Managing the tax tail: how Gilts can aid inheritance planning

Leaving the UK doesn’t always mean leaving UK taxes behind. But what if a simple investment strategy could help you cut the "tax tail" and protect your wealth from UK Inheritance Tax (IHT)?

In this piece, Tahir Mahmood, Head of Tax and Advanced Planning, and Jessica Crane, Director, explore the surprising role UK Government bonds — known as gilts — can play in international estate planning. For many high-net-worth individuals considering a move abroad, gilts may offer a rare combination of security and tax efficiency, potentially keeping your estate out of HMRC’s reach.

What is the opportunity

Investing in UK Government bonds is considered a secure and low-risk strategy for many investors. Since the normalisation of interest rates in recent years, they are also a tax efficient investment for higher and additional rate taxpayers as much of their return has been from capital gains rather than income (capital gains from gilts are tax free). Read more here: Fixed Income vs Cash - The after-tax effect – W1M

However, for non-UK residents, gilts can also offer other significant tax advantages, particularly when it comes to Inheritance Tax (IHT). Under the current rules, gilts can be treated as excluded property from your estate for IHT purposes as soon as you leave the UK and become a non-resident. This makes them an appealing investment option for those planning to reduce their exposure to UK IHT.

But what does this mean in practical terms, especially for those who have been long-term UK residents and are now considering their options post-residency?

What is excluded property?

In the context of UK Inheritance Tax, excluded property refers to assets that are not counted towards your estate for IHT purposes. Typically, non-UK situs assets — those not located in the UK — qualify as excluded property. For non-UK residents, gilts are also treated as excluded property (in certain situations), meaning that they do not form part of your estate for IHT purposes, even though gilts are UK-issued securities.

This rule applies under the current residence-based IHT regime, which came into effect on 6 April 2025. For non-UK residents, gilts are automatically excluded from IHT once you are no longer a UK resident.

Gilts and IHT for non-residents

Under the new rules, if you are no longer UK resident any gilts you hold will not form part of your estate for UK IHT purposes. This exclusion applies as soon as you cease being a UK resident and invest in gilts. In other words, once you leave the UK and take up non-resident status, gilts are considered outside of your estate for inheritance tax.

The "tax tail" and long-term residence

Under the new system, the UK has replaced the previous domicile-based regime with a residence-based system. However, for individuals who were long-term UK residents — specifically, those who had been UK residents for at least 10 out of the last 20 years — the "tax tail" provisions still apply.

If you leave the UK after being a long-term resident (i.e., after having been a UK resident for 10 out of the last 20 tax years), UK IHT will continue to apply to your worldwide assets, including gilts, for a period of up to 3 to 10 years depending on how long you were a resident in the UK.

10-19 years of UK residence: The tax tail lasts 3-9 years after departure.

20+ years of UK residence: The tax tail lasts 10 years after departure.

This means that if you leave the UK and were a long-term resident, you will still be subject to UK IHT for a period of time on your worldwide assets.

Can you invest in Gilts immediately after leaving the UK?

Yes, once you become a non-resident, gilts you purchase will immediately be excluded from your UK IHT estate. There is no need to wait for a certain period of time for this exclusion to apply.

Conclusion

If you leave the UK and become non-resident, gilts will be considered excluded property from your estate for UK Inheritance Tax purposes, provided you are no longer a UK resident at the time of acquisition. This makes gilts a favourable investment for non-residents looking to shield these assets from UK IHT.

As always, it’s crucial to seek professional advice when navigating the complexities of international tax planning to ensure that your estate is structured optimally.