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Advanced Taxation (UK) · Inheritance tax: the scope of inheritance tax

Domicile, Deemed Domicile and Excluded Property for IHT

Updated 11 October 2026 · Fact-checked

Inheritance tax scope depends on domicile. A person who is UK domiciled or deemed domiciled is taxed on worldwide assets. Anyone else is taxed only on UK assets. Excluded property, such as overseas assets of a non-UK domiciled person, is outside IHT. To solve a question, fix domicile status, then find where each asset is situated.

Understand Domicile, Deemed Domicile and Excluded Property

Inheritance tax (IHT) is charged on transfers of value, whether by lifetime gift or on death. Before you compute anything, you must ask what is in charge. That depends on the domicile of the person making the transfer, and on where each asset is.

If the transferor is UK domiciled or deemed UK domiciled, all their assets are in scope, wherever in the world they are. If they are neither, only their UK situs assets are in scope. Assets outside the UK owned by a non-UK domiciled person are excluded property. They are ignored: they do not count in the estate, and a gift of them is not a transfer of value that is taxed.

Domicile is a general law concept, broadly the country you treat as your permanent home. You acquire a domicile of origin at birth, and you can acquire a domicile of choice by moving abroad with the intention of staying permanently. For IHT, the rules of deemed domicile can treat someone as UK domiciled even if general law says otherwise. The exam will normally tell you the facts on residence and the length of time in the UK. You then apply the deemed domicile test. Do not rely on a gut feeling about where the person 'belongs'.

Situs is where an asset is treated as located. Typical rules: land and buildings are situated where the land is. Tangible movable items are located where they physically are. Registered shares are usually situated where the share register is kept. Bank accounts are usually where the branch holding the account is. The question will usually state the location, so use it.

The reason this matters is the nil rate band and rates. The nil rate band is £325,000 and the rates are 20% on lifetime chargeable transfers and 40% on death, but only on property that is within the charge. A wrong scope decision changes the whole computation.

Key rules to remember

Scope for UK domiciled or deemed domiciled person
Chargeable assets = worldwide assets
All assets are in scope wherever they are situated.
Scope for non-UK domiciled person
Chargeable assets = UK situs assets only
Overseas assets are excluded property and are ignored.
IHT rates on the excess over the nil rate band
Lifetime rate 20%; death rate 40%; nil rate band £325,000
Shown in the tax tables. Residence nil rate band is £175,000 where it applies.
Deemed domicile (long-term UK resident test, from 6 April 2025)
UK resident in the tax year of the transfer AND UK resident in at least 10 of the 20 tax years immediately before that tax year
Treated as UK domiciled for IHT. The tax year of the transfer is the year of the gift or death. Leaver tail: once non-UK resident, a long-term resident stays in scope for a tail period. The tail is 3 years where the person was UK resident for 10 to 13 of the previous 20 tax years. It then increases by 1 year for each additional year of residence from 14 years: 14 years of residence gives a 4-year tail, 15 years gives 5 years, and so on. The maximum tail of 10 years is reached at 20 years of residence. The test and the tail come from the legislation and ACCA's articles. They are not in the tax tables, so you must learn them. Before 6 April 2025 the test was 15 of the previous 20 years, so do not use that older figure.
Excluded property (general)
Non-UK situs property owned by a non-UK domiciled individual
Not part of the estate and not a chargeable transfer.

How to solve Domicile, Deemed Domicile and Excluded Property questions

Use this order for any scope question. It stops you computing tax on assets that are not in charge.

  1. 1Read the facts on birth, parents, residence history and intentions to establish general law domicile.
  2. 2Test for deemed domicile using the residence history you are given. Look at the number of tax years of UK residence.
  3. 3State your conclusion clearly: UK domiciled, deemed domiciled, or neither.
  4. 4If the person is UK domiciled or deemed domiciled, include all assets worldwide.
  5. 5If the person is neither, list each asset and decide its situs. Keep UK assets and exclude non-UK assets as excluded property.
  6. 6Check for any special excluded property, and for any exemption or relief that applies to the assets left in scope.
  7. 7Only then compute the value transferred, apply the nil rate band and tax at the right rate.

Quickest way: Domicile and situs two-question check

When to use it: Use when time is short and the question asks which assets are chargeable.

  1. Ask one: is the person UK domiciled or deemed domiciled? If yes, everything counts. Stop.
  2. If no, ask two for each asset: is it in the UK? If yes, it counts. If no, it is excluded property.
  3. Write the conclusion in one sentence with the reason, then move on to the numbers.

Common mistakes in Domicile, Deemed Domicile and Excluded Property

  • Taxing all worldwide assets of a non-UK domiciled person.

    Students link IHT with residence and forget that domicile controls scope.

