There has been much confusion concerning the UK’s new residence-based system for inheritance tax (IHT). The concept of “domicile” will no longer determine IHT liability on worldwide assets. Instead, liability will depend on an individual’s UK residency status, specifically whether they are a “long-term resident” (LTR), defined as someone who has been UK tax resident for at least 10 out of the previous 20 tax years. For British nationals considering a move to France, or those already living here, understanding how this reform applies, especially in light of the UK–France double tax treaty, is essential!
Under the “old” UK system, inheritance tax liability was based largely on the concept of domicile. A person who was UK-domiciled was liable to UK IHT on their worldwide assets, regardless of where they resided.
Since 6th of April 2025, the UK has moved from this domicile-based system to a residence-based model, which is actually very similar to the French model. This means that an individual’s liability to IHT will be based not on where they are “domiciled”, but on their tax residency history.
Under the new rules:
- A person will become liable for IHT on worldwide assets if they have been UK tax resident for at least 10 out of the last 20 tax years. This is known as becoming a Long-Term Resident (LTR).
- Upon leaving the UK, individuals will continue to be liable for UK IHT on their worldwide assets for a “tail period” that ranges from 3 to 10 years, depending on how long they were resident before leaving.
- Those who do not meet the LTR test at the time of death will only be liable to UK IHT on UK-situated assets, such as property, or a UK bank account.
How Will This Affect Those Moving to France?
For many British people planning a move to France, especially retirees, this reform introduces new considerations. A typical scenario might look like this:
Suppose someone has lived in the UK for 20 years and then moves to France in mid-2025. If we ignore the UK-France succession treaty for a moment, under the new rules:
- They will be classed as an LTR, since they have been a UK tax resident for more than 10 of the last 20 years.
- Upon moving to France, their worldwide assets remain subject to UK IHT for a tail period of 10 years
- If they pass away during that 10-year window, their global estate may face IHT exposure, even though they no longer live in the UK.
The Safety Net: The UK–France Double Tax Treaty
This is where the UK–France inheritance tax treaty plays a vital role.
The UK and France have a double taxation treaty on estates and inheritances, signed in 1963, which remains relevant post-Brexit and under the new UK rules. It works as follows:
- If someone is considered fiscally resident in France at the time of death (meaning France is their permanent home and center of life) then France has the primary right to tax their worldwide assets.
- Immovable property is taxed in the country where it is located. Thus, the UK may still impose IHT on UK-based property.
In reality, the UK reform to move to a residency-based system changes absolutely nothing at all for French residents or those moving to France, as the UK-France double tax treaty for inheritance has long been in place and overrides domestic law. Indeed, such a treaty was put in place because the UK system of taxing the estate of the deceased and the French system of taxing the individual beneficiaries are completely incompatible. Without the inheritance tax treaty, it would present near impossibly complicated situations!
Returning to the UK
Finally, it is worth noting that the new rules may present an opportunity for those returning to the UK after a long absence. For example, someone who left the UK over 20 years ago and moves back after April 2025 would not immediately become liable for UK IHT on offshore investments; an offshore investment is an investment you have in a country you do not reside in. If you return to the UK after being a non-UK resident for 20 consecutive years, your offshore investments, for example, a bank account in France or an assurance vie in Luxembourg, will initially be exempt from UK inheritance tax. They will remain exempt until you have been a UK resident for 10 tax years, at which point you will become a long-term resident and liable for IHT on your worldwide assets.