It is unlikely that many people had heard of the phrase “non-dom” before Rishi Sunak, then chancellor of the exchequer, came under fire over his wife’s tax affairs in 2022.

Akshata Murphy, Sunak’s wife, had claimed non-dom status. That meant she did not have to pay tax to HM Revenue & Customs on her overseas income, and that her assets outside this country could have avoided inheritance tax.

The news put non-doms (non-domiciled residents) and their tax benefits into the spotlight. Since then, the rules around inheritance tax and overseas assets have been overhauled. Today, it’s less about where you are domiciled and more about your long-term tax residency. Here’s what you need to know.

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What is inheritance tax?

Inheritance tax is calculated on the value of your estate, a fancy term for everything you own.

You can usually pass on your entire estate to your spouse or civil partner tax-free, as long you are both long-term UK residents (or neither of you are). For assets left to others, the first £325,000 of your estate will be tax-free and anything above this is typically taxed at 40 per cent. The £325,000 threshold rises to £500,000 if you leave your main home to a child or grandchild, on an estate worth less than £2 million.

Married couples and those in civil partnerships can also inherit one another’s allowances, so between them they could pass on £1 million free from inheritance tax.

Do you pay inheritance tax on overseas assets?

Sometimes, yes. For most people, the test for whether overseas assets are liable to inheritance tax is primarily based on a residence test: have you been a tax resident in the UK for at least 10 of the past 20 tax years?

If the answer is yes, then you become what is known as a “long-term resident”. As a long-term resident, your worldwide assets are liable to inheritance tax. The test starts from the tax year before your death.

If you are under 20, the residence test is based on whether you have been a UK tax resident for at least 50 per cent of tax years since birth.

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Are you a UK tax resident?

If the above residence test seemed too simple to be true for tax rules, you weren’t mistaken. The process for determining whether you are a “tax resident” in the UK in any given tax year is slightly more complicated.

The outline below should give you an idea of your tax status, but it is worth speaking to a professional before making any big decisions about your finances because the rules are complex. Chris Etherington from the accountancy firm RSM said: “On the face of it, the UK’s tax residency rules may appear straightforward but there is a lot of complexity under the surface.”

The automatic tests

The first step is to see if you meet the criteria to automatically be considered an overseas resident for tax purposes, rather than a UK one. There are three key tests:

1. You were a UK resident in one or more of the three preceding tax years but spent fewer than 16 days in the UK in this tax year.
2. You were not a UK resident in any of the three preceding tax years but spent fewer than 46 days in the UK in this tax year.
3. You work full-time overseas with only limited visits to the UK. This test has its own detailed calculation.

If you meet any of these tests, then you are not considered to be a UK tax resident. If you do not, then you should see if you meet the criteria to automatically be considered a UK tax resident. Again, there are three key tests:

1. You spent at least 183 days in the UK in the tax year.
2. You have a home in the UK which is available for a period of 91 consecutive days or more, that home is used for at least 30 days in the tax year and you spend fewer than 30 days in any overseas home.
3. You work full-time in the UK for any 365-day period, part of which falls in the tax year.

If the automatic tests do not provide you with a concrete answer, you need to look at sufficient ties.

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Sufficient ties

There are five “ties” that could make you a UK tax resident.

1. The family tie applies if you have a spouse, civil partner, cohabiting partner or child who is a UK resident.
2. The accommodation tie applies if there is accommodation available in the UK for at least 91 consecutive days in the year and you spend at least one night there.
3. The work tie applies if you work in the UK for more than three hours a day for at least 40 days of the tax year.
4. The 90-day tie applies if you spent more than 90 days in the UK in at least one of the previous two tax years.
5. And the country tie applies if the UK is the country in which you have spent the greatest number of days within the tax year, and you were a UK resident for one or more of the previous three tax years.

To add extra confusion, the number of ties needed for UK tax residency depends on the number of days spent in the UK during the current tax year and your status in the previous three years.

Will you always have to pay inheritance tax on overseas assets?

If you are determined to be a long-term resident for inheritance tax purposes, you will still be liable for IHT until you have been a non-UK tax resident for between three and 10 consecutive years.

If you were a tax resident for two decades or more, then you will need to be a non-UK tax resident for 10 tax years to lose your inheritance tax liability on your overseas assets.

The length of time tapers for those who have been a UK resident for less time: it is three years for those who were UK tax residents for 10 to 13 years, with an extra year added for each individual year.

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For example, if you had been a tax resident for 15 years, then you would need to be a non-UK tax resident for five years before losing your inheritance tax liability (the standard three years, plus two years).

Joseph Adunse from the accountancy firm Moore Kingston Smith said: “The rules around inheritance tax are more complicated than they appear, but one of the quirks of the changes that came into effect from April 2025 is that Britons who have left the UK now have more certainty about when their overseas assets can escape the clutches of the UK taxman.

“Previously, there might have been huge uncertainty — even when they had left the UK for many years.”