a profound shift in how it taxes wealth at death—one that is quietly reshaping the financial landscape for globally mobile families. From 6 April 2025, inheritance tax (IHT) will no longer hinge on the centuries-old concept of domicile. Instead, it will be determined by residence—a move that significantly broadens the scope of the tax net.

For British expatriates, particularly those who have built careers across financial centres such as Singapore, Dubai or Hong Kong, the consequences are far-reaching. Assets once assumed to be safely outside the reach of HMRC may now be firmly within it.

The End of Domicile as the Deciding Factor

Historically, UK inheritance tax has been governed by domicile—a legal concept reflecting an individual’s permanent home. For many Britons, this meant that even after decades abroad, their UK domicile of origin could persist unless they could prove a permanent intention to settle elsewhere.

This already created complexity. A British-born executive living in Asia, for instance, might still be exposed to UK IHT on their global estate if they failed to shed their domicile—a notoriously difficult task.

To reinforce this system, reforms introduced in 2017 imposed a “deemed domicile” rule. Individuals resident in the UK for 15 of the past 20 years were treated as UK-domiciled for tax purposes, bringing their worldwide assets into scope. Even after departure, this status lingered for several years.

Yet even this framework, intricate as it was, now appears almost benign compared with what follows.

A Residence-Based Regime Takes Hold

From April 2025, domicile is no longer the key determinant. In its place is a long-term residence test:

• Individuals resident in the UK for 10 out of the last 20 tax years will be classified as long-term residents (LTRs)
• LTRs are subject to IHT on their worldwide assets
• Crucially, this exposure continues after leaving the UK, for a “tail period” of up to 10 years

The implications are significant. A professional who spends a decade working in London—whether early or late in their career—may find that their global wealth remains exposed to UK IHT long after they have relocated overseas.

This marks a conceptual shift. Where domicile asked, “Where do you belong?”, the new regime asks, “Where have you lived?”

The “Tail Risk” Few Anticipate

Perhaps the most underappreciated feature of the new rules is the post-exit tail.

Under the previous system, deemed domicile could fall away after four years of non-residence. Under the new regime, the exposure can last far longer—up to a decade, depending on how long the individual lived in the UK.

This creates a counterintuitive outcome: leaving the UK does not eliminate IHT risk—it may extend it.

For globally mobile professionals, this is a material planning concern. A relocation to a low-tax jurisdiction such as Singapore does not necessarily remove UK exposure; it may simply defer it.

The Expat Trap

These changes give rise to what advisers increasingly describe as an “IHT trap.”

Consider a UK-born banker who spends 12 years in London before moving to Dubai. Under the new rules:

– They exceed the 10-year threshold

– They become a long-term resident for IHT purposes

– Their worldwide estate—property, investments, offshore holdings—falls within UK tax scope

– This exposure may persist for up to eight years after departure

The trap lies in the timing. Many professionals accumulate the bulk of their wealth after leaving the UK. Yet under the new regime, that wealth may still be taxed as if it were held domestically.

The United States: A Parallel Hazard

Complicating matters further is the United States estate tax regime, which operates on an entirely different principle: asset location.

For non-US citizens and non-residents:

– Only US-situs assets are taxed

– The exemption is just $60,000

– Tax rates range from 18% to 40%

This creates a surprisingly low threshold for exposure. Ownership of a single US property or a modest portfolio of US equities can trigger estate tax liability.

A British expatriate in Singapore holding shares in US-listed companies, for example, may unknowingly fall within the US tax net. Unlike the UK system, this exposure has nothing to do with residence or domicile—it is purely geographic.

There is some relief available through the US–UK estate tax treaty, which can mitigate liabilities in certain cases. But this requires proactive planning and proper filing; it is not automatic.

When Systems Collide

Taken together, the UK and US regimes create overlapping risks:

– The UK taxes based on residence history

– The US taxes based on where assets are located

A globally diversified portfolio—often seen as prudent—can therefore increase exposure to multiple tax jurisdictions.

A British expat might find:

• Their Singapore property caught by UK IHT
• Their US equities subject to US estate tax
• Their estate facing compliance obligations in multiple countries

This is not an edge case. It is increasingly the norm for internationally mobile families.

Planning in a More Demanding World

The new landscape demands a more deliberate approach to estate planning. Passive ownership is no longer sufficient; structure and timing matter.

Several priorities stand out.

First, tracking residence history has become essential. The 10/20 test is mechanical, but its consequences are profound. Crossing the threshold can trigger long-term exposure.

Second, reviewing asset ownership structures is critical. Direct ownership of US assets, in particular, can create avoidable tax liabilities.

Third, aligning wills and trusts across jurisdictions is increasingly important. Structures established under the old domicile-based regime may not behave as expected under the new rules.

Fourth, planning before movement—whether into or out of the UK—can significantly alter outcomes. Timing, in many cases, is as important as structure.

Finally, ensuring liquidity within the estate—often through insurance—can prevent forced sales of assets to meet tax liabilities.

A Narrowing Window for Action

The broader trend is clear. Governments are becoming more assertive in taxing mobile wealth, and the UK’s move to a residence-based IHT system reflects this shift.

For British expatriates, the margin for error is narrowing. Assumptions that once held—about domicile, about offshore assets, about the tax neutrality of relocation—are no longer reliable.

The risk is not merely theoretical. Without careful planning, families may face substantial and unexpected tax bills, often at a moment when liquidity is constrained and decisions must be made quickly.

Conclusion

Inheritance tax has long been a complex and often misunderstood area of financial planning. The UK’s reforms, coupled with the enduring reach of the US estate tax system, have made it more so.

For globally mobile families, the challenge is no longer simply to build wealth across borders, but to protect it across jurisdictions.

That requires foresight, coordination and expertise. Those who act early can still navigate the system effectively. Those who do not may find that geography offers far less protection than it once did—and that the true cost of mobility only becomes apparent too late.

If you would like information on any of the above areas or any other area of financial planning, please contact:

Singapore Expat Advisory is an agency for Promiseland Financial Advisory Pte. Ltd and are authorised and regulated by the Monetary Authority of Singapore (MAS).

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