Inheritance tax on an offshore bond after April 2025: the long-term residence test

UK law and HMRC guidance as at 23 September 2026, tax year 2026/27. The examples are hypothetical and show their working.

What changed on 6 April 2025

Until 5 April 2025 the reach of inheritance tax over assets outside the UK depended on domicile, a concept built around where a person regards as their permanent home. From 6 April 2025 it depends on a count of tax years. HMRC summarises it as follows: “The test for whether non-UK assets are in scope for IHT is whether an individual has been resident in the UK for at least 10 out of the last 20 tax years immediately preceding the tax year in which the chargeable event (including death) arises” (HMRC Trusts and Estates Newsletter, April 2025).

For an offshore bond it matters for a policy you own personally, for a trust you created that holds a policy, and for the years after you leave the UK, because the status does not end on the day you go.

The bond itself makes no difference here. An offshore bond is a non-UK life policy, taxed for income tax under the chargeable event rules. It is not outside inheritance tax by reason of being a policy or being issued offshore. The inheritance tax result comes from who owns it, whether a trust holds it, and your residence history. So the test below needs doing for every member of the family who owns or has settled a policy.

The test, as the statute sets it out

Section 6A of the Inheritance Tax Act 1984 says an individual is a long-term UK resident “at all times in a tax year if they were UK resident for at least 10 of the previous 20 tax years”. The wording has three consequences.

• The status is fixed for a whole tax year. It is decided on 6 April by looking back, and it does not change during the year because you arrive or leave.
• The year you are in does not count towards the ten. Only the previous twenty tax years count.
• Residence for 2013/14 onwards is decided under the statutory residence test. For 2012/13 and earlier years it follows the income tax rules that applied then (s.6A(5)).

Two exceptions take a person out of the definition even if the ten out of twenty count is met. The first is ten consecutive non-resident tax years within the 19 tax years before the current one (s.6A(2)(a)). The second is the “tail” rule for leavers in s.6A(2)(b) and (3), set out in the table further down. Section 6B modifies the test for individuals under 20; it is not covered here.

A family that arrived in 2016

Take a hypothetical family, the Moreaus, who moved to London from Paris in August 2016 and have been UK resident in every tax year from 2016/17 onwards. Mr Moreau holds an offshore bond with an Isle of Man insurer, bought in 2018. In 2019 Mrs Moreau settled a second bond into a discretionary trust with non-UK trustees. Nothing has been added to that trust since.

They became long-term UK residents on 6 April 2026, the start of their eleventh tax year here. Being resident in the tenth year was not enough, because the tenth year was the current year and the current year is not counted.

What changed for Mr Moreau's bond

Up to 5 April 2026 Mr Moreau was not long-term resident. Property situated outside the UK that belongs to someone who is not long-term resident is excluded property for inheritance tax. Where a particular policy is situated is a question of situs, decided by case law, statute and in some cases a double tax treaty (IHTM27071). If his bond was situated outside the UK, it was outside the charge.

From 6 April 2026 the answer changes. The bond is part of his estate for inheritance tax wherever it is situated. If he died in 2026/27 with the bond worth £3,000,000 and the rest of his estate already using his nil-rate bands, the inheritance tax attributable to the bond would be £3,000,000 × 40% = £1,200,000.

Death may also be a chargeable event for income tax. On a policy where his death ends the contract, the gain is worked out using the surrender value immediately before death (IPTM3515), and there is no basic-rate credit on an offshore policy. So the estate can face income tax on the gain and inheritance tax on the value. How the gain is calculated is covered in chargeable event gains and top-slicing relief.

What changed for Mrs Moreau's 2019 trust

HMRC's April 2025 newsletter states the new rule: “the excluded property status of non-UK settled assets is not fixed at the time the assets are added to a settlement. Instead, they are only excluded property (and so not subject to IHT charges) at times when the settlor is not long-term UK resident.” And: “When a settlor is long-term UK resident, any assets they have settled (even when not long-term UK resident) will be subject to IHT.”

