From 6 April 2025, the UK will implement a significant change in its Inheritance Tax (IHT) regime with the introduction of the Long-Term Resident (LTR) rule. This reform could profoundly affect Italian nationals with ties to the UK, especially those who have lived or are still living in the UK but hold assets in both countries.
Until now, UK tax rules applied IHT to worldwide assets only if an individual was domiciled or deemed domiciled in the UK. Non-domiciled individuals, even if UK tax residents, were only taxed on UK-situs assets.
The new LTR rule will change this framework. Anyone who has been a UK tax resident for at least 10 of the previous 20 years will be treated as deemed domiciled for IHT purposes, even if they are no longer UK-resident at the time of death. Their global estate could become taxable in the UK, with rates up to 40% over the available nil-rate bands.
A simple comparison helps clarify the key differences:
| Aspect | United Kingdom | Italy |
| Who is taxed? | The deceased’s estate | The beneficiary |
| Base rate | 40% over nil-rate band (£325k) | 4%-8% depending on relationship |
| Spouse exemption | Unlimited (fully exempt) | €1,000,000 exemption |
| Double taxation | Possible (no IHT treaty with Italy) | Possible |
| DTT with UK | None for IHT | — |
| LTR Rule (from 2025) | Global assets taxable | Not applicable |
This change introduces serious risks for individuals who have left the UK but still have UK-based pensions, property, bank accounts, or family ties. These individuals may find themselves unexpectedly caught in a costly tax regime, even if they have lived abroad for several years.
Moreover, Italy and the UK do not have a double tax treaty on inheritance tax, which raises concerns about potential double taxation on Italian assets.
Unanswered questions remain:
- How will the 10-out-of-20 year rule be calculated and evidenced?
- How can one demonstrate loss of UK domicile?
- Will there be any carve-outs for treaty-based residents or for temporary UK returns?
The answers are not yet clear.
What is clear, however, is that international estate planning will become even more delicate and nuanced. Determining your tax residency, domicile, and the location and nature of your assets will be more crucial than ever.
Our firm has long experience assisting clients with cross-border UK-Italy matters. We are ready to analyse the impact of the new LTR rules and develop tailored solutions for each case, working with UK and Italian advisors.
No one-size-fits-all approach applies. Each situation deserves its own strategic assessment.
Contact us to explore your options before the rules change.