Non-Dom Reform: Trusts, Long-Term Residence and Treaty Protections

Historically, non-UK assets settled into trust by a non-UK domiciled individual could qualify as ‘excluded property’, meaning they were permanently outside the scope of UK inheritance tax (IHT). That position has now changed. From 6 April 2025, whether non-UK trust assets fall within the UK IHT net depends on the settlor’s long-term residence status at the time of each chargeable event. Broadly, an individual will be treated as a long-term UK resident if they have either been UK tax resident in 10 out of the previous 20 tax years or in the previous 10 consecutive tax years. Where the settlor meets this test, all the trust assets will generally be subject to periodic and exit UK IHT charges of up to 6%.

This change moves away from the historic ‘snapshot at settlement’ approach and instead introduces a regime in which a trust’s IHT exposure can change over time.

Treaty Protections Still Matter

However, importantly the new domestic rules do not override the UK’s existing IHT treaties and specific treaty protections may still apply, even where a settlor is treated as a long-term UK resident under the new rules.

In particular, treaties with the United States, the Netherlands and Sweden can provide valuable protection:

• United States: Under the UK-US estate and gift tax treaty, if the settlor was US domiciled (and not a UK national) at the time the trust was created, the UK may have no taxing rights over trust property other than UK situs assets.
• Netherlands: The UK-Netherlands treaty can similarly restrict UK IHT where the settlor was Dutch domiciled at settlement and meets the treaty conditions.
• Sweden: Although Sweden has abolished IHT, the treaty can still prevent UK IHT applying to trust assets settled by a Swedish-domiciled individual.

These treaties can therefore override the default domestic position, even where the settlor later becomes a long-term UK resident.

Key Takeaway

The abolition of the non-dom regime significantly increases the relevance of settlor residence status for trusts, bringing many structures within the UK IHT net. However, for settlors connected to treaty jurisdictions such as the US, Netherlands and Sweden, treaty analysis is now more important than ever and can materially change the outcome. Careful review of existing and proposed trust structures is essential in light of these changes.

‍How can Sanctuary help?

The shift from a domicile-based to a residence-based IHT regime represents one of the most significant changes to the UK tax landscape in decades. At Sanctuary, we specialise in helping international families navigate these complexities. Our team can conduct a detailed treaty analysis to determine if your international connections offer a shield against the new "long-term resident" charges. From reviewing existing trust deeds to restructuring global holdings, we ensure your wealth remains protected and your reporting stays compliant with both UK and international standards.

Visit our Tax & Advisory service page to learn more about our tax & residency advisory, or contact us for a bespoke consultation via the contact form or email us at: hello@sanctuary.ae.