For many Australians, moving to the UK for career opportunities, family, or a change of scenery, can be a rewarding and enriching experience. But while you might be enjoying the best of British culture it is important to remember that your time in the UK will directly impact whether you are subject to UK’s inheritance tax (IHT) rules.
Recent changes to the UK’s inheritance laws have overturned the concept of taxing individuals based on their “domicile” and made it more important than ever to understand the long-term tax consequences of estate planning.
For anyone living in the UK on a long-term basis it is important to understand that even if you’re planning to return home to Australia, you may still be subject to IHT.
What Is UK Inheritance Tax (IHT)?
IHT is a tax that is imposed on the estate of a deceased individual.
As of June 2025 the standard IHT rate is 40% on the value of an estate above the tax-free threshold, which is currently £325,000. There are a range of allowances and reliefs that may apply to reduce this tax. For example, a reduced IHT rate applies when you leave at least 10% of the net value of your assets to charity in your will.
Historical Application Of IHT
IHT is a tax that is imposed on the estate of a deceased individual.
As of June 2025 the standard IHT rate is 40% on the value of an estate above the tax-free threshold, which is currently £325,000. There are a range of allowances and reliefs that may apply to reduce this tax. For example, a reduced IHT rate applies when you leave at least 10% of the net value of your assets to charity in your will.
New Changes To UK Inheritance Law
In 2025, the UK government introduced big changes to the residency and “deemed domicile” rules. These new rules focus on tax residency, and give clear, fixed timeframes that outline when an individual is liable for IHT.
When You Are Subject To The UK’s Inheritance Tax:
Under the new rules both individuals living in the UK, and individuals who have previously lived in the UK on a long-term basis, may be subject to UK IHT:
- An individual is subject to IHT after they have lived in the UK for a period of 10 years.
- Additionally, once an individual becomes liable to IHT they will continue to be subject to UK IHT for up to 10 years after leaving the UK.
Scenario 1: Staying In The UK Long-Term
Let’s say you’re an Australian who moved to London in 2015 for work, bought a home, and are planning to retire in the UK.
- By 2025, you will now be subject to UK IHT, regardless of whether you still consider Australia your “real” home.
- If you pass away after this time, your entire worldwide estate, including your Australian property, superannuation, and other assets, may be subject to 40% UK inheritance tax above the nil-rate band.
This IHT needs to be factored into estate planning, since it could mean a significant tax cost for your heirs, especially if your estate includes illiquid assets such as property.
Scenario 2: Moving Back To Australia
Now consider someone who lived in the UK for 12 years who then returns to Australia in 2026 before passing away 4 years later in 2030. Individuals who are “based abroad” are only liable for IHT on any UK assets.
- An individual is only considered to be based abroad if they have lived in the UK for less than 10 years in the past 20 years. This means you can still be subject to UK tax laws for 10 years after returning to Australia on a permanent basis.
- This means that if you die within that 10-year window, your worldwide assets could still fall within the UK IHT net—even if you have fully re-established life in Australia.
This is a significant shift that affects long-term Australians who think they’ve “cut ties” with the UK.
What About Australian Inheritance Tax?
Australia does not currently impose inheritance tax.
However, capital gains tax (CGT) may apply when assets are transferred upon death.
The UK-Australia Double Taxation Agreement (DTA) doesn’t eliminate IHT. It merely prevents the same assets from being taxed twice, usually using a tax credit system that ensures an individual pays no more tax than they would pay if only paying tax in the higher taxing country.
Key Takeaways For Australians
Know Your Residency Status
Even if you think of Australia as your “true” home, the UK may treat you as a resident for tax purposes based on the length of time that you live in the UK. Furthermore, you may continue to be subject to certain UK taxes, such as IHT, for up to ten years after leaving the UK. Understanding the timeframes for when UK taxes apply is crucial for inheritance planning.
Plan Early—Before You Reach 10 Years In The UK
Consider structuring your estate and trusts before hitting that 10 year timeframe. If you are planning to return to Australia, factor in the impact of taxation requirements when making timing decisions. Early action can offer opportunities to mitigate tax costs or shield certain assets from UK IHT.
Review Your Will And Estate Plan
Having separate wills for UK and Australian assets can help ensure clarity and tax efficiency. Make plans and review them as and when timing issues create significant changes to your tax status. Be mindful of how local laws interact across jurisdictions.
Seek Specialist Cross-Border Advice
Navigating the intersection of UK IHT and Australian tax law requires tailored, up-to-date guidance. Mistakes or inaction can be very costly.
Living between two tax systems can be complicated. But with the right advice, and a proactive approach, you can reduce the cost of tax bills, making sure your legacy stays where it belongs: supporting your family.
