Retiring abroad? UK inheritance tax can follow you for ten years

Many of the people we speak to have a plan for the next chapter. Sell the business or hand it on, keep a couple of rental flats ticking over, and spend more of the year somewhere warmer — Spain, France, Portugal. Somewhere along the way, a lot of them have picked up the idea that once they have left the UK, inheritance tax stops being a UK problem.

It is an understandable assumption. It is also, since 6 April 2025, the wrong one. The rules changed fundamentally that day, and the change cuts both ways: it follows people who leave the UK for years after they go, and it catches people who came to the UK from abroad far sooner than it used to.

What changed on 6 April 2025

For decades, whether your worldwide estate was exposed to UK inheritance tax depended on your domicile — a slippery legal idea about where you regard as your permanent home. From 6 April 2025, domicile was replaced with a simpler, more mechanical test based on residence.

You are now a long-term UK resident in a tax year if you were UK resident for at least 10 of the previous 20 tax years. If you are a long-term UK resident, your worldwide estate is within the scope of UK inheritance tax — your home here, your villa abroad, your overseas bank accounts, all of it. If you are not, only your UK assets are in scope.

Residence for each year is decided under the statutory residence test, the same test used for income tax. One detail matters a great deal: HMRC’s guidance confirms that a “split year” — the year you arrive or leave — counts as a full year of UK residence for inheritance tax purposes.

The tail that follows you abroad

Here is the part that surprises people. Leaving the UK does not switch off long-term residence straight away. You remain a long-term UK resident for a number of tax years after you go — often called the IHT “tail” — and the length depends on how long you lived here.

• UK resident for 10 to 13 of the previous 20 years: the tail is 3 tax years.
• Each additional year of residence adds one more year to the tail — 14 years gives 4, 15 gives 5, and so on.
• UK resident for all 20 of the previous 20 years: the tail is 10 tax years.

For most of our readers — people who have lived and worked in the UK all their lives — that means the maximum. Your worldwide estate stays inside UK inheritance tax for ten full tax years after you leave. And if you come back to live in the UK before the tail runs out, the clock does not simply pause; your residence counts again.

There is also a reset: once someone has been non-resident for 10 consecutive tax years, the slate is wiped clean, and only the year they return and later years count if they come back.

A worked example: retiring to the Algarve

Take a Sussex couple — let us call them Graham and Helen, invented purely as an illustration. Both have lived in the UK all their lives. Graham has run a successful engineering business for twenty-odd years; together they own their home near Chichester and three buy-to-let flats in Worthing.

In summer 2026 they sell their home, buy a house in the Algarve and move permanently. Graham keeps his shareholding in the company, which is now run by his daughter, and they keep the flats for income.

Because 2026–27 is their split year, it counts as a full year of UK residence. They have 20 UK-resident years out of 20, so their tail is 10 tax years. Their first year of non-residence is 2027–28, and they need ten consecutive non-resident years — through to 5 April 2037 — before they stop being long-term UK residents.

So if either of them dies before 6 April 2037, the whole of their worldwide estate — including the Algarve house — is within UK inheritance tax, exactly as if they had never left.

And here is the second point people miss: even after the tail ends, UK assets stay in UK inheritance tax permanently. The Worthing flats and Graham’s shares in a UK company are UK assets. Moving abroad never takes those outside the UK net, however long Graham and Helen stay in Portugal.

The traps

No treaty to fall back on

People often assume a double tax treaty will sort things out. For inheritance tax, the UK has only ten: the Republic of Ireland, South Africa, the USA, the Netherlands, Sweden, Switzerland, France, Italy, India and Pakistan. There is none with Spain or Portugal. The treaties with France and Italy are older agreements that work by reference to domicile under general law rather than the new long-term residence test, so even there the outcome needs working through carefully.

Where there is no treaty, the UK can sometimes give credit for foreign tax paid on assets situated abroad, but that is not the same as a clean answer — and the local rules differ widely. Spain has its own inheritance and gift tax. Portugal has no inheritance tax as such, but applies stamp duty to some transfers on death, with spouses and children generally exempt.

Assuming your Will travels with you

A move abroad is exactly the moment to check your Will works in both countries. For European property, we deal with this inside your UK Will: we include an express election under the EU Succession Regulation, known as Brussels IV, choosing the law of your nationality to govern your succession. That gives certainty over who inherits, and avoids the local forced heirship rules applying by default. What it does not do is change the tax position — that is a separate question, and the one this article is about.

Pensions joining the estate

From 6 April 2027, most unused pension funds come inside UK inheritance tax. For someone still within the tail, that pension sits alongside everything else.

The couple where only one is long-term resident

Transfers between spouses are normally free of inheritance tax without limit. But where the giving spouse is a long-term UK resident and the receiving spouse is not, the exemption is capped at £325,000 unless the receiving spouse elects to be treated as long-term resident. That election has consequences of its own, so it needs thought rather than a reflex.

The flip side: if you came to the UK from abroad

The same test works in reverse. Under the old rules, someone who moved here could live in the UK for up to 15 years before being treated as UK domiciled. Now, once you have been resident for 10 tax years, you become a long-term UK resident from your 11th — and your worldwide estate, including property and savings back home, comes within UK inheritance tax. Your common law domicile no longer matters for this purpose.

There are transitional rules for people who were not UK domiciled on 30 October 2024 and were non-UK resident for 2025–26 and do not return. For them the old deemed-domicile test — 15 out of 20 years — continues to apply, and anyone who was deemed domiciled at that date and left falls out of scope after three years of non-residence. If you left in that window, it is worth confirming exactly where you stand.

Excluded property trusts

Trusts of non-UK assets set up by non-domiciled individuals used to be largely sheltered from inheritance tax. From 6 April 2025, foreign assets in a trust are excluded property only at times when the settlor is not a long-term UK resident. There are transitional protections for property already in such trusts before 30 October 2024, including a cap on certain trust charges. This is specialist territory, and anyone it affects should already be talking to their advisers about it.

What to do

• Keep a residence record. Note the days you spend in the UK each tax year and the ties you keep. Your residence history now decides your inheritance tax position, and your executors may one day need to prove it.
• Plan before you move, not after. Once you have left, some options are harder to use. Gifts, the timing of a business sale or succession, and the structure of a property portfolio are all better considered while you are still here.
• Count the tail. Work out your own number of UK-resident years and the tax year your tail ends. Write it down.
• Remember UK assets stay in. Rental property and UK company shares remain within UK inheritance tax wherever you live, so Business Relief and the reliefs on your UK estate still matter.
• Review your Will before you go. Make sure it covers your worldwide estate and, where you will own European property, carries an express Brussels IV choice of law.

In short

Moving abroad is a lifestyle decision, not an inheritance tax plan. For someone who has spent their life in the UK, the tax follows them for ten years, and their UK assets never leave the net at all. Knowing that before you go is far better than your family discovering it afterwards.

If you are thinking about retiring abroad — or you came to the UK from elsewhere and want to know where the new rules leave you — book a Discovery Call. It is 30 minutes, the fee is £30, and it is credited against our fees if you go on to instruct us.