So from 6 April 2026 the bond in Mrs Moreau's trust is relevant property. Ten-year anniversary charges and exit charges apply to it under the ordinary rules. Her trust still gets two transitional protections, because it held excluded property on 30 October 2024 and nothing has been added since.

• The £5m cap. Relevant property charges on property that was excluded property at 30 October 2024, and is situated outside the UK when the charge arises, are capped at £5 million over each ten-year cycle (gov.uk policy paper).
• Gifts with reservation. Specified excluded property comprised in a settlement immediately before 30 October 2024 is not subject to the gift with reservation rules (IHTM47022). If Mrs Moreau can benefit under the trust, that fact alone does not pull the bond back into her estate.

Had the Moreaus set up a new trust in 2025, or topped up the 2019 trust after 30 October 2024, those assets would have neither protection. HMRC's manual is clear that the transitional rules do not reach additions to existing settlements, or new settlements, made on or after 30 October 2024 (IHTM47022).

The £5m cap, in proportion

The cap only matters for very large trusts. The ten-year charge is three tenths of the effective rate on a hypothetical lifetime transfer (IHTA s.66(1)), and gov.uk describes the maximum as 6% (Trusts and Inheritance Tax). At 6%, a single ten-year charge reaches £5,000,000 only when the trust holds about £83,300,000 (£5,000,000 ÷ 6%).

For the first period after 6 April 2025 the cap is prorated: HMRC's manual says the figure is found “by multiplying £125,000 by the number of whole successive quarters in the period” (IHTM47022). Once the cap is reached, “there will be no further tax due on the next ten year anniversary or any exits before that (but returns are still required)”.

The cap is set out in a new section 75B of the Inheritance Tax Act 1984, inserted by the Finance Act 2026 with retrospective effect from 6 April 2025. It protects only property situated outside the UK at the time of the charge. Most families will be more concerned with whether the trust now pays ten-year charges at all.

Leaving the UK: how long the tail lasts

Leaving does not end long-term residence straight away. Section 6A(3) sets a required number of consecutive non-resident tax years, which depends on how many of the previous 20 tax years you were UK resident. Until you have been non-resident for that many consecutive tax years, ending with the tax year before the one being tested, you remain long-term resident.

HMRC's summary: “Individuals may continue to be a long-term UK resident for a period of 3-10 years after leaving the UK” (April 2025 newsletter).

There is a transitional rule for people who were not UK domiciled on 30 October 2024 and were not UK resident in 2025/26, for example because they left before 6 April 2025. For them the ten out of twenty count and the s.6A(3) table do not apply while they stay abroad. Someone who was neither domiciled nor deemed domiciled here is not long-term UK resident at all. Someone who was deemed domiciled stays long-term resident only until the start of their fourth tax year of non-residence. If either comes back, the ordinary ten out of twenty test applies from then on (IHTM47021).

A family leaving after 15 years

The hypothetical Harringtons were UK domiciled at common law throughout. They were UK resident for fifteen tax years, 2010/11 to 2024/25, then moved abroad and have been non-UK resident from 2025/26. Because they were UK domiciled on 30 October 2024, the transitional rule above does not apply to them and the ordinary s.6A tail does. Each spouse owns an offshore bond, and Mr Harrington settled a discretionary trust holding a third bond in 2021.

The tail runs for five tax years, 2025/26 to 2029/30. If either of them dies before 6 April 2030, their bond is in their estate for UK inheritance tax, even though they have lived abroad for several years. From 6 April 2030, a bond situated outside the UK is outside the charge, subject to the situs point above.

The trust follows Mr Harrington. Until 5 April 2030 it holds relevant property. When he stops being long-term resident, the non-UK property becomes excluded property. HMRC's newsletter says: “An exit charge will arise on this.” The £5m cap does not help them. It covers only property that was excluded property on 30 October 2024, which needed a settlor domiciled outside the UK when the property was settled, and Mr Harrington's trust, settled while he was UK domiciled, never held excluded property (IHTM47022).

