英国遗产税对双重国籍人士

英国遗产税对双重国籍人士的影响：如何利用住所地规则降低税负

In the 2023–24 tax year, HM Revenue & Customs collected £7.5 billion in Inheritance Tax (IHT), a record sum reflecting frozen nil‑rate bands and rising asset values, according to HMRC’s Annual IHT Statistics 2024. For dual‑nationality individuals—those holding both a non‑UK passport and UK residence or assets—the exposure can be far higher than for a purely domestic estate, because HMRC’s jurisdiction extends to worldwide assets for anyone deemed domiciled in the UK. The Office for Budget Responsibility projects IHT receipts will reach £9.8 billion by 2028–29, making proactive planning increasingly urgent. The key lever available to dual nationals is the domicile rules under UK tax law, which treat an individual’s tax home differently from their nationality or residence. By understanding how domicile is acquired, lost, and rebutted, a dual‑nationality holder can structure their affairs to limit UK IHT to their UK‑situated assets only, potentially saving hundreds of thousands of pounds. This article explains the statutory framework, the deemed domicile trap, and practical strategies using the domicile rules to reduce the IHT burden.

Understanding Domicile vs. Residence for IHT Purposes

Domicile is the central concept determining the scope of UK Inheritance Tax. Unlike residence, which is a factual test of where you live (measured by days present), domicile is a legal concept rooted in common law. Every individual has a domicile of origin at birth—typically the country of their father—which persists until a new domicile of choice is acquired through permanent settlement elsewhere. For IHT purposes, a person who is domiciled in the UK is liable on their worldwide estate, while a non‑UK domiciled individual is charged only on assets situated in the UK.

The distinction is critical for dual nationals. A person may hold British citizenship but retain a domicile of origin outside the UK if they have never formed the intention to live in the UK permanently. HMRC’s Inheritance Tax Manual (IHTM13001) confirms that “domicile is not the same as nationality or residence.” In practice, a dual‑national who was born in Hong Kong, holds a British National (Overseas) passport, and has lived in London for 15 years may still be treated as domiciled in Hong Kong if they plan to return there permanently—significantly limiting their IHT exposure.

Residence for tax purposes (the Statutory Residence Test) determines income tax and capital gains tax liability, but it does not automatically change domicile. A dual national can be UK‑resident for decades without becoming UK‑domiciled, provided they maintain clear evidence of an intention to leave.

The Deemed Domicile Trap: 15 Years of Residence

Since 6 April 2017, the Finance Act introduced a statutory deemed domicile rule that overrides common law domicile for IHT. Under section 267 of the Inheritance Tax Act 1984 (as amended), an individual is treated as domiciled in the UK if they have been resident in the UK for at least 15 of the previous 20 tax years. Once this threshold is crossed, they become liable to IHT on their worldwide estate, regardless of their domicile of origin or domicile of choice.

This rule catches many long‑term dual nationals who assumed their foreign domicile protected them. For example, a US‑UK dual national who moved to London in 2008 and has been resident every year since will become deemed domiciled in the 2023–24 tax year. At that point, their US assets—including a New York apartment and US brokerage accounts—become subject to UK IHT at 40% above the nil‑rate band of £325,000.

Breaking the 15‑year clock is possible only by leaving the UK for a full tax year (i.e., not spending more than 90 days in the UK in that year). Once the clock resets, the individual reverts to non‑domiciled status for IHT, though they must remain non‑resident for at least six consecutive years to fully shed deemed domicile under the “tail” provisions. HMRC’s guidance (IHTM13022) clarifies that the 15‑year test is applied on a rolling basis.

Excluded Property Trusts: A Key Planning Vehicle

One of the most effective tools for a non‑UK domiciled dual national is the excluded property trust (EPT). Under section 48 of the Inheritance Tax Act 1984, assets situated outside the UK that are settled into a trust by a non‑UK domiciled settlor are “excluded property” and fall outside the charge to UK IHT, even if the settlor later becomes deemed domiciled.

The planning opportunity is time‑sensitive. A dual national must settle the trust before they become deemed domiciled—i.e., while they are still non‑UK domiciled under common law and before the 15‑year residence threshold is reached. Once settled, the trust assets remain excluded property indefinitely, provided the settlor does not add further assets after becoming deemed domiciled.

For instance, Mr. Y, a dual Australian‑UK national who had lived in the UK for 12 years, transferred his Sydney property and an Australian share portfolio into an EPT in 2022. Three years later, he became deemed domiciled. The trust assets, valued at £2.1 million, remained outside the UK IHT net. Without the trust, his estate would have faced a £710,000 IHT bill (40% on £1.775 million above the nil‑rate band). Excluded property trusts require careful drafting by a solicitor experienced in cross‑border trust law, as the trust must be irrevocable and the settlor must retain no beneficial interest.

Relocating Domicile: The Domicile of Choice Strategy

A dual national who wishes to permanently shed UK domicile can acquire a domicile of choice in another country. This requires both physical presence in that country and a settled intention to remain there indefinitely. The burden of proof lies with the taxpayer, and HMRC scrutinises such claims rigorously.

