Finance Act 2025

Section 46

Schedule 13 Inheritance tax

Part 1 Amendments to IHTA 1984 and related legislation

IHTA 1984

1 IHTA 1984 is amended as follows.

2 In section 5 (meaning of estate), for subsection (1B) substitute—

“(1B) An interest in possession falls within this subsection if—

(a) the person became beneficially entitled to it on or after 9 December 2009 by virtue of a disposition that was prevented from being a transfer of value by section 10 (no gratuitous benefit), and

(b) the person—

(i) has been a long-term UK resident at any time on or after 6 April 2025 while beneficially entitled to it, or

(ii) became beneficially entitled to it at a time before 6 April 2025 while domiciled in the United Kingdom.”

3 In section 6 (excluded property), omit subsection (3).

4 In section 8D(9), omit the definitions of “tax year” and “the tax year 2017-18”.

5 In section 13A(3), omit the definition of “tax year”.

6 In section 18 (transfers between spouses or civil partners), in subsection (2), for “domiciled in the United Kingdom” substitute “a long-term UK resident,”.

7 In section 28A, omit subsection (3).

8 (1) Section 53 (exceptions from charge under section 52) is amended as follows.

(2) In subsection (4), for “domiciled in the United Kingdom” substitute “a long-term UK resident”.

(3) After subsection (4) insert—

“(4A) Tax shall not be chargeable under section 52 above if—

(a) the settled property became comprised in the settlement before 30 October 2024,

(b) immediately before 30 October 2024, the settled property was excluded property by virtue of section 48(3) or (3A) (as it had effect at that time),

(c) the person whose interest comes to an end became beneficially entitled to the interest before 30 October 2024, and

(d) immediately before the person’s interest in possession in it comes to an end, the settled property—

(i) was situated outside the United Kingdom and was not property to which paragraph 2 or 3 of Schedule A1 applied (overseas property with value attributable to UK residential property), or

(ii) was a holding in an authorised unit trust or a share in an open-ended investment company.”

9 (1) Section 54 (exceptions from charge on death) is amended as follows.

(2) In subsections (2) and (2B)(e), for “domiciled in the United Kingdom” substitute “a long-term UK resident”.

(3) After subsection (2B) insert—

“(2C) Where—

(a) a person who is entitled to an interest in possession in settled property dies,

(b) the settled property became comprised in the settlement before 30 October 2024,

(c) immediately before 30 October 2024, the settled property was excluded property by virtue of section 48(3) or (3A) (as it had effect at that time),

(d) the person became beneficially entitled to the interest before 30 October 2024, and

(e) immediately before the person’s death, the settled property—

(i) was situated outside the United Kingdom and was not property to which paragraph 2 or 3 of Schedule A1 applied (overseas property with value attributable to UK residential property), or

(ii) was a holding in an authorised unit trust or a share in an open-ended investment company,

the value of the settled property shall be left out of account in determining for the purposes of this Act the value of the person’s estate immediately before their death.

(2D) Where a person became beneficially entitled to an interest in possession in settled property on or after 22 March 2006, subsection (2C) applies in relation to the interest only if it is—

(a) an immediate post-death interest,

(b) a disabled person’s interest, or

(c) a transitional serial interest,

or falls within section 5(1B) (certain interests acquired with no gratuitous benefit).”

10 (1) Section 64 (charge at ten-year anniversary) is amended as follows.

(2) In subsection (1B), for the words from the beginning to “ten-year anniversary falls” substitute “Where the settlor of property comprised in a settlement meets the condition in subsection (1BZA)”.

(3) After that subsection insert—

“(1BZA) The condition is that the settlor—

(a) is alive and is not a long-term UK resident immediately before the ten-year anniversary,

(b) died on or after 6 April 2025 and was not a long-term UK resident immediately before their death, or

(c) died before 6 April 2025 and was not domiciled in the United Kingdom when the property became comprised in the settlement.”

(4) In subsection (1BA), for “subsection (1B)” substitute “subsection (1BZA)(c)”.

11 (1) Section 65 (exit charges etc) is amended as follows.

(2) In subsection (7), for “section 48(3)(a) above” substitute “section 48ZA”.