Someone who had lived here for all twenty of the previous twenty years would carry the status for ten tax years. Families planning to leave should therefore count their years before they go.

Income tax is a separate clock

The inheritance tax tail says nothing about income tax on the bond. Once the Harringtons are non-UK resident, a gain on surrender is generally outside UK income tax, unless they return within five years and the temporary non-residence rules bring it back into charge (IPTM3734). Their new country may tax it. The details, including time-apportionment relief for years abroad, are in moving to, returning to or leaving the UK with an offshore policy.

The figures you plan around in 2026/27

Two points matter for owners of large bonds. The residence nil-rate band is lost completely once the estate reaches £2,350,000 (£2,000,000 plus twice £175,000), so for an estate that includes a large bond it is often worth nothing. And from 6 April 2027 unused pension funds will sit in the same estate as the bond, which pushes more of the estate into the 40% band and makes lifetime planning with the bond more valuable, not less.

What the bond does well under the new rules

A policy is unusually easy for a long-term resident to move for inheritance tax purposes. The same investments held directly are harder to give away without an immediate tax cost.

• Giving it away does not trigger income tax. An assignment of a policy by way of gift is not an assignment for money or money's worth, so it is not a chargeable event (ITTOIA 2005 s.484). Selling a directly held portfolio to fund a gift could realise capital gains; handing over bond segments triggers no income tax at the time.
• It comes in pieces. Bonds are usually issued as many identical segments, so a family can give some segments now and keep the rest.
• It sits naturally in trust. Loan trusts and discounted gift trusts are built around bonds, and the income tax on gains stays with the settlor while alive and UK resident. How they work, with numbers, is in loan trusts and discounted gift trusts with an offshore bond.
• It produces no annual income to report. Growth rolls up inside the policy, which keeps a trust's annual tax administration light, although a trust holding a bond must still register on the Trust Registration Service (TRSM23030).

A gift of bond segments to an individual is a potentially exempt transfer: no tax if the donor survives seven years, with taper relief on the tax for gifts made 3 to 7 years before death (gov.uk: gifts). A gift into a discretionary trust is a chargeable lifetime transfer, taxed at 20% on the amount above the available nil-rate band.

Where the bond does not help

The limits are these.

• An offshore insurer does not keep a long-term resident's policy out of the estate. The location of the insurer stops mattering once the owner is long-term resident.
• An excluded property trust settled by a long-term resident no longer shelters a bond. The trust's non-UK assets are excluded only while the settlor is not long-term resident; for a qualifying interest in possession trust, both the settlor and the beneficiary must be non long-term resident.
• The £5m cap does not reduce charges on a trust of ordinary size, and it does not apply to new trusts or to additions made on or after 30 October 2024.
• The policy cannot be used to hold a family company or a bespoke portfolio for a UK resident without falling into the personal portfolio bond rules, which impose a deemed gain each year of 15% of premiums plus earlier deemed gains (the personal portfolio bond rules).
• Moving the policy to a different insurer is a surrender for income tax, not a switch (switching funds or insurer).

For the wider picture, including trusts, gifts and the residence nil-rate band, see the page on inheritance tax and succession.

A short checklist for families

1. Count the tax years. For each person who owns or has settled a policy, list UK residence for each of the last twenty tax years, using the statutory residence test from 2013/14.
2. Mark the date of long-term residence. For arrivals it is the start of the eleventh tax year of residence at the earliest. For leavers it is the end of the tail in the s.6A(3) table, subject to transitional rules for people who were non-resident in 2025/26.
3. List every trust by settlor and date. Note which held excluded property on 30 October 2024, and whether anything has been added since.
4. Check the situs of each policy held personally by someone who is not yet long-term resident, rather than assuming it is outside the UK.
5. Map the next ten-year anniversary of each trust and what the charge would be.
6. Decide whether segments should move now, while the donor is likely to survive seven years.

What HMRC already knows about each policy, and how, is set out in what HMRC learns about an offshore policy.

