From a financial planning perspective, the UK Budget statement on 30 October 2024 was one of the most impactful for many years.

In her Budget speech, chancellor Rachel Reeves announced two major changes that will affect Inheritance Tax (IHT) planning:

  1. The current “non-dom” system is being replaced by a new arrangement based on residency status.
  1. Your UK-based pension funds are set to be included in consideration for Inheritance Tax from April 2027.

These changes are likely to affect cross-border individuals and families, and British expats.

So, in this article, read more about these changes and how they could affect you. Most importantly, find out why they make it imperative for you to review your financial planning arrangements to ensure you’re ready for these adjustments when they occur.

Change 1 – Residency to replace domicile for Inheritance Tax purposes

The previous regime based on domicile ends in April 2025 and has been replaced by a new system based on residence.

The old domicile regime was notoriously complicated, and could easily catch out the unwary or unadvised, so this change provides some welcome clarity and simplification.

Furthermore, this change could actually be welcome news for UK expats. Under the old regime, you would have remained liable for IHT on your worldwide assets unless you could satisfy HMRC that you remained UK-domiciled.

Your Inheritance Tax liability will depend on how long you live in the UK

Your UK assets will remain liable for IHT regardless of your residence status.

The new residence-based system now in force will result in IHT being charged on your worldwide assets if you have been UK resident in 10 out of the last 20 tax years. If this is the case, you will be deemed a “long-term resident”.

Your offshore assets will remain liable for IHT for up to 10 years following your departure from the UK. The actual period that they will remain liable, known as your “IHT tail”, will depend on how long you were resident in the UK.

For example, if you have been a UK resident for 13 years, your tail after leaving the UK will last for three tax years.

As a result of this, you will need to be aware that during the IHT tail period, your worldwide assets will remain subject to UK IHT. After your tail ends, only your UK assets will be liable.

This change highlights the importance of advance planning

The previous domicle rules had effectively been in place for over 200 years, so the new regime is likely to take some getting used to.

Given that, it’s important to be proactive with your IHT planning, particularly if you are internationally mobile, or an expat in the US.

Early planning can help you ascertain how you may be affected by this regime change. Planning ahead could help you mitigate the effect of these changes, potentially assisting your intended beneficiaries to avoid a substantial IHT bill.

This also demonstrates the importance of keeping accurate records. This applies both in terms of the time you spend in the UK, as well as having a clear idea of how your assets are split between different financial jurisdictions.

Additionally, it highlights the importance of seeking professional advice rather than adopting a DIY approach to your IHT planning. Mistakes can prove costly, and will often be irrevocable, so it makes sense to ensure you’re avoiding any unnecessary pitfalls (or “landmines”) and making the most of the opportunities available.

Change 2 – Your UK pensions will be liable for Inheritance Tax from April 2027

As of 2025, your accrued UK pension funds do not currently form part of your estate for IHT purposes.

This is a significant tax benefit you may well have taken advantage of as part of your estate planning arrangements by making additional contributions to your retirement fund.

In 2011, the obligation to buy an annuity with your pension fund when you reached age 75 was abolished. Since then, pensions had provided you with a potentially effective option to help mitigate your IHT liability.

This is because the trust status of most pension schemes means that they sit outside the value of your estate, so that on your death, they are not liable for IHT.

This benefit was accentuated in 2023 when the Lifetime Allowance charge was abolished, which meant that there was effectively no limit to the amount you could tax-efficiently accrue in your UK pension fund.

From April 2027, this will no longer be the case.

Your beneficiaries could face a substantial tax charge

While details of the changes have not yet been finalised, our understanding is that, subject to the value of your other UK assets such as property and investments, you could find that your entire UK pension fund will become liable for IHT, payable at 40%, on your death.

Furthermore, if your beneficiaries draw income from your fund, they may also become liable for Income Tax at their marginal rate.

This will mean that if they are a higher-rate taxpayer, they could face two tax charges of 40% on the same sum of money.

You may want to review your estate planning arrangements

If you have retained UK pension assets, you may well be looking to review your retirement income and estate planning arrangements in light of this change.

On death, your pension fund will pass to your spouse free from IHT if you pre-decease them. While that will only defer the liability, it might provide some breathing space in order to implement mitigation measures.

Rather than seeing your pension fund as a means to pass assets tax-efficiently to your beneficiaries, you may now prefer to use your pension fund for its intended purpose – to provide you, and your spouse or partner, with an income in retirement.

Again, by starting your planning now, you might be able to develop a new strategy that will minimise your IHT liability, while still being able to access your pension fund effectively.

You could also be able to utilise other IHT mitigation measures, such as gifting assets and making gifts out of your income.

As with your residency status, you may also need to consider the comparative legacy taxation implications between the US and the UK, and transition your assets effectively to minimise the liability on your beneficiaries.

Watch our podcast about these issues

Earlier this year, we devoted one of our We’re the Brits in America podcast episodes to the changes made in the Budget that you have read about in this article.

We spoke to Aidan Grant, an attorney specialising in tax and trust estate planning at the law firm Collier Bristow.

It covers much of the ground detailed here, as well as giving you information about some possible financial opportunities arising from the changes.

Get in touch

If you are a British expat living in the US, it’s important for you to understand how these changes could affect your legacy planning.

If you would like to find out more, and discuss how we can help you with your financial arrangements, please get in touch to arrange an exploratory Zoom call to talk through your plans.

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