(3) In subsection (7A), for the words from “becomes excluded property” to the end, substitute “is invested in a holding in an authorised unit trust or a share in an open-ended investment company and thereby becomes excluded property by virtue of section 48ZA”.

(4) Omit subsection (7B).

(5) In subsection (7C), for “section 48(3)(a) above” substitute “section 48ZA”.

(6) In subsection (8), for the words from the beginning to “subsection (8A))”, substitute “If the condition in subsection (8ZA) is met in relation to property comprised in a settlement”.

(7) After subsection (8) insert—

“(8ZA) The condition is that the settlor—

(a) is alive and is not a long-term UK resident,

(b) died on or after 6 April 2025 and was not a long-term UK resident immediately before they died, or

(c) died before 6 April 2025 and was not domiciled in the United Kingdom when the property became comprised in the settlement.”

(8) In subsection (8A), for “subsection (8)” substitute “subsection (8ZA)(c)”.

12 (1) Section 74A (arrangements involving acquisition of interest in settled property etc) is amended as follows.

(2) In subsection (1)—

(a) in paragraph (b)(i), omit “domiciled in the United Kingdom”;

(b) after paragraph (b) insert—

“(ba) the individual—

(i) is a long-term UK resident at any time on or after 6 April 2025 during the course of the arrangements, or

(ii) acquired the interest, or became able to acquire it, at a time before 6 April 2025 while domiciled in the United Kingdom.”.

(3) For subsection (2) substitute—

“(2) Condition A is that the relevant settled property is excluded property at any time during the course of the arrangements.

Ignore for this purpose—

(a) section 48ZA(8) (as it has effect on and after 6 April 2025);

(b) section 48(3D) (as it had effect before 6 April 2025).”

13 In section 75A, omit subsection (4).

14 In section 80 (initial interest of settlor or spouse), in subsection (1), after “for the purposes of this Chapter” insert “(including sections 48 and 48ZA (excluded property) as they apply for the purposes of this Chapter)”.

15 In section 81 (property moving between settlements), in subsection (1)—

(a) after “for the purposes of this Chapter” insert “(including sections 48 and 48ZA (excluded property) as they apply for the purposes of this Chapter)”;

(b) at the end insert “(but held on the trusts of the second)”.

16 For section 81B substitute—

“81B Excluded property: property to which section 80 applies

(1) This section applies where—

(a) property is treated under section 80(1) as becoming comprised in a settlement, and

(b) the property would, apart from this section, be excluded property by virtue of meeting the condition in any of subsections (2) to (4) of section 48ZA (excluded property: long-term residence and domicile tests).

(2) For the purposes of this Chapter, except sections 78 and 79, the property is excluded property only if the condition in any of those subsections (whether or not the same one) is met by reference to the actual settlor and the actual settlement.

(3) Section 65(8) (no exit charge where property invested in Treasury securities thereby becomes excluded property) applies in relation to the property only if the condition in section 65(8ZA) is met by reference to the actual settlor.

(4) In this section, “the actual settlor” means the person who is the settlor of the property in relation to the settlement first mentioned in section 80(1); and “the actual settlement” means that settlement.

(5) This section does not apply in relation to property that is a holding in an authorised unit trust or a share in an open-ended investment company if the occasion first referred to in section 80(1) occurred before 22 July 2020.”

17 Omit sections 82 and 82A (excluded property: property to which section 81 applies).

18 In section 94 (close companies: charge on participators), in subsection (2)(b), for “domiciled outside the United Kingdom” substitute “not a long-term UK resident”.

19 In section 136 (transfers within three years before death: transactions of close companies), in subsection (3), for “domiciled in the United Kingdom” substitute “a long-term UK resident”.

20 In section 155 (visiting forces etc), in subsections (2) and (5B), omit “or domicile”.

21 (1) Section 157 (non-residents’ bank accounts) is amended as follows.

(2) In subsection (2)—

(a) omit “is not domiciled and not resident in the United Kingdom”;

(b) at the end insert “is neither resident in the United Kingdom nor a long-term UK resident”.

