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UK Inheritance Tax 10-Year Residency Rule Guide 2026

Practical 2026 guide to the UK's long-term UK residence IHT regime: the 10-out-of-20 residence test, 3-to-10-year overseas tail, nil-rate bands, excluded property, trust transitional rules, spouse exemptions and the 2026 Agricultural and Business Relief reforms.

2026 Long-Term UK Residence IHT Framework

From 6 April 2025, the UK replaced the old domicile/deemed-domicile basis for determining the scope of foreign assets for Inheritance Tax with a long-term UK residence regime. An individual is generally a long-term UK resident when they have been UK resident for at least 10 of the previous 20 tax years immediately before the tax year in which the chargeable event occurs. If the person is long-term UK resident, their overseas assets can be within the UK IHT charge, subject to exclusions, exemptions, reliefs and the detailed situs rules.

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The relevant residence test is 10 out of 20 tax years.
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The test is applied immediately before the tax year containing the chargeable event, including death.
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Long-term UK residence is a specific IHT concept and is not identical to ordinary domicile law.
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The residence rules determine the scope of foreign assets; they do not mean every asset is automatically taxed at 40%.
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The actual IHT liability depends on the estate value, nil-rate bands, exemptions, reliefs, debts and other statutory adjustments.
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The reforms apply to chargeable events on or after 6 April 2025.

The 10-Out-of-20 Residence Test

The central test is whether the individual has been UK tax resident for at least 10 of the previous 20 tax years immediately preceding the tax year of the relevant chargeable event. A person can therefore become a long-term UK resident without being UK resident for 10 consecutive years. The test counts the number of UK-resident tax years in the relevant 20-year look-back period.

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The rule is not '10 consecutive years' for becoming long-term UK resident.
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Consecutive years become important when calculating the residence tail after departure.
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A year of UK residence under the relevant statutory residence rules counts in the history.
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The residence test and the IHT charge itself are separate calculations.
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A person who has been non-resident for 10 consecutive tax years can reset the long-term-residence history under the post-2025 rules.
Residence History Immediately Before Chargeable EventLong-Term UK Residence?
Fewer than 10 UK-resident years in previous 20Normally no
Exactly 10 UK-resident years in previous 20Yes
11 to 19 UK-resident years in previous 20Yes
20 UK-resident years in previous 20Yes

What the 40% IHT Rate Actually Means

The standard UK Inheritance Tax rate is 40%, but it is not correct to say that becoming long-term UK resident causes the entire worldwide estate to be taxed at 40%. IHT is normally charged only on the taxable amount after applying available exemptions, nil-rate bands, residence nil-rate band and other reliefs. The £325,000 nil-rate band remains fixed for 2026-27, and the residence nil-rate band remains £175,000 subject to its conditions.

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The 40% rate is not a tax on every pound of the worldwide estate.
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The £325,000 nil-rate band can shelter chargeable value.
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The residence nil-rate band can increase the effective threshold where a qualifying home passes to direct descendants.
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The RNRB is subject to taper for larger estates.
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Spouse/civil-partner and charitable exemptions can eliminate or reduce IHT before the 40% rate is applied.
IHT Component2026-27 Position
Standard IHT rate40% on the taxable amount above available thresholds
Nil-Rate Band£325,000
Residence Nil-Rate Band£175,000 subject to qualifying conditions
RNRB taperStarts at £2 million
Qualifying charitable estatePotential 36% rate where the statutory 10% charity condition is satisfied

The Overseas Residence Tail After Leaving the UK

A person who has become a long-term UK resident does not necessarily stop being one immediately on leaving the UK. If they become non-resident and do not return before the relevant chargeable event, their long-term UK residence continues for a minimum of 3 years and up to 10 years, depending on the number of UK-resident years in the relevant history.

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The tail is not always 10 years.
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A person with 10 to 13 relevant UK-resident years has a 3-year tail.
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The tail increases by one year for each additional UK-resident year through 20 years.
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Non-residence years need to be analysed for continuity because non-consecutive residence can affect the statutory test.
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After 10 consecutive tax years of non-residence the previous long-term-residence status is reset under the current rules.
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The tail determines foreign-asset scope; UK-situs assets can remain within UK IHT separately.
UK-Resident Years Used for Tail CalculationYears Remaining Within Long-Term UK Residence Scope
10 to 13 years3 years
14 years4 years
15 years5 years
16 years6 years
17 years7 years
18 years8 years
19 years9 years
20 years10 years

Fewer Than 10 UK-Resident Years: What Happens to Foreign Assets?

