What does the pledge mean? 

‘Non-dom’ tax status referred to the rules around tax for UK residents whose permanent home or “domicile” (for tax purposes) was outside the UK.

Offshore trusts (or non-resident trusts) are trusts outside the UK. Previously, inheritance tax generally only had to be paid on assets situated outside the UK if the person who placed the assets in the trust (the settlor) was domiciled in the UK when the assets were put into the trust, regardless of whether the person inheriting the assets (the beneficiary) was domiciled in the UK.

Labour’s manifesto pledged to “end the use of offshore trusts to avoid inheritance tax so that everyone who makes their home here in the UK pays their taxes here”.

The party did not set out a timeframe for this commitment in its manifesto, and did not specify exactly what changes would be made to the inheritance tax system for assets held in offshore trusts.

It’s worth noting that the previous government had already announced its own plans to replace the existing inheritance tax rules for offshore trusts ahead of the election, but these changes would not have been due to come into force until 6 April 2025.

What progress has been made?

New rules which came into force on 6 April 2025 replaced the previous inheritance tax rules for offshore trusts. 

This change was announced by Chancellor of the Exchequer Rachel Reeves in the Autumn Budget in October 2024 with legislation subsequently introduced to the Commons in November 2024. This legislation, the Finance Act 2025, received Royal Assent on 20 March 2025.

These changes introduce a new residence-based system for inheritance tax on non-UK assets.

Settlements are treated differently for inheritance tax purposes depending on their nature, which affects whether settlors, trustees or beneficiaries are liable for charges and tax under the inheritance tax regime.

These changes mean non-UK assets will be in scope for inheritance tax when an individual has been resident in the UK for at least 10 out of the last 20 tax years. If this applies and the person then leaves the UK, they can remain in scope for inheritance tax on non-UK assets for between three and ten years.

Non-UK assets a person has put into a settlement—assets held in trust or a similar structure—will also be subject to inheritance tax when the settlor is deemed a long-term resident. 

Transitional rules will apply in 2025/26 for individuals who are non-resident for that year These individuals will be deemed a long-term resident for tax purposes if they have been resident in the UK for at least 15 out of the 20 tax years immediately preceding the year of charge, and for at least one of the four tax years ending with the tax year in which the tax was charged.

These changes coincide with the abolition of the ‘non-dom’ tax status, which we looked at here.