(3) In subsection (3), for the words from “if the settlor” to the end, substitute “if—

(a) the trustees are resident in the United Kingdom immediately before the beneficiary’s death,

(b) the settlor is alive and is a long-term UK resident immediately before the beneficiary’s death,

(c) the settlor died on or after 6 April 2025 and was not a long-term UK resident immediately before they died, or

(d) the settlor died before 6 April 2025 and was not domiciled in the United Kingdom when the property became comprised in the settlement.”

22 In section 218 (non-resident trustees), in subsection (1)(a), for “domiciled in the United Kingdom” substitute “a long-term UK resident”.

23 Omit section 267 (persons treated as domiciled in United Kingdom).

24 (1) Section 267ZA (election to be treated as domiciled in the United Kingdom) (as it has effect before its repeal by paragraph 26) is amended as follows.

(2) In subsections (3) and (4), for “on or after 6 April 2013 and” substitute “before 6 April 2025 but”.

(3) Omit subsection (5).

(4) In subsection (8)—

(a) for “is or was domiciled” substitute “was domiciled”;

(b) after “section 267” insert “(deemed domicile)”.

25 In section 267ZB (section 267ZA: further provision about election) (as it has effect before its repeal by paragraph 26), in subsection (4)(a), for “6 April 2013 or a later date” substitute “5 April 2025 or an earlier date”.

26 Omit sections 267ZA and 267ZB (election to be treated as domiciled in the United Kingdom).

27 Before section 267A insert—

“267ZC Election to be treated as a long-term UK resident

(1) A person (“P”) who would not otherwise be a long-term UK resident is treated as one for the purposes of this Act at any time when an election under this section has effect.

(2) An election under this section may be made—

(a) if condition A or B is met, by P;

(b) if condition B is met, by P’s personal representatives.

(3) Condition A is that, at any time within the period of 7 years ending with the date on which the election is made, P had a spouse or civil partner who was a long-term UK resident.

(4) Condition B is that a person (“the deceased”) dies and, at any time within the period of 7 years ending with the date of their death, the deceased was—

(a) a long-term UK resident, and

(b) the spouse or civil partner of P.

267ZD Further provision about elections under section 267ZC

(1) An election under section 267ZC—

(a) must be made by notice in writing to HMRC, and

(b) has effect from such date as is, in accordance with subsection (2), specified in the notice.

(2) The date specified in a notice under subsection (1)(a) (“the specified date”) must—

(a) be after 5 April 2025,

(b) be within the period of 7 years ending with—

(i) in the case of a lifetime election, the date on which the election is made;

(ii) in the case of a death election, the date of the deceased's death, and

(c) meet the condition in subsection (3).

(3) The condition is that—

(a) in the case of a lifetime election—

(i) the person making the election was, on the specified date, married to or in a civil partnership with the spouse or civil partner, and

(ii) the spouse or civil partner was, on the specified date, a long-term UK resident;

(b) in the case of a death election—

(i) the person who is, by virtue of the election, to be treated as a long-term UK resident was, on the specified date, married to or in a civil partnership with the deceased, and

(ii) the deceased was, on the specified date, a long-term UK resident.

(4) A death election may only be made within—

(a) the period of 2 years beginning with the date of the deceased’s death, or

(b) such longer period as an officer of Revenue and Customs may in the particular case allow.

(5) Subsection (6) applies if—

(a) an election is made under section 267ZC,

(b) a disposition is made, or another event occurs, during the period beginning with the date on which the election first has effect and ending with the date on which the election is made, and

(c) the effect of the election is that the disposition or event gives rise to a transfer of value.

(6) This Act applies with the following modifications in relation to the transfer of value—

(a) subsections (1) and (6)(c) of section 216 (delivery of accounts) have effect as if the period specified in subsection (6)(c) of that section were the period of 12 months from the end of the month in which the election is made, and

(b) sections 226 (payment: general rules) and 233 (interest on unpaid tax) have effect as if the transfer were made at the time when the election is made.

(7) An election under section 267ZC cannot be revoked.

(8) If a person who made a lifetime election is, for a period of 10 successive tax years beginning after the date on which the election is made, not resident in the United Kingdom, the election ceases to have effect at the end of that period.