Long-term residence and offshore bonds: questions

What is a long-term UK resident for inheritance tax?

Someone who was UK resident for at least 10 of the previous 20 tax years. The status applies for the whole of a tax year and is tested on the years before it, not the current year (IHTA 1984 s.6A(1)). It replaced domicile as the test for whether non-UK assets are within inheritance tax from 6 April 2025.

Is my offshore bond subject to UK inheritance tax?

If you own it personally and you are long-term UK resident, yes: it is part of your estate and taxed at 40% above the available nil-rate bands. If you are not long-term resident, a bond situated outside the UK is excluded property. Where a given policy is situated is a situs question to check, not assume (IHTM27071).

We arrived in 2016. When do we become long-term resident?

If you were UK resident in every tax year from 2016/17, you became long-term resident on 6 April 2026. In 2025/26 the previous twenty tax years contained nine years of residence; in 2026/27 they contain ten.

How long does long-term residence last after I leave the UK?

Between 3 and 10 tax years, subject to transitional rules for people who were non-resident in 2025/26. The number depends on how many of the previous 20 tax years you were UK resident: 13 or fewer gives 3 years, 14 gives 4, and so on up to 20, which gives 10 (IHTA s.6A(3)). A family resident for fifteen years needs five consecutive non-resident tax years before the status ends. If you were not UK domiciled on 30 October 2024 and were not UK resident in 2025/26, a transitional rule applies instead: you are not long-term resident unless you were deemed domiciled, and if you were, the status ends at the start of your fourth tax year of non-residence (IHTM47021).

Does an excluded property trust still protect an offshore bond?

Only while the settlor is not long-term UK resident. HMRC's April 2025 newsletter says non-UK settled assets are excluded property only at times when the settlor is not long-term UK resident, even if they were settled earlier. For a qualifying interest in possession trust, the beneficiary must also be non long-term resident.

What is the £5m cap on trust charges?

Relevant property charges on property that was excluded property on 30 October 2024, and is situated outside the UK when the charge arises, are capped at £5 million over each ten-year cycle, with effect from 6 April 2025. It does not apply to new trusts or additions made on or after 30 October 2024. At the 6% maximum rate, a charge reaches £5m only on about £83.3m of trust property.

What are the inheritance tax bands for 2026/27?

The nil-rate band is £325,000 and the residence nil-rate band is £175,000, tapered away by £1 for every £2 of estate above £2 million. Both are fixed until 5 April 2031. The death rate is 40%, or 36% if 10% or more of the net estate goes to charity. From 6 April 2027 unused pension funds and most pension death benefits (death-in-service benefits are excluded) come into the estate.

Can I give my bond away without paying income tax?

Yes. Assigning a policy, or some of its segments, as a gift is not an assignment for money or money's worth, so it is not a chargeable event (ITTOIA 2005 s.484). The gift is still a transfer for inheritance tax: potentially exempt if made to an individual, a chargeable lifetime transfer if made to a discretionary trust.

Sources and authorities

Statute: IHTA 1984 s.6A (long-term UK resident, including the s.6A(3) table); IHTA s.66 (ten-year charge rate); IHTA s.7 (rates); ITTOIA 2005 s.484 (chargeable events). HMRC: Trusts and Estates Newsletter, April 2025; IHTM47021 (transitional rules for 2025/26 leavers); IHTM47022 (transitional protection, £5m cap mechanics); IHTM27071 (situs); IPTM3515 and IPTM3734; TRSM23030. Government: policy paper on the £5m cap; Budget 2025 OOTLAR and Annex A; gov.uk: Inheritance Tax; gifts and taper relief; Trusts and Inheritance Tax.

Research checked 23 September 2026 against the statutes and HMRC guidance linked above. How we research, check and correct pages is set out in our editorial standards.

PPLI.com is not authorised by the Financial Conduct Authority and does not give personal advice. This is general information about UK law, not an invitation or inducement to enter into any insurance or investment contract. Policies issued by insurers outside the UK are not protected by the Financial Services Compensation Scheme.