UK Inheritance Tax Reforms: What Expats in UAE Must Know in 2026

UK Inheritance Tax Reforms: What UAE Expats Must Know in 2025

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UK IHT changes impact UAE expats' estate strategies.

From 6 April 2025, HMRC replaced domicile with a long-term UK resident test to determine IHT liability on non-UK assets.
British expats in the UAE who have been UK tax resident for ten or more of the past twenty years may face 40% IHT on their worldwide estate.
Tail rules mean former UK residents can remain liable for UK IHT on worldwide assets for up to ten years after relocating abroad.
The UK-UAE Double Taxation Agreement does not cover inheritance tax, so treaty relief cannot eliminate IHT exposure for long-term residents in the UAE.
Trust structures built on excluded property rules must be reviewed, as excluded property status now depends on the settlor's long-term residence status.
Estate plans based on non-domiciled status may no longer be effective, and coordinated UK and UAE wills are increasingly essential.

How HMRC's Long-Term Residence Test Reshapes UK Tax Exposure

The UK's move to a residence-based inheritance tax system from 6 April 2025 is one of the most significant reforms to cross-border estate planning in decades. HMRC now applies a long-term UK resident (LTR) test to determine whether non-UK assets fall within the inheritance tax (IHT) net. This replaces the domicile-based framework that had governed this area for many years, with direct and immediate consequences for British nationals in the UAE holding worldwide assets.

The UK-UAE Double Taxation Agreement, which covers income tax and capital gains tax, does not extend to inheritance tax - so treaty relief cannot shield UAE-based expats from IHT exposure on worldwide assets. The new Foreign Income and Gains (FIG) regime, which reshapes how foreign income is taxed for UK residents, adds a further layer of complexity for internationally mobile professionals. For those with assets across the UAE and offshore centres, estate plans registered through services such as the DIFC Wills Service may also need reviewing in light of the new rules.

What Changed on 6 April 2025

Until April 2025, UK IHT liability on non-UK assets depended on whether an individual was UK-domiciled or "deemed domiciled" - a concept rooted in common law and long-term intentions. HMRC replaced this with a residence-based test from the 2025/26 tax year, abolishing domicile as the main IHT connector except in limited transitional cases. KPMG has described these as "fundamental changes to the scope of inheritance tax."

Under the new rules, a person qualifies as a long-term UK resident if they have been UK tax resident for at least ten of the previous twenty tax years. This ten-out-of-twenty-year test is applied at the point of a chargeable event - such as death or a lifetime transfer. During the first nine years of UK residence, individuals remain within IHT scope only on UK-situated assets. From the tenth year onward, worldwide assets can fall within the charge.

The 40% Charge on Worldwide Assets

For expats who meet the long-term residence test, the standard 40% IHT rate applies to their worldwide estate above the nil-rate band of £325,000 per individual. This means UAE bank accounts, offshore investment portfolios, and international property can all fall within the UK IHT charge on death. The previous "excluded property" protection, which shielded non-UK assets for non-UK domiciled individuals, no longer applies once the long-term residence threshold is crossed.

UK-situated assets - such as real estate - remain within IHT scope regardless of an individual's residence status. A residence nil-rate band provides additional relief for qualifying UK residential property passed to direct descendants, though this is primarily relevant where UK property forms part of the estate.

The Tail Period - Remaining in Scope After Leaving

Relocating to the UAE does not immediately end UK IHT liability. Under the new tail rules, former UK residents remain within the IHT net for a period ranging from three to ten years after departure, depending on prior UK residence history. A British national who spent ten or more of the past 20 years in the UK and then moves to Dubai may remain liable for UK IHT on worldwide assets for up to a decade after leaving.

International tax firm Ibiss and Co notes that the UK-UAE Double Taxation Agreement cannot eliminate this liability, as the treaty covers only income tax and capital gains tax. No treaty relief is therefore available to offset UK IHT on worldwide assets during a tail period. This applies both to those who departed after 6 April 2025 and to those who remain within a tail under the pre-2025 rules.

Transitional Rules and Evidencing Non-UK Domicile

Although domicile is no longer the primary IHT connecting factor, it retains relevance for specific transitional cases. Non-UK domiciled individuals who were non-resident in 2025/26 and do not return to the UK may qualify for a shorter three-year tail. However, this requires evidencing common law non-UK domicile as at 30 October 2024, which can be complex and may demand contemporaneous records. HMRC guidance on long-term UK residents confirms both the new framework and these transitional arrangements.

The deemed domicile rules previously treated individuals as UK-domiciled for IHT after 15 years of UK residence. These rules now apply only for the period up to 5 April 2025 and for specific transitional calculations. Estate plans based on the old deemed domicile thresholds must therefore be reassessed against the new framework.

Impact on Trust Structures

The reforms significantly affect trust structures used in international estate planning. Before April 2025, non-UK assets settled into trusts by non-UK domiciled settlors could qualify as "excluded property," keeping them outside most IHT charges. From 6 April 2025, excluded property status depends on whether the settlor qualifies as a long-term UK resident at a chargeable event - such as a ten-year anniversary charge or an exit charge.

Where a settlor ceases to be a long-term UK resident and trust assets thereby become excluded property, this change in status can itself trigger an exit charge. Tax Adviser Magazine notes that such exit charges are capped at 6%, reduced proportionally based on timing. Trust structures and their IHT exposure must therefore be reviewed alongside the settlor's personal residence history and timing of any change in status.

Planning Levers for UAE-Based Expats

For British expats in the UAE, estate plans built on non-domiciled status may no longer be effective. Advisers recommend reviewing UK wills, UAE-registered wills - for example, through the DIFC Wills Service or Abu Dhabi Judicial Department - and any offshore trust or corporate structures. The British Chamber of Commerce Dubai notes that expats with fewer than ten years of UK residence may find their non-UK IHT exposure reduced from April 2025. However, those who meet the long-term residence test are now newly within scope on worldwide assets.

Key planning tools remain available to those within scope. Advisers highlight the following levers:

Core IHT Planning Options

Nil-rate band and spousal exemptions to reduce the taxable estate on death.
Potentially exempt transfers (PETs) - gifts made more than seven years before death that fall outside IHT.
Tax-efficient structuring of pensions, life assurance policies, and offshore investment holdings.
Review of holding structures to assess whether assets are best held directly, via offshore companies, or through regulated platforms.

Coordinating UK and UAE Estate Structures

Wealth management specialists in Dubai recommend that British expats map their personal UK residence history against the new rules as a priority. This involves calculating whether the long-term residence test is met, estimating the length of any applicable tail period, and modelling potential IHT exposure on worldwide assets. Coordination between UK and UAE legal and tax advisers is increasingly important as both regimes operate in parallel.

In the UAE, where no local inheritance tax applies, local courts may apply Sharia-based succession principles to UAE-situated assets where no valid local will is in place. Titan Wealth International, a UAE-focused advisory firm, notes that UK expats remain subject to UK IHT based on their UK residence history, even in a jurisdiction without local inheritance taxes. As advisers from GSB Global emphasise, the interaction of UK and UAE rules means that even long-standing offshore structures may need structural revision under the new regime.