Excluded Property Trusts After the Non-Dom IHT Reform (2026/27)
What excluded property trusts are, why the 2025 shift from domicile to a residence-based Inheritance Tax test changed how they work, and what non-doms with existing trusts should check.
Why Excluded Property Trusts Existed
Under the old rules, UK Inheritance Tax generally applied to a person's worldwide assets only once they were UK-domiciled (or deemed domiciled after long UK residence). Non-UK-domiciled individuals could settle non-UK assets into an offshore trust, and because those assets counted as "excluded property," they historically sat outside the scope of UK IHT — including, in many cases, after the settlor later became deemed domiciled, provided the trust was set up while they were still genuinely non-domiciled.
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Check an Inheritance Tax positionWhat Changed From April 2025
The 2025 reform replaced the domicile-based test for Inheritance Tax with a residence-based test built around long-term UK residence. This is a structural change, not a tweak: instead of asking where someone is domiciled, the test now looks at how long they have been UK tax resident. For excluded property trusts, that shifts the key question from "was the settlor UK-domiciled when the trust was set up" toward "what is the settlor's UK residence history, both at settlement and afterwards."
What This Means in Practice
- Trusts settled by people who were genuinely non-UK resident for a sustained period can still often hold excluded property.
- Long-term UK residents who settled trusts under the old domicile-based rules need their position reassessed against the new residence test, with transitional provisions to check carefully.
- The changes interact with, but are legally distinct from, the FIG (Foreign Income and Gains) regime that replaced the remittance basis for Income Tax and Capital Gains Tax from the same date.
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Frequently asked questions
What is an excluded property trust?
It's an offshore trust holding non-UK assets, historically set up by non-UK-domiciled individuals so that those assets sat outside the scope of UK Inheritance Tax, because the trust's assets were treated as 'excluded property' rather than part of a UK IHT estate.
Has the excluded property trust rule changed?
Yes. From 6 April 2025, the UK moved from a domicile-based test to a residence-based test (long-term UK residence) for Inheritance Tax purposes, which changed how excluded property status is assessed for trusts, particularly ones settled by people who have since become long-term UK residents.
Does an excluded property trust still protect assets from IHT after the reform?
It depends on the settlor's residence history. Trusts settled while someone was genuinely non-UK resident under the old domicile rules can still hold excluded property in many cases, but the protection is no longer automatically tied to domicile status the way it used to be — the settlor's ongoing UK residence position now matters.
Who is affected by this change?
Primarily long-term UK residents who previously relied on non-domiciled status to keep offshore trust assets outside UK IHT, including many who used the former remittance basis and have now moved into the new residence-based regime introduced alongside the FIG (Foreign Income and Gains) regime.
What should someone with an existing excluded property trust do?
Get a formal review from a private client solicitor or tax adviser who specialises in cross-border trusts. The rules changed on a fixed date with transitional provisions, and getting the assessment wrong on a large trust can be extremely costly.
Is this the same reform as the FIG regime for income and gains?
They are part of the same broader 2025 reform replacing the old domicile-based non-dom regime, but the FIG regime governs Income Tax and Capital Gains Tax on foreign income and gains, while the excluded property trust rules specifically govern Inheritance Tax treatment of trust assets — they need to be considered together, not interchangeably.
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