Leaving the UK does not end a trust's IHT exposure

Ceasing to be a long-term UK resident does not end a trust's exposure to inheritance tax (IHT). It starts a clock, and from 26 November 2025 it also starts a clock on any later switch from UK to non-UK assets. Practitioners who plan around the settlor's day count are planning around the wrong variable. The variable that matters is the order of three events: the date the settlor stops being a long-term resident, the date the trust's assets change situs, and the date of the trust's next ten-year anniversary.

The residence test sets a tail that most departures underestimate

Since 6 April 2025, foreign property in a settlement is excluded property only while the settlor is not a long-term UK resident. Section 48ZA of the Inheritance Tax Act 1984 (IHTA 1984) says so in terms: while the settlor is alive, the property is excluded at any time the settlor is not a long-term UK resident. The HM Revenue and Customs (HMRC) manual at IHTM27220 repeats the rule for events on or after that date. Domicile no longer decides the question.

Section 6A IHTA 1984 defines the status. An individual is a long-term UK resident in a tax year if they were UK resident in at least 10 of the previous 20 tax years. Status is lost only when the person has been non-resident for any 10 consecutive years within the previous 19, or for a "required number" of consecutive years ending with the year before.

The required number depends on how many of the 20 years ending with the last year of UK residence were resident years. For 13 or fewer it is 3. For 14 it is 4, for 15 it is 5, and so on up by one a year to 10 for a person who was resident in all 20.

The common error is to treat the tail as a fixed period. It is a sliding one. Once a settlor has 14 or more resident years in the 20, one more year of residence before leaving adds a further year of required non-residence afterwards. A settlor with 14 or more resident years who delays departure by twelve months to finish a project can extend the period during which every foreign asset in the trust remains relevant property.

Ceasing to be a long-term resident is itself a charging event

Foreign assets in a discretionary trust are relevant property while the settlor is a long-term resident. When status ends, they become excluded property and stop being relevant property. HMRC's manual at IHTM47052 states that "there will also be a proportionate charge when a settlor ceases to be long-term UK resident", and refers readers to IHTM42110 for the calculation. That page says the rate "may be anything up to 6%".

The mechanics sit in section 69 IHTA 1984 for any charge after a ten-year anniversary. The rate is a fraction of the rate last charged under section 64. The fraction is as many fortieths as there are complete successive quarters from the most recent anniversary to the day before the charge. Before the first anniversary, section 68 uses a similar fortieths count, applied to the rate on a notional transfer and scaled to three tenths.

HMRC's own examples show the charge landing on the date of the change. In IHTM47022, an exit charge arises on 6 April 2032 for one settlor and on 6 April 2027 for another. In IHTM47052, a settlor who left the UK in 2050 ceases to be a long-term resident on 6 April 2061, when he reaches ten consecutive years of non-residence, and a proportionate charge arises that day.

UK-situs assets are different. They are never excluded property under section 48ZA, so they do not leave the relevant property regime when status ends. No exit charge arises on them at the change. That asymmetry is what section 73 of the Finance Act 2026 was written to close.

Section 73 reaches the asset switch after the departure

The measure is section 73 of the Finance Act 2026, headed "Relevant property: disapplication of exemptions from exit charges". The Act (chapter 11) received Royal Assent on 18 March 2026. Section 73(2) treats the amendment as in force from 26 November 2025, so it reaches back before Royal Assent.

Section 73(1) inserts subsections (8B) and (8C) into section 65 IHTA 1984. Before the amendment, section 65(7) and (7A) said there was no exit charge "by reason only" of property ceasing to be UK-situated, and section 65(8) did the same for Treasury securities. The old design allowed a trust to hold only UK assets when the settlor ceased to be a long-term resident, pay nothing at the change, and then move into non-UK assets without a charge.

New subsection (8B) switches those exemptions off when three conditions are met:

• A "long-term residence change" happened before the event, and after the most recent ten-year anniversary if there has been one.
• The change did not itself produce a section 65 charge on the property.
• The change would have produced a charge had the property been outside the UK at the time.

Subsection (8C) defines the change. It is either the settlor not being a long-term resident at the start of the 2025-26 tax year, or ceasing to be one at the start of any later tax year. The first limb catches settlors who were already out of scope on 6 April 2025.

A worked example: the same departure, two asset positions

Take a discretionary trust settled on 1 June 2018 with £10m, so its first ten-year anniversary falls on 1 June 2028. The settlor was UK resident in 15 of the 20 tax years ending with 2026-27, their last resident year, and then leaves. The required number is 5. Non-resident years 2027-28 to 2031-32 complete the run, and long-term resident status ends at the start of 2032-33, on 6 April 2032.

Assume, purely for illustration, that the rate last charged at the 2028 anniversary was 6%, the ceiling HMRC states in IHTM42110. There are 15 complete quarters from 1 June 2028 to 5 April 2032. The section 69 fraction is 15/40, so the rate is 2.25%.

Position A: £8m foreign, £2m UK on 6 April 2032. The £8m ceases to be relevant property. The charge is £8m at 2.25%, which is £180,000. The £2m of UK assets attracts nothing at that date.

Position B: all £10m in UK assets on 6 April 2032. No charge arises at the change. Before section 73, the trustees could then switch to foreign assets at no cost. On our reading, section 73 now applies: on a switch on 1 September 2033 there are 21 complete quarters from the 2028 anniversary. The rate is 21/40 of 6%, which is 3.15%, and the charge on £10m is £315,000. That is £90,000 more than the £225,000 a charge at the change itself would have cost at 2.25%, because the quarters keep accruing.

Two further points come from the text. First, the £5m cap does not rescue the switched assets. Section 75B IHTA 1984, inserted by section 74 of the Finance Act 2026, protects only property that was excluded property under section 48(3) or (3A) immediately before 30 October 2024. IHTM47022 says UK-situs assets "will not benefit from this transitional protection, even if they are later sold and become foreign situs". Second, subsection (8B)(a) requires the change to fall after the most recent ten-year anniversary. A switch after 1 June 2038 would have a more recent anniversary than the 2032 change. On our reading that takes it outside the disapplication, but the trust's UK assets would by then have borne a 2038 ten-year charge, so the saving is not obvious.

What remains a reading

The grandfathering question is narrower than it first appears. Section 74 gives the cap its own statutory footing: £125,000 for each whole quarter in the first relevant period, which runs from 6 April 2025 to the first ten-year anniversary after it, and £5 million in each later ten-year period. It is limited to property that entered the settlement before 30 October 2024 and was excluded property immediately before that date. It is not a general shield for pre-October 2024 trusts, and it does nothing for UK assets that are later swapped.

HMRC's manual pages carry their own dates. IHTM47022 was last updated on 7 April 2026, and IHTM27220 ties excluded status to the settlor's domicile when the property became comprised in the settlement only for events before 6 April 2025. A reader who finds that older wording elsewhere should check its date before relying on it.

None of the HMRC manual pages cited here applies section 73 to a worked case. The reading of (8B)(a) above is ours. The 6% rate is an assumption for the example; the true rate depends on the settlor's cumulative transfers and the 2028 charge. A trust with a departing settlor should model the charge at each candidate date, not just count days.

KPMG's commentary of 20 March 2025 makes the same practical point on the tail. Its example is a settlor who was not UK domiciled on 30 October 2024. Leaving in 2025-26 could put them outside worldwide IHT by 6 April 2028, while deferring departure by about a year would keep them within scope until 6 April 2036. That predates the Finance Act 2026 and is not a statement of the law. The statutory sources above remain the authority, and each date and quarter count should be checked against them by a tax adviser who knows the trust's history before anyone acts.