An individual who is not a long-term UK resident will generally not bring their worldwide foreign assets into IHT solely because they live in the UK for some years. However, UK-situs assets can remain within UK IHT, and specific anti-avoidance, trust, situs and excluded-property rules must still be checked.

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Being non-long-term UK resident does not make UK property automatically exempt.
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UK-situs assets are generally within the UK IHT framework.
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Certain assets can qualify as excluded property under specific statutory rules.
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Qualifying foreign-currency bank accounts can be excluded in certain circumstances.
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Trust and company structures require separate situs and anti-avoidance analysis.

UK Property and UK Bank Accounts Are Not Identical for IHT

The original claim that UK real estate and UK bank accounts are 'always' subject to IHT is too broad. UK real estate is generally UK-situs property, while bank-account treatment depends on the type of account and the statutory situs/excluded-property rules. HMRC specifically recognises an exclusion for qualifying foreign-currency bank accounts where the depositor was neither UK resident nor long-term UK resident immediately before death.

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UK real estate is generally UK-situs property.
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Not all bank deposits have identical IHT outcomes.
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Foreign-currency accounts can qualify as excluded property in defined statutory cases.
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Asset situs rules should be applied asset category by asset category.
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Do not apply a blanket 40% statement to every asset in the UK.
AssetGeneral 2026 Position for a Non-Long-Term UK Resident
UK land/buildingsGenerally within UK IHT because they are UK-situs assets
Ordinary UK bank accountGenerally UK-situs and potentially within IHT
Qualifying foreign-currency accountCan be excluded where the statutory conditions are met
Overseas propertyPotentially outside the IHT scope if the person is not long-term UK resident, subject to statutory exceptions

Excluded Property Trusts After 6 April 2025

The reform does not mean that every historic excluded-property trust immediately loses all protection when a settlor reaches the 10-year residence threshold. Trust treatment is asset-specific and contains transitional provisions. HMRC specifically provides rules for foreign property that was already specified excluded property in a settlement immediately before 30 October 2024, including transitional protections in particular cases. New settlements and later additions can be treated differently.

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The old blanket non-dom excluded-property protection was replaced by the new residence-based rules.
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Historic excluded-property status can interact with transitional provisions.
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Foreign property already in a qualifying settlement immediately before 30 October 2024 can have special transitional treatment.
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Later additions to the trust can fall outside the transitional protection.
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Indirect UK residential-property interests have additional rules.
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Trust IHT involves entry charges, 10-year charges, exit charges and gift-with-reservation rules depending on the structure.

2026 Business Relief and Agricultural Relief Reform

From 6 April 2026, the rules for Business Relief (BR) and Agricultural Relief (AR) changed significantly. The combined value of qualifying agricultural and business property receiving 100% relief is capped at £2.5 million for an individual, subject to the statutory allowance rules. Qualifying value above the available £2.5 million allowance generally receives 50% relief instead of 100%.

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The £2.5 million figure is an allowance for 100% relief, not a £2.5 million exemption from IHT.
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The allowance applies to combined qualifying agricultural and business property.
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Lifetime qualifying transfers can use the allowance under the statutory ordering rules.
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Trusts have their own £2.5 million allowance mechanics.
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The reforms apply from 6 April 2026, with transitional rules for certain earlier gifts/trust holdings.
Relievable Property2026 Treatment
Qualifying AR/BR within £2.5m allowance100% relief, subject to the statutory conditions
Qualifying AR/BR above available £2.5m allowance50% relief
Unused spouse/civil-partner allowanceCan potentially transfer, giving an allowance of up to £5m
Qualifying AIM / not-listed sharesSpecific 50% relief rules can apply under the reforms

Spouse and Civil Partner Exemption

Transfers to a spouse or civil partner are generally exempt from IHT, but the statement 'all spouse transfers are always 100% exempt' is too absolute. The exemption is subject to statutory conditions and can be affected by particular residence/domicile circumstances and the amount of the nil-rate band available. On death, unused nil-rate and residence nil-rate bands can also potentially be transferred to the surviving spouse/civil partner.

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Spouse/civil-partner transfers are generally exempt.
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The exemption is separate from the nil-rate band.
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Special rules can restrict the spouse exemption in some non-UK circumstances.
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Unused nil-rate bands can potentially transfer to the survivor.
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RNRB transfer is subject to its own conditions.
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Spouse/civil-partner status must exist under the relevant legal rules.

Lifetime Gifts, PETs and the Seven-Year Rule

Many outright gifts to individuals are Potentially Exempt Transfers (PETs). A PET becomes exempt if the donor survives seven years from the date of the gift. If the donor dies within seven years, the gift can become chargeable and may use the nil-rate band. Taper relief can reduce the amount of IHT payable where death occurs more than three years after the gift, but taper relief reduces the tax, not the value of the gift.

