Last updated: 16 October 2026
The change from domicile to residence
Inheritance tax (IHT) used to depend on domicile. From 6 April 2025, that changed to a residence-based test. A person is “long-term UK resident” if they have been UK resident for at least 10 of the previous 20 tax years. Long-term residents are liable to IHT on their worldwide assets. Others are liable only on UK assets.
Transfers between spouses
In most cases, gifts and legacies between spouses or civil partners are completely free of IHT. The exception is when the person giving is long-term UK resident but the recipient spouse is not. Then the spouse exemption is capped at £325,000, in addition to the giver’s own nil rate band.
Key figures for 2026/27
| Item | Amount |
| Nil rate band | £325,000, frozen until April 2031 |
| Residence nil rate band | £175,000, tapered for estates over £2 million |
| Spouse exemption cap where recipient not long-term resident | £325,000 |
| IHT rate | 40% (36% if 10% or more left to charity) |
The election
A spouse who is not long-term resident can elect to be treated as long-term UK resident for IHT. The full spouse exemption then applies. The downside is that their own worldwide assets come into the UK IHT net. The election can be made in lifetime or within two years of the death, and it ends if they later become non-resident for long enough.
Worked example
Daniel has lived in the UK all his life and is long-term resident. His wife, Ana, moved to the UK five years ago and is not. Daniel dies leaving his £1.2 million estate to Ana. Without an election, the exempt amount is £325,000 plus his £325,000 nil rate band, leaving £550,000 taxable at 40%: £220,000. If Ana elects to be treated as long-term resident, the whole estate passes free of IHT. She would need to consider her own overseas assets first.
Leaving the UK
Long-term residents who leave remain within the IHT net for a “tail” period. For someone resident for 10 to 13 years, it is three years. It increases by one year for each extra year of residence, up to 10 years for those resident 20 years or more.
Planning points
- Check the residence history of both spouses.
- Consider whether an election makes sense, comparing the IHT saved with the exposure on overseas assets.
- Lifetime gifts and trusts may help.
- Review wills, especially for couples with assets in more than one country.
Lifetime gifts between spouses
The cap also applies to lifetime gifts. If a long-term resident gives more than £325,000 to a spouse who is not long-term resident, the excess is a potentially exempt transfer. It falls out of charge if the giver survives seven years. Keep records of gifts so the cap can be tracked.
Frequently asked questions
Does domicile still matter?
Mostly not for IHT after April 2025, though transitional rules and double tax treaties may still refer to it.
Can a UK-born person be non long-term resident?
Yes, if they have lived abroad for more than 10 of the last 20 years.
Is the cap per gift?
It is a cumulative lifetime and death limit.
Is the residence nil rate band available?
Yes, if a home passes to direct descendants.
Related: IHT for returning expats, offshore investments and IHT and foreign inheritances.
Talk to Accotax
Want this handled for you? Our team at Accotax can help with inheritance tax and residence. See our inheritance tax planning service, or contact us for a free, no-obligation quote.
This page is general guidance based on HMRC rules for the 2026/27 tax year, checked against gov.uk on 16 October 2026. It is not personal advice, so speak to an accountant about your own situation.
