Still in the IHT Net? How to Protect Your Wealth During the 10-Year Window

Leaving the UK doesn’t always mean leaving the UK tax system behind. Under the 10-out-of-20-year rule, individuals who have been UK resident for ten of the past twenty tax years remain within the UK inheritance tax (IHT) net for a further ten years after departure.

This creates what’s often called the “IHT tail” — a period during which your estate may still be liable for 40% IHT on worldwide assets, even though you’re no longer living in the UK.

If you’ve already left, or plan to do so, it’s vital to understand how this rule affects you — and how insurance can be used to protect your wealth during this transitional decade.

Understanding the 10-Year IHT Exposure Period

UK IHT was previously based on domicile, not residence. However, the rules are changing. Once you’ve been UK resident for at least ten out of the last twenty tax years, you’re treated as deemed domiciled for IHT purposes.

Historically, IHT liability depended on an individual’s domicile status — a legal concept linked to your permanent home or country of origin. Under the new regime, this shifts to residence. Once you’ve been UK resident for at least ten of the previous twenty tax years, you’ll be treated as a Long-Term Resident (LTR) for inheritance tax purposes.

In practical terms, that means your worldwide assets fall within the UK IHT net.

But even if you’re not yet an LTR, don’t assume you’re in the clear. When you leave the UK, there’s a “tail period” — meaning your worldwide estate can still be subject to IHT for several years after departure.

Summary

The IHT Tail Rules

The longer you’ve lived in the UK before leaving, the longer your “tail” — up to a maximum of 10 years.

Why This Window Matters

The ten-year window can be especially challenging for high-net-worth individuals and families because:

• Wealth transfer continues: You may wish to gift, settle trusts, or invest during this time — but assets could still fall within the UK IHT scope.

• Unexpected death risk: If you were to die during this period, your estate would remain subject to UK IHT, even if all your assets are held offshore.

• Liquidity pressure: Many estates are illiquid, made up of property or investments that take time to sell. Without planning, heirs may face selling assets to fund the tax bill.

That’s why life insurance, structured correctly, has become one of the most practical ways to mitigate this risk.

The Role of Life Insurance in IHT Planning

Insurance isn’t about avoiding tax — it’s about providing the liquidity to pay it, without compromising the integrity of your estate or the financial stability of your heirs.

During the ten-year exposure period, insurance can serve as a bridge between your UK tax obligations and your long-term global planning objectives.

How It Works

• The policy provides a lump sum on death.

• The proceeds are paid to a trust (or nominated beneficiaries).

• The funds can be used to cover the IHT bill due on your worldwide estate.

This ensures that your family has immediate access to liquidity, rather than needing to sell investments or property to meet a sudden tax liability.

Choosing the Right Type of Policy

1. Whole-of-Life Insurance

For permanent cover that lasts indefinitely.

• Provides certainty: the policy pays out whenever death occurs.

• Ideal for those expecting to retain some long-term UK IHT exposure.

• Premiums can be guaranteed or reviewable, depending on flexibility and affordability.

2. Term Assurance (10–15 years)

For temporary coverage — ideal for the ten-year tail.

• Covers the period during which you remain deemed domiciled.

• Typically less expensive than whole-of-life cover.

• Can be arranged as level or decreasing term, depending on your needs.

3. Joint-Life Second-Death Policies

Designed for married couples, these pay out on the second death when IHT becomes due.

• Cost-effective way to fund IHT exposure on combined estates.

• Particularly useful where assets are jointly owned or held in trust.

4. Offshore Life Insurance Policies

Some offshore providers offer policies tailored for expatriates.

• Premiums can be paid in multiple currencies.

• Policies are portable if you relocate again.

• May be linked to an investment bond for combined protection and growth.

Structuring the Policy for Maximum Efficiency

To ensure the proceeds fall outside your estate, the policy should be written in trust.
A trust allows the sum assured to be paid directly to your beneficiaries or trustees, bypassing probate and avoiding IHT on the payout itself.

Integrating Insurance with Broader IHT Planning

Insurance works best as part of a broader estate plan. While the policy provides immediate protection, complementary strategies can reduce long-term exposure:

• Lifetime gifting: Use annual exemptions, the £3,000 gift allowance, and the “gifting out of surplus income” exemption.

• Trust planning: Loan or discounted gift trusts can remove future growth from your estate.

• Investment wrappers: Offshore bonds can defer tax and fit neatly within a trust structure.

• Review domicile and residency: A clear exit strategy helps ensure your IHT exposure truly ends after ten years.

Together, these measures can reduce the eventual need for insurance — or the size of policy required.

Practical Considerations for Expats

Before arranging cover, it’s important to:

• Arrange the policy early: securing cover while still UK resident may simplify underwriting.

• Check jurisdiction and regulation: some UK insurers won’t issue policies for non-UK residents. Offshore providers (Isle of Man, Guernsey) often specialise in expatriate policies.

• Review currency options: consider the currency of the expected liability (GBP) versus income currency (USD, HKD, EUR).

• Keep the plan under review: as your residency status and estate value evolve, ensure cover remains appropriate.

A Realistic Example

Emma, a UK national, moved to Dubai in 2025 after 25 years in the UK. Her estate is valued at £3 million, much of it in global investments.

Although Emma is non-UK resident, she remains within the IHT net until 2035. Her potential IHT exposure:
(£3,000,000 – £325,000 nil rate band) × 40% = £1.07 million.

To protect her family, she arranges a 10-year level term life policy for £1.1 million, written in trust. The premiums are paid from surplus income.

If she were to pass away during the tail period, the proceeds would cover the IHT bill — ensuring her heirs inherit her assets intact.

Final thoughts

For internationally mobile individuals, the ten-year IHT window represents both a risk and an opportunity. While the exposure can’t always be avoided, it can be managed intelligently.

Life insurance offers one of the simplest, most reliable ways to protect your family’s wealth during this period. When combined with trust planning and professional advice, it provides peace of mind while your global life continues to evolve.