For Australian estate planning lawyers, asking a client where they live is no longer enough. Increasingly, we also need to ask: where have you lived during the last 20 years?
On 6 April 2025, the United Kingdom fundamentally changed the basis upon which Inheritance Tax (“IHT”) applies to foreign assets. For these purposes, the former domicile-based regime has largely been replaced by a residence-based test.
For British expatriates and others who have spent significant periods living in the UK before relocating to Australia, the consequences can be substantial.
An individual may own no property in the United Kingdom, regard Australia as their permanent home, have no intention of returning to Britain and have accumulated substantial wealth in Australia — yet still potentially have their worldwide estate exposed to UK IHT.
For Australian practitioners advising clients with a UK history, this is an issue which should now form part of the estate-planning checklist.
From domicile to long-term residence
Before 6 April 2025, the territorial scope of UK IHT was principally determined by domicile and deemed domicile.
Broadly speaking, an individual domiciled or deemed domiciled in the UK could be subject to IHT on their worldwide estate. A person domiciled outside the UK would generally only be subject to IHT in respect of UK-situs assets, subject to important qualifications and anti-avoidance provisions.
Domicile was, however, a notoriously difficult concept. It concerned a person’s permanent home and intentions and was quite distinct from residence, citizenship or nationality.
From 6 April 2025, that position changed fundamentally.
The Finance Act 2025 introduced the concept of a “long-term UK resident” into the Inheritance Tax Act 1984. Under the general rule, an individual is a long-term UK resident for a tax year if they were UK resident for at least 10 of the previous 20 tax years.
Where an individual is a long-term UK resident, foreign assets owned personally can fall within the scope of UK IHT.
In other words, “foreign assets” from the UK’s perspective include assets situated here in Australia.
Leaving Britain does not necessarily end the exposure
Perhaps the most important feature of the new regime for Australian practitioners is that exposure to UK IHT on worldwide assets does not necessarily cease when an individual leaves the UK.
There is what might conveniently be described as an IHT tail.
Under the general rules, the period for which a former UK resident remains a long-term UK resident depends upon the number of UK-resident years in the relevant 20-year period when they leave.
The broad position is:
| UK-resident years in relevant 20-year period | Consecutive non-resident years generally required to cease long-term resident status |
|---|---|
| 13 years or fewer* | 3 years |
| 14 years | 4 years |
| 15 years | 5 years |
| 16 years | 6 years |
| 17 years | 7 years |
| 18 years | 8 years |
| 19 years | 9 years |
| 20 years | 10 years |
The striking result is that an individual who has been UK resident throughout the relevant 20-year period can, under the general rules, remain within the UK worldwide IHT regime until they have completed 10 consecutive tax years of non-UK residence.
That can have extraordinary consequences for someone who believes that their UK tax affairs ended when they boarded the plane for Australia.
Consider the Australian migrant
Take a relatively ordinary example.
David and Sarah lived and worked in England for more than 20 years before emigrating permanently to Western Australia. They sell their English home, purchase a property in Perth, establish their lives in Australia and have no intention of returning to the UK.
Their assets eventually comprise:
a Perth residence;
Australian bank accounts;
Australian shares and managed investments;
an Australian investment property; and
other personal and investment assets.
They may quite reasonably assume that, having permanently left Britain and sold their UK assets, UK death duties are no longer relevant to them.
That assumption may be wrong.
If David or Sarah remains a long-term UK resident for IHT purposes at the date of a chargeable event, their non-UK assets may remain within the scope of UK IHT.
The relevant enquiry is therefore no longer simply:
“Does the client still own anything in Britain?”
It may instead be:
“Is the client’s worldwide estate still within the UK IHT net?”
The numbers can become significant very quickly
The standard UK IHT nil-rate band is presently £325,000, with IHT generally charged at 40 per cent on the taxable estate above the available thresholds.
An additional residence nil-rate band of up to £175,000 may be available where the statutory requirements are satisfied, although that relief is subject to conditions and is progressively withdrawn for estates exceeding £2 million.
Unused nil-rate bands and residence nil-rate bands may also be transferable between spouses or civil partners in appropriate circumstances.
The potential consequences for Australian clients can therefore be substantial.
Assume, purely for illustration, that a former UK resident dies in Australia while their worldwide assets remain within the UK IHT regime. Their assets comprise:
an Australian home worth the equivalent of £900,000;
Australian investments worth £600,000; and
cash and other assets worth £200,000.
The worldwide estate is £1.7 million.
The fact that the wealth is situated almost entirely in Australia does not, by itself, remove it from the UK IHT regime if the deceased remains a long-term UK resident.
The actual IHT liability would depend upon numerous matters, including the identity of the beneficiaries, spouse or civil partner exemptions, available nil-rate bands, the residence nil-rate band, lifetime transfers, trusts and applicable reliefs.
Nevertheless, with a headline death rate of 40 per cent, the potential liability is plainly significant.
This is not necessarily a problem confined to Britain’s ultra-wealthy.
Australian residential property values, superannuation and investment assets can mean that an otherwise ordinary migrant family has accumulated substantial wealth by the time of death.
Do not confuse citizenship with residence
An important feature of the new regime is that it is not based upon British nationality.
The relevant question is not:
“Does the client have a British passport?”
An Australian citizen who lived and worked in the United Kingdom for a sufficiently long period can potentially be a long-term UK resident for IHT purposes.
Conversely, being a British citizen does not, by itself, mean that an individual’s worldwide estate is permanently exposed to UK IHT.