(9) For the purposes of this section—

• “death election” means an election made under section 267ZC in circumstances where Condition B in subsection (4) of that section is met;

• “lifetime election” means any other election made under section 267ZC.

267ZE Subject of domicile election treated as a long-term UK resident

(1) This section applies where an election under section 267ZA has effect in relation to a person immediately before 6 April 2025 (whether the election was made before or after that date).

(2) The person is treated for the purposes of this Act (so far as would not otherwise be the case)—

(a) as being a long-term UK resident, and

(b) as having been one at all times on and after 6 April 2025.

(3) But if the person is not resident in the United Kingdom for a relevant lapse period beginning at any time after the election is made, subsection (2) ceases to apply to them at the end of that period.

(4) In subsection (3) “relevant lapse period” means—

(a) if the election was made before 30 October 2024, a period of 4 successive tax years;

(b) if the election was made on or after that date, a period of 10 successive tax years.

267ZF Double taxation conventions operating by reference to deemed domicile

(1) This section applies to a case in which the application of any arrangements having effect under section 158 (double taxation conventions) depends (to any extent) on whether a person is treated as domiciled in the United Kingdom for the purposes of inheritance tax.

(2) The person is treated as domiciled in the United Kingdom for the purposes of inheritance tax if they are a long-term UK resident.

(3) Sections 276ZC to 267ZE (persons treated as long-term resident by virtue of election) are to be disregarded in applying this section in relation to any arrangements that are specified in an Order in Council made under section 158 of IHTA 1984 before 17 July 2013 (other than by way of amendment by an Order made on or after that date).

(4) Nothing in this section affects the interpretation of any such arrangements as are mentioned in section 158(6) (certain pre-1975 arrangements).”

28 (1) Section 272 (general interpretation) is amended as follows.

(2) The existing text becomes subsection (1).

(3) In subsection (1)—

(a) in the definition of “excluded property”, for “6 and 48” substitute “6, 48 and 48ZA”;

(b) omit the definition of “formerly domiciled resident”.

(4) Also in subsection (1), in the definition of “foreign-owned”—

(a) in paragraph (a), for “domiciled outside the United Kingdom” substitute “not a long-term UK resident”;

(b) for paragraph (b) substitute—

“(b) if the property is comprised in a settlement, in the case of which the settlor—

(i) is alive and is at that time not a long-term UK resident,

(ii) died on or after 6 April 2025 and was not a long-term UK resident immediately before they died, or

(iii) died before 6 April 2025 and was domiciled outside the United Kingdom when the property became comprised in the settlement,

and section 48ZA(9) (accumulation of income) applies for the purposes of this paragraph as it applies for the purposes of section 48ZA(4).”

(5) Also in subsection (1), at the appropriate places insert—

• ““long-term UK resident” has the meaning given by sections 6A to 6C;”;

• ““tax year” means a year beginning with 6 April and ending with the following 5 April;”;

• ““the tax year 2025-26” means the tax year beginning with 6 April 2025 (and any corresponding expression in which two years are similarly mentioned is to be read in the same way);”.

(6) After subsection (1) insert—

“(2) A reference in this Act to a settlor’s being alive or dying is to be read, in relation to a settlor who is a body corporate, as a reference (respectively) to the body’s being in existence or ceasing to exist.”

29 (1) Schedule A1 (non-excluded overseas property) is amended as follows.

(2) In paragraph 1, for “48(3)(a)” substitute “48ZA”.

(3) In paragraph 5(2)(a), for “or 48(3)(a), (3A) or (4)” substitute “, section 48(4) or section 48ZA”.

30 In Schedule 4 (maintenance funds for historic buildings etc), in paragraph 10(8), for “domiciled in the United Kingdom” substitute “a long-term UK resident”.

FA 1986

31 (1) Section 102 of FA 1986 (gifts with reservation) is amended as follows.

(2) In subsection (1), for “(5) and (6)” substitute “(5), (6) and (7A)”.