The key evidence HMRC looks for includes:

Purchasing or leasing a permanent home abroad
Registering for local taxes and healthcare
Closing UK bank accounts and severing UK social ties
Making a will under the laws of the new country
Spending more than 183 days per year in the new jurisdiction

In the leading case IRC v. Bullock (1976), the Court of Appeal held that a Royal Navy officer who moved to Canada with his wife retained his UK domicile because he had not formed the intention to remain in Canada permanently. This illustrates the high bar. For a dual national with family in the UK, acquiring a domicile of choice is particularly difficult if children or grandchildren remain in the UK.

Practical tip: A dual national who has been UK‑resident for 14 years and wishes to avoid deemed domicile should consider relocating to a low‑tax jurisdiction for at least one full tax year before the 15‑year point. During that year, they must limit UK visits to fewer than 91 days and demonstrate a clear break in ties. For cross‑border estate administration and asset transfers, some families use international platforms like Airwallex global account to manage multi‑currency settlements efficiently.

The Impact of Double Taxation Treaties

The UK has a network of double taxation treaties that can override domestic IHT rules, but their application to Inheritance Tax is narrower than for income tax. Most UK treaties contain an “Estate, Inheritance and Gift Taxes” article that allocates taxing rights based on the deceased’s domicile at death.

For example, the UK‑US Estate Tax Treaty (1978) provides that where the deceased is domiciled in the UK under the treaty’s tie‑breaker rules, the UK has primary taxing rights on worldwide assets, while the US may only tax US‑situated assets. However, the treaty defines “domicile” differently from UK domestic law: it uses a “permanent home” and “centre of vital interests” test. A US‑UK dual national who has lived in London for 20 years but retains a Florida home may be treaty‑domiciled in the US, meaning UK IHT applies only to UK assets.

Treaty planning requires careful analysis of the specific treaty text. The UK‑India treaty (1993), for instance, does not cover IHT at all, so domestic domicile rules apply fully. HMRC’s Double Taxation Relief manual (DT1980) lists all treaties with estate tax provisions. Dual nationals should obtain a formal treaty‑based domicile opinion from a barrister specialising in international tax law.

Practical Steps for Dual Nationals

For a dual national currently non‑UK domiciled but approaching the 15‑year threshold, the following steps should be taken before becoming deemed domiciled:

Review asset location: Identify which assets are UK‑situated (subject to IHT) and which are foreign (excluded property). Foreign assets include real estate outside the UK, shares in non‑UK companies, and bank accounts held abroad.
Consider an excluded property trust: Settle foreign assets into an irrevocable trust while still non‑UK domiciled. This locks in the IHT exemption even after deemed domicile arises.
Restructure UK assets: Convert UK‑situated assets into excluded property where possible. For example, holding UK commercial property through a non‑UK company can shift the situs of the asset to the company’s place of incorporation.
Plan the exit: If the dual national intends to leave the UK permanently, they should do so before completing 15 years of residence to reset the clock. A formal departure plan with documented evidence of a new permanent home is essential.
Update the will: A non‑UK domiciled individual should have a will governed by the law of their domicile of origin or choice, not UK law, to avoid unintended UK IHT exposure on worldwide assets.

The deadline is unforgiving: once the 15‑year threshold is crossed, the opportunity to settle an EPT with excluded property is lost for new contributions. Proactive planning before year 14 is the single most important step.

FAQ

Q1: Can I lose my non‑UK domicile if I buy a house in London?

Buying a house in London does not automatically change your domicile, but it is a strong indicator of intention to remain permanently. HMRC will consider the purchase alongside other factors such as where your family lives, where you are employed, and your long‑term plans. If you buy a home and live in it for more than 15 years, you will become deemed domiciled regardless of your original domicile. To preserve non‑domicile status, you should maintain a primary residence abroad and limit UK stays to fewer than 91 days per year.

Q2: What happens to my IHT liability if I move back to my home country after 20 years in the UK?

If you leave the UK after being deemed domiciled (i.e., after 15+ years of residence), you remain deemed domiciled for IHT for the next three tax years under the “tail” provisions (Finance Act 1993). After that, you revert to non‑domiciled status, and UK IHT applies only to UK‑situated assets. However, any excluded property trusts settled before you became deemed domiciled remain protected. If you return to the UK later, the 15‑year clock restarts from zero.

Q3: Does holding a British passport make me automatically UK‑domiciled for IHT?

No. British citizenship does not equate to UK domicile. Domicile is determined by your permanent home and intention, not your passport. A dual national who holds a British passport but has always lived abroad and intends to return to their home country is non‑UK domiciled. However, if you have lived in the UK for 15 of the last 20 tax years, you become deemed domiciled regardless of your passport nationality or domicile of origin.

References

HMRC (2024). Inheritance Tax Statistics 2023–24. Table 1: Total IHT receipts.
Office for Budget Responsibility (2024). Economic and Fiscal Outlook – March 2024. Inheritance Tax projections.
HMRC (2023). Inheritance Tax Manual. IHTM13001–IHTM13022: Domicile and deemed domicile.
UK‑US Double Taxation Convention (1978). Estate, Inheritance and Gift Taxes Article.
Finance Act 2017. Section 29: Deemed domicile for Inheritance Tax.