For practitioners, the appropriate enquiry is therefore:
“During which UK tax years was the client UK resident?”
That is a very different question from nationality, citizenship or even where the client presently regards as home.
The Australian connection makes the issue easy to overlook
Australia does not presently impose a general estate or inheritance tax equivalent to UK IHT.
The United Kingdom and Australia do have a comprehensive double taxation convention dealing principally with taxes on income and capital gains. However, Australia is not one of the countries listed by HMRC as having a bilateral double taxation convention with the UK applicable to Inheritance Tax.
That distinction matters.
The absence of an Australian inheritance tax also makes the UK issue particularly easy to overlook. A client may have received perfectly sound Australian tax and estate-planning advice while nevertheless retaining a substantial UK IHT exposure arising from their historical UK residence.
The potential problem is therefore not necessarily visible from the Australian balance sheet. It may be hidden in the client’s residence history.
The transitional rules are critical
There is, however, an important warning before practitioners begin counting backwards 20 years.
The new rules contain significant transitional provisions, particularly for people who had already left the UK before the new regime commenced or who became non-UK resident in the 2025–26 tax year.
Those provisions can materially alter the result.
For example, special rules apply to certain individuals who were non-UK domiciled or deemed domiciled under the former regime and are non-UK resident in 2025–26. Depending upon their former domicile status and residence history, their exposure may cease considerably earlier than would appear from simply applying the headline 10-out-of-20 rule.
Conversely, an individual who was UK domiciled under common law at 30 October 2024 does not obtain the benefit of those transitional provisions merely because they subsequently become non-resident.
Accordingly, statements such as:
“If you lived in the UK for 20 years, your worldwide estate remains subject to IHT for another 10 years after you leave”
should be treated as a description of the general rule, not as a universal proposition.
The client’s date of departure, residence history and status under the former domicile regime can materially affect the answer.
Residence itself needs to be established
There is another trap for Australian advisers.
A “year living in Britain” is not necessarily the appropriate legal test.
Whether an individual was UK resident for the relevant tax year is determined under the applicable UK tax residence rules. For 2013–14 onwards this will ordinarily involve the UK’s Statutory Residence Test.
Importantly, a tax year in which split-year treatment applies can still count as a full UK-resident year for the long-term residence test.
The calculation should therefore be undertaken by reference to UK tax years and UK tax residence, rather than simply counting calendar years between arrival and departure dates.
Trusts require particular care
The reforms also have potentially significant consequences for trusts.
Historically, foreign assets settled into trust by a person who was non-UK domiciled could, subject to the detailed rules, constitute “excluded property” and remain outside the relevant property regime for UK IHT.
The position after 6 April 2025 is materially different.
The long-term residence status of the settlor can now affect whether foreign settled property is within the IHT regime, and changes in the settlor’s residence status can potentially alter the treatment of trust property.
There are, however, important protections and transitional rules for certain foreign property settled before 30 October 2024.
The trust provisions are sufficiently complex that Australian practitioners should be particularly cautious before assuming that an Australian discretionary or family trust either falls within, or outside, the UK IHT regime.
Where a client with substantial UK residence history is the settlor of an Australian trust, specialist UK advice should be considered.
Lifetime planning may also be affected
The issue is not confined to tax arising on death.
UK IHT is a transfer tax and the long-term residence rules can also be relevant to lifetime transfers and settlements.
Accordingly, a client who has recently moved from the UK to Australia should obtain advice before undertaking substantial gifts, establishing trusts or implementing significant estate-planning restructures.
Simply waiting until the client’s Will is reviewed may be too late.
A new question for the Australian estate-planning interview
For Australian estate-planning practices, particularly those acting for migrants from the UK, the reforms justify adding a series of questions to the standard client interview:
Have you ever been resident in the United Kingdom?
During which UK tax years were you UK resident?
When did you finally leave the UK?
Have you subsequently returned to live or work there?
Do you retain any UK-situs assets?
Have you established, contributed assets to or benefited from any trusts?
Have you made, or do you intend to make, substantial lifetime gifts?
Where the answers reveal a significant UK residence history, the Australian practitioner does not necessarily need to become a UK tax specialist.
They do, however, need to identify the issue.
The practical lesson
The 6 April 2025 reforms represent a fundamental change in the UK’s approach to the international reach of Inheritance Tax.
For many Australian practitioners, the most important consequence is straightforward.
A person can have left Britain, established a permanent home in Australia, sold all of their UK property and have no intention whatsoever of returning — and their Australian assets may nevertheless remain exposed to UK IHT.
Under the general rules, a person with 20 relevant years of UK residence can remain within the worldwide IHT regime until they have completed as many as 10 consecutive tax years of non-UK residence.
Subject to the transitional rules, that can mean the UK tax system continuing to follow a migrant long after the migrant believes they have left the UK tax system behind.
The estate-planning question is therefore no longer merely:
“Where are your assets?”
For clients with an international background, Australian lawyers increasingly need to ask:
“Where have you been tax resident during the last 20 years?”
The answer may reveal an inheritance tax exposure extending thousands of kilometres beyond the United Kingdom.
This article provides general information only and does not constitute Australian or United Kingdom legal, taxation or financial advice. The application of UK Inheritance Tax depends upon individual circumstances, including UK tax residence, the date of departure from the UK, transitional provisions, historical domicile status, asset ownership, trusts, lifetime transactions and available exemptions and reliefs. Specialist UK taxation advice should be obtained where potential UK IHT exposure is identified.