(3) After subsection (7) insert—

“(7A) This section does not apply if—

(a) the disposal of property by way of gift took place before 30 October 2024,

(b) the property became settled property by virtue of the disposal and remained settled property at all times after the disposal and before the relevant time,

(c) immediately before 30 October 2024, the property was excluded property for the purposes of the 1984 Act by virtue of section 48(3) or (3A) (as it had effect at that time), and

(d) immediately before the relevant time, the property—

(i) was situated outside the United Kingdom and was not property to which paragraph 2 or 3 of Schedule A1 to the 1984 Act applied (overseas property with value attributable to UK residential property), or

(ii) was a holding in an authorised unit trust or a share in an open-ended investment company (within the meaning, in either case, of the 1984 Act).

(7B) In subsection (7A), “the relevant time” means—

(a) if the property ceases to meet the condition in subsection (2) at any time before the donor’s death, that time;

(b) otherwise, the time of the donor’s death.

(7C) In subsection (7A)(c), “for the purposes of the 1984 Act” includes for the purposes only of Chapter 3 of Part 3 of that Act (ten-year anniversary charges etc) because of the operation of section 81 of that Act (property moving between settlements).”

FA 2004

32 Schedule 15 to FA 2004 (pre-owned assets charge) is amended as follows.

33 In paragraph 11 (exemptions from charge), in sub-paragraph (5), after paragraph (b) insert—

“(ba) would fall to be so treated but for section 102(7A) of the 1986 Act (cases where property was excluded property under the old inheritance tax regime),”.

34 In the italic heading before paragraph 12, for “resident or domiciled outside the United Kingdom” substitute “non-UK resident or not a long-term UK resident”.

35 (1) Paragraph 12 is amended as follows.

(2) In sub-paragraph (2), for “domiciled outside the United Kingdom” substitute “not a long-term UK resident”.

(3) Omit sub-paragraph (3).

(4) For sub-paragraph (4) substitute—

“(4) In this paragraph, “long-term UK resident” has the same meaning as in IHTA 1984.”

Constitutional Reform and Governance Act 2010

36 In section 41 of the Constitutional Reform and Governance Act 2010 (tax status of MPs and members of the House of Lords), for subsections (2) and (3) substitute—

“(2) The person is to be treated—

(a) as resident in the United Kingdom for the whole of that tax year for the purposes of income tax, capital gains tax and inheritance tax, and

(b) as a long-term UK resident at all times in that tax year for the purposes of inheritance tax.”

Inheritance Tax (Delivery of Accounts) (Excepted Estates) Regulations 2004 (S.I. 2004/2543)

37 The Inheritance Tax (Delivery of Accounts) (Excepted Estates) Regulations 2004 are amended in accordance with paragraphs 38 to 43.

38 In regulation 2 (interpretation)—

(a) the existing text becomes paragraph (1);

(b) after that paragraph insert—

“(2) A reference in these Regulations to a person’s being domiciled in the United Kingdom includes a reference to the person’s being treated as so domiciled for the purposes of the 1984 Act.”

39 (1) Regulation 4 (excepted estates) is amended as follows.

(2) In paragraphs (2)(a) and (3)(a), for “, domiciled in the United Kingdom” substitute “and was a long-term UK resident immediately before their death”.

(3) For paragraph (5)(b) substitute—

“(b) that person—

(i) was not a long-term UK resident at any time on or after 6 April 2025, and

(ii) was not domiciled in the United Kingdom at any time before that date;”

40 In regulation 5 (spouse, civil partner and charity transfers), in paragraph (2), for the words from “was not domiciled” to the end substitute “—

“(a) was, at any time in the period beginning with 6 April 2025 and ending with the time of the transfer, not a long-term UK resident,

(b) was, at any time before 6 April 2025, not domiciled in the United Kingdom.”

41 In regulation 5A (IHT threshold), in paragraph (4)(a), for “died domiciled in the United Kingdom” substitute “was a long-term UK resident immediately before their death”.

42 In regulation 6 (production of information), in the heading, for “domiciled in the United Kingdom” substitute “a long-term UK resident”.

43 (1) Regulation 6A (production of information) is amended as follows.

(2) In the heading, for “deceased domiciled outside the United Kingdom” substitute “cases within regulation 4(5)”.