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The seven-year period runs from the date of the gift.
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A PET is not automatically tax-free at the moment it is made.
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Gifts can use the nil-rate band if the donor dies within seven years.
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Taper relief does not reduce the value transferred.
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Gift-with-reservation rules can bring assets back into the donor's estate even after a nominal gift.
Years Between Gift and DeathRate Applied to Full IHT Rate for Taper Relief
0 to 3 years100%
3 to 4 years80%
4 to 5 years60%
5 to 6 years40%
6 to 7 years20%
7+ yearsGift generally becomes exempt if it was otherwise a PET

Gift With Reservation of Benefit

A lifetime gift does not necessarily leave the donor's estate merely because legal ownership has been transferred. If the donor continues to benefit from the property, the gift-with-reservation rules can cause the property to be treated as part of the donor's estate. This is particularly important for a gifted home where the donor continues to occupy the property without paying the required market consideration.

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A genuine outright gift must normally leave the donor without continuing benefit.
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Continuing to live in a gifted property can trigger the gift-with-reservation rules.
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These rules are separate from the seven-year PET rule.
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A seven-year period does not by itself defeat gift-with-reservation treatment.
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Trust arrangements can have additional anti-avoidance consequences.

Residence Nil-Rate Band and Main Home

The Residence Nil-Rate Band (RNRB) can provide an additional £175,000 threshold in 2026-27 where a qualifying residential interest passes to direct descendants, subject to the statutory conditions. The RNRB tapers for estates above £2 million and can be transferred in certain circumstances from a predeceased spouse or civil partner.

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The RNRB is in addition to the standard £325,000 nil-rate band.
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The maximum RNRB is £175,000 for 2026-27.
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The property must meet the qualifying-residence conditions.
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The qualifying residence generally needs to pass to direct descendants.
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The RNRB is tapered for estates over £2 million.
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Unused RNRB can potentially be transferred to a surviving spouse/civil partner.

Trust Charges and Excluded Property

IHT on trusts is not limited to death. Relevant-property settlements can face 10-year anniversary charges and exit charges, while other trust structures have different regimes. Whether foreign trust assets are excluded property depends on the residence status and the statutory rules applying to the settlor, beneficiary and trust at the relevant chargeable event. The 2025 reforms therefore require trust-by-trust analysis rather than a blanket 'non-dom trust is protected/unprotected' answer.

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Trusts can face lifetime entry, 10-year and exit charges depending on the regime.
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Excluded property is an asset-specific concept.
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Foreign trust assets can remain excluded where statutory conditions are met.
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Transitional provisions can protect certain pre-30 October 2024 settlements.
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The beneficiary's and settlor's residence position can both matter.
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UK residential property held through structures can have special anti-avoidance rules.

Practical 2026 IHT Residence Workflow

A reliable 2026 IHT analysis should not begin by multiplying a worldwide estate by 40%. First determine the individual's UK residence history, long-term UK residence status and any overseas tail. Then classify every asset by situs, check excluded-property rules, value the estate, apply exemptions and nil-rate bands, test reliefs such as BR/AR, and finally calculate the IHT charge. Trusts and lifetime gifts require separate calculations.

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Step 1: determine the exact chargeable event date.
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Step 2: calculate UK residence for each of the previous 20 tax years.
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Step 3: establish whether the person is long-term UK resident.
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Step 4: if non-resident, calculate the applicable 3-to-10-year tail.
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Step 5: identify UK-situs and foreign assets separately.
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Step 6: test excluded-property rules for foreign assets/accounts.
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Step 7: value the estate and deduct permitted debts/liabilities.
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Step 8: apply spouse/civil-partner and charitable exemptions where available.
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Step 9: apply the £325,000 nil-rate band and £175,000 RNRB where applicable.
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Step 10: apply Business/Agricultural Relief, including the 2026 £2.5m 100%-relief allowance.
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Step 11: consider lifetime gifts, PETs, taper relief and gift-with-reservation rules.
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Step 12: analyse trusts separately for entry, 10-year and exit charges.
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Step 13: calculate the taxable amount and apply the relevant IHT rate.
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Step 14: check any double-tax treaty relief or foreign IHT credit.
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Step 15: retain residence history, asset-situs, trust, gift and valuation evidence.

Frequently Asked Questions (6)

From 6 April 2025, the key test for foreign assets is whether the individual is a long-term UK resident. That generally means being UK resident for at least 10 of the previous 20 tax years immediately before the tax year of the chargeable event. This can bring overseas assets within the UK IHT scope, but it does not mean the entire worldwide estate is automatically taxed at 40%: exemptions, the £325,000 nil-rate band, the residence nil-rate band and other reliefs still have to be applied.