    Fix: Always state the domicile conclusion first. Only UK situs assets are in scope if the person is not UK domiciled or deemed domiciled.

  • Treating someone as non-UK domiciled because they were born abroad, without testing deemed domicile.

    Students stop at domicile of origin.

    Fix: Always check the years of UK residence for deemed domicile before concluding.

  • Using the wrong location for an asset.

    Students assume situs follows the owner's residence.

    Fix: Situs follows the asset. Land is where the land is. Use the location facts in the question.

  • Leaving out the reason for the conclusion.

    Students jump to the figures.

    Fix: Written exams give marks for explanation. State the rule, apply it to the facts, then conclude.

  • Including excluded property in the nil rate band calculation.

    Students total every asset in the question before excluding any.

    Fix: Remove excluded property first. Only chargeable assets go into the computation.

Worked examples

Example 1

Anil was born in India to Indian parents and has always intended to return there. He has been UK resident in 8 of the 20 tax years before the tax year of his death. He dies owning a UK house worth £500,000, UK shares worth £100,000 and an Indian flat worth £200,000. Ignoring other reliefs, what is the value of his estate within IHT scope?

Show the solution
  1. General law: Anil's domicile of origin is India, taken from his father's domicile at his birth. He has never settled in the UK permanently, so his domicile of origin has not been displaced by a UK domicile of choice. He is not UK domiciled under general law.
  2. Deemed domicile: the long-term residence test needs UK residence in at least 10 of the 20 tax years before the year of death. Anil has been UK resident in 8 of those 20 years, which is fewer than 10, so he is not a long-term UK resident and is not deemed domiciled.
  3. He is therefore not UK domiciled for IHT, so only UK situs assets are in scope.
  4. UK house £500,000 plus UK shares £100,000 = £600,000 (assuming the shares are UK situs).
  5. The Indian flat of £200,000 is excluded property.

Answer: £600,000 of his estate is within IHT scope. The Indian flat is excluded property.

Example 2

Sofia, born in Spain, has been UK resident for 16 of the 20 tax years before the tax year in which she makes a gift, and she is UK resident in the year of the gift. She has a UK house worth £400,000 and a Spanish villa worth £300,000. She makes a lifetime gift of the villa to her son. Explain whether the gift is within the scope of IHT.

Show the solution
  1. She is UK resident in the year of the gift, and she was UK resident in 16 of the 20 preceding tax years. 16 is at least 10, so she is a long-term UK resident.
  2. She is therefore deemed UK domiciled for IHT, whatever her general law domicile.
  3. A deemed domiciled person is taxed on worldwide assets, so the Spanish villa is not excluded property.
  4. The gift of the villa is a transfer of value of £300,000 before reliefs and exemptions, and it is within scope.

Answer: Yes. Sofia is deemed UK domiciled as a long-term UK resident, so her worldwide assets, including the Spanish villa, are within IHT. The gift is a transfer of value in scope, before any exemptions.

Exam tips

  • Always conclude on domicile in a sentence before any figures. This is where marks sit in a written answer.
  • Show the residence count for deemed domicile, for example 16 of the previous 20 tax years, so the marker can see your working.
  • List assets in a short table-like list with a label of in scope or excluded, so you do not miss any.
  • Link your answer to the scenario facts. Generic rules without application earn fewer marks and miss professional skills marks.
  • Check the tax tables for the nil rate band and the 20% and 40% rates rather than recalling them from memory.

Practice questions from Inheritance tax: the scope of inheritance tax

Domicile, Deemed Domicile and Excluded Property: frequently asked questions

What is deemed domicile for inheritance tax?

It is a statutory rule that treats a person as UK domiciled for IHT even if general law says they are not. Since 6 April 2025 the main route is long-term UK residence. You must be UK resident in the tax year of the transfer and have been UK resident in at least 10 of the 20 tax years before it. After leaving the UK, a long-term resident stays in scope for a tail of 3 years if they were resident for 10 to 13 of the previous 20 years. The tail then grows by 1 year for each extra year of residence from 14 years, reaching the maximum of 10 years at 20 years of residence. These tail rules are not in the tax tables, so you must learn them.

What is excluded property?

It is property that is outside the IHT charge. The main example is non-UK situs property owned by someone who is not UK domiciled or deemed domiciled. It is ignored when working out the value transferred.

How do I decide whether an asset has UK situs?

Decide where the asset is treated as located. Land is where it lies, tangible movable property is where it physically is, and registered shares usually follow the register. In the exam, the question normally gives you the location.

Does a non-UK domiciled person pay IHT on UK assets?

Yes. UK situs assets are within the charge whatever the owner's domicile. Only their non-UK assets are excluded property.