(3) In paragraph (2)(g), for “domicile” substitute “place of tax residence”.

Inheritance Tax (Delivery of Accounts) (Excepted Settlements) Regulations 2008 (S.I. 2008/606)

44 (1) In the Inheritance Tax (Delivery of Accounts) (Excepted Settlements) Regulations 2008, regulation 4 (excepted settlement) is amended as follows.

(2) In paragraph (3)(a), for “is domiciled in the United Kingdom” substitute “meets the condition in paragraph (3A)”.

(3) After paragraph (3) insert—

“(3A) The condition in this paragraph is—

(a) in relation to times on or after 6 April 2025, that the settlor is a long-term UK resident;

(b) in relation to times before that date, that the settlor is domiciled in the United Kingdom (or treated as such for the purposes of the 1984 Act).”

Part 2 Commencement and transitional provision

Commencement

45 (1) Part 1 of this Schedule, other than paragraph 26, comes into force on 6 April 2025.

(2) Paragraph 26 (repeal of sections 267ZA and 267ZB) comes into force on 6 April 2032.

(3) The amendments made by paragraph 12 to section 74A of IHTA 1984 (arrangements involving acquisition of interest in settled property etc) have effect where the relevant time (as defined in section 74C(5) of that Act) is on or after 6 April 2025 (even if the arrangements were entered into before that date).

(4) The amendment made by paragraph 19 to section 136 of IHTA 1984 (transactions of close companies) has effect in relation to relevant transactions (within the meaning of that section) on or after 6 April 2025.

(5) The amendments made by paragraphs 37 to 43 to the Inheritance Tax (Delivery of Accounts) (Excepted Estates) Regulations 2004 (S.I. 2004/2543) have effect in relation to deaths occurring on or after 6 April 2025.

(6) The amendments made by paragraph 44 to the Inheritance Tax (Delivery of Accounts) (Excepted Settlements) Regulations 2008 (S.I. 2008/606) have effect in relation to chargeable events (within the meaning of regulation 2 of those Regulations) occurring on or after 6 April 2025.

Certain pre-commencement emigrants treated as not being long-term UK residents

46 (1) An individual who would otherwise be a long-term UK resident at any time in a given tax year (“the relevant tax year”) is treated for the purposes of IHTA 1984 as not being a long-term UK resident at that time if the individual—

(a) was not domiciled in the United Kingdom on 30 October 2024,

(b) has been resident in the United Kingdom for no tax year in the period beginning with the tax year 2025-26 and ending with the relevant tax year, and

(c) either—

(i) was resident in the United Kingdom for none of the 3 tax years immediately preceding the relevant tax year, or

(ii) was resident in the United Kingdom for fewer than 15 of the 20 tax years immediately preceding the relevant tax year.

(2) For the purposes of sub-paragraph (1)(a), in determining where an individual was domiciled on 30 October 2024, ignore section 267 (deemed domicile) and sections 267ZA and 267ZB (domicile elections) of IHTA 1984.

Property moving between settlements

47 The amendment of section 81(1) of IHTA 1984 by paragraph 15(b) of this Schedule (trusts on which property moving between settlements is held) is to be disregarded in construing section 81(1) in a case where the property in question ceased to be comprised in the first settlement before 6 April 2025.

Settlor’s death etc: application to bodies corporate

48 The insertion of section 272(2) of IHTA 1984 by paragraph 28(6) of this Schedule (meaning of references to dying or being alive in the case of corporate settlors) is to be disregarded in construing section 201(1)(d) of IHTA 1984 in relation to property that became comprised in the settlement before 6 April 2025.

Deemed domicile rules still to apply in relation to times before commencement

49 (1) The repeal of section 267 of IHTA 1984 (persons treated as domiciled in United Kingdom) by paragraph 23 is to be disregarded in determining for the purposes of that Act any question as to where a person was domiciled at any time before 6 April 2025.

(2) In construing section 267 of IHTA 1984, so far as saved by sub-paragraph (1), the repeal of the definition of “formerly domiciled resident” by paragraph 28(3)(b) is also to be disregarded.