If you have become a long-term UK resident and then leave the UK, you can remain within the long-term-residence IHT rules for a minimum of 3 and maximum of 10 tax years, depending on your prior UK residence history. The statutory scale is 3 years for 10-13 UK-resident years, then increases by one year for each additional year up to 10 years for 20 UK-resident years.

UK real estate is generally within UK IHT because it is UK-situs property, but saying it is automatically taxed at 40% is too broad. The actual liability depends on the estate's available nil-rate bands, spouse/civil-partner exemption, charitable exemption, Business/Agricultural Relief, debts and other statutory rules. The 10-year residence test is mainly important for determining the scope of foreign assets.

Transfers to a spouse or civil partner are generally exempt from IHT, but cross-border cases can involve statutory limitations and the exact legal/residence circumstances matter. The spouse exemption is separate from the nil-rate band, and unused nil-rate and residence nil-rate bands can potentially transfer to the survivor under their own conditions.

The standard nil-rate band is £325,000. The residence nil-rate band is £175,000 for 2026-27, subject to the qualifying-home, direct-descendant and taper rules, with taper beginning at £2 million. These thresholds are not themselves a guarantee that no IHT is payable because lifetime gifts, trusts, spouse transfers, reliefs, debts and other parts of the estate calculation can affect the final charge.

A qualifying outright gift to an individual is normally a potentially exempt transfer. If the donor survives seven years from the date of the gift, the PET generally becomes exempt. If the donor dies within seven years, the gift can become chargeable and may use the nil-rate band. Taper relief can reduce the IHT payable on a chargeable gift where death occurs more than three years after the gift, but taper relief reduces the tax, not the value of the gift.
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2026 TAX SNAPSHOT

Standard Personal Allowance
£12,570
Standard allowance; specialist and Scottish rules can differ.
England / Wales / Northern Ireland Basic-Rate Band
£37,700
£50,270 including the standard £12,570 Personal Allowance.
4-Year FIG Regime
Maximum 4 tax years
Available to qualifying new UK residents after at least 10 years of non-UK residence.
IHT Long-Term UK Residence
10 of previous 20 years
Overseas-asset exposure can continue for 3–10 years after leaving, depending on residence history.

Summary Takeaways & Checklist

  • From 6 April 2025, the scope of IHT on foreign assets is generally determined by long-term UK residence rather than the former domicile/deemed-domicile framework.
  • The core long-term UK residence test is at least 10 UK-resident tax years in the previous 20 years.
  • A former long-term UK resident can remain within the foreign-asset IHT regime for a 3-to-10-year tail depending on prior UK residence history.
  • The 40% IHT rate applies to the taxable amount after exemptions, nil-rate bands and applicable reliefs, not automatically to the whole worldwide estate.
  • The 2026-27 nil-rate band is £325,000 and the residence nil-rate band is £175,000 subject to conditions.
  • UK land is generally within UK IHT, but some bank accounts and other assets can fall within statutory excluded-property rules.
  • Excluded-property trusts require detailed analysis, including transitional rules for certain settlements existing before 30 October 2024.
  • From 6 April 2026, the combined 100% Agricultural/Business Relief allowance is £2.5 million, with qualifying excess generally receiving 50% relief.
  • A PET generally becomes exempt after seven years, but gifts within seven years can become chargeable and taper relief reduces tax rather than the gifted value.
  • Spouse/civil-partner exemption is generally available but is subject to statutory conditions and should not be treated as an unconditional rule in every cross-border case.

Official References & Manuals

GOV.UK Inheritance Tax if You Are a Long-Term UK ResidentHMRC Long-Term UK Residence TestHMRC Long-Term UK Residence IntroductionGOV.UK IHT Thresholds and Interest RatesGOV.UK IHT Nil-Rate Band and Residence Nil-Rate Band 2026-28GOV.UK Trusts and Inheritance TaxHMRC Transitional Excluded Property Trust RulesGOV.UK IHT Rules for People Living Outside the UKGOV.UK IHT Gifts GuidanceHMRC PET and Taper Relief GuidanceGOV.UK Business Relief for IHT 2026GOV.UK Agricultural Relief for IHT 2026GOV.UK Agricultural and Business Relief Reform 2026

Related HMRC Guides

UK Inheritance Tax (IHT) CalculatorUK Non-Dom Tax Changes 2026 Master GuideUK Foreign Income & Gains (FIG) Regime Guide