Do UK inheritance tax rules still apply if I live in the UAE?

From April 2025, UK inheritance tax liability is based on long-term UK residency rather than domicile. If you have not been a UK resident for at least 10 of the last 20 years, your overseas assets are generally outside the UK IHT net, but UK-based assets may still be taxable.

What is the UK inheritance tax residency test?

The new UK IHT rules look at whether an individual was a long-term UK resident, defined as being UK resident for 10 or more of the previous 20 tax years. Those who meet this test may still be subject to UK IHT on worldwide assets for a tail period after leaving the UK.

Are UK pensions subject to inheritance tax for UAE residents?

From 2027, most UK pensions will fall within the scope of UK inheritance tax, even for non-residents. Some expatriates consider transferring pensions overseas or withdrawing funds under an NT tax code, but suitability depends on individual circumstances.

How can UAE residents reduce exposure to UK inheritance tax?

Common strategies include reviewing UK-based assets, restructuring investments offshore, considering life insurance to cover potential IHT liabilities, and obtaining professional advice tailored to cross-border tax and estate planning rules.

UK IHT Changes for Expats in the UAE

New UK Inheritance Tax Laws for 2025

The UK Government has implemented a sweeping overhaul of inheritance tax (IHT) rules from April 2025, shifting from a 'domicile' to a 'residence-based' system. This dramatic change brings welcome clarity and notable advantages for expatriates and their families.

Background: The Old Domicile Trap

Previously, UK IHT liability was determined by your domicile of origin. This meant that most people born in the UK (or to a British father) remained exposed to UK inheritance tax on their worldwide assets—regardless of how long they’d lived abroad.
Even famous Britons like Richard Burton, despite living overseas for years, were caught by these rules simply by expressing a desire to be laid to rest in the UK, allowing HMRC to claim IHT on their worldwide estate.

Many expat families assumed non-UK residency meant exemption from UK IHT. In reality, the "domicile of origin" rule meant HMRC could still claim tax on worldwide assets—even decades after leaving the UK.

The 2025 Reform: From Domicile to Residency

From April 2025, your liability for UK IHT depends on long-term UK residency status rather than domicile. In simple terms:

If you have not been a UK resident for at least 10 out of the last 20 years before your death, your worldwide estate will not be subject to UK IHT.
If you were a long-term resident (10+/20 years) or die within the “IHT tail” period after leaving, your worldwide assets remain taxable for a set time, from 3 up to 10 years depending on your residency history.
UK-based assets (property, investments, ISAs, UK bank accounts, and—starting in 2027—UK pensions) remain taxable above the £325,000 nil rate band (unless left to a spouse or civil partner).

Key Point: Non-UK residents (10+ out of 20 years abroad) lose IHT liability on overseas assets, but UK assets remain exposed unless proactive measures are taken.

What Should Expats Do?

Review UK holdings: Consider liquidating UK-based investments or property, and transferring proceeds to overseas structures outside the UK tax net. Beware of potential UK capital gains tax for non-residents.
Plan for UK assets: If full liability can't be avoided, fund your potential IHT bill with suitable life insurance for your heirs.
UK pensions from 2027: UK pensions will fall within IHT for non-residents. One route may be to transfer out (bearing in mind the 25% overseas transfer charge) or, if permitted, cash out under the “NT” (nil tax) code for non-UK residents.
Obtain the NT tax code: As a non-resident, claiming the “NT” code from HMRC may allow you to withdraw pension funds with minimal UK tax and move them outside IHT reach.

Tip: Deciding whether to keep or collapse a UK pension is complex and shaped by tax, liquidity, and your retirement/legacy objectives. Seek professional guidance.

Get Expert Advice

With major shifts in tax law and the intricacies of residency tests, individual circumstances will affect outcomes. Careful analysis is vital to safeguard family wealth and avoid costly surprises.

Need tailored advice?
Contact us today using the form or contact details below for a confidential consultation on your estate planning needs.

Patrick Macdonald ACSI – International Financial Adviser specialising in cross-border wealth planning for expatriates

About the author

This page was written and maintained by Patrick Macdonald ACSI, an international financial adviser specialising in cross-border wealth management and financial planning for expatriates living in Dubai, the UAE, and the wider GCC.

Patrick’s work focuses on long-term investment planning, retirement strategy, and international estate planning considerations for globally mobile individuals, particularly where UK, US, and multi-jurisdictional rules can affect outcomes.

The content is designed as a practical reference resource and is periodically reviewed to reflect relevant regulatory and planning considerations.

This guide is for informational purposes only and does not constitute financial advice. Always consult a qualified adviser before making pension decisions.