The United Kingdom has one of the most aggressive inheritance tax regimes among major NRI destinations — 40% on the value of the estate above the nil-rate band, with strict deemed-domicile rules that can sweep in even long-resident NRIs. A clear walkthrough of the planning landscape.
The United Kingdom's inheritance tax (IHT) regime is among the most consequential planning issues for British-Indian NRIs. The headline rate is 40% on the value of the estate above the nil-rate band (£325,000 as of the 2025 tax year, with a residence nil-rate band of up to £175,000 if a main residence is passed to direct descendants).
For middle-income NRIs in London — where a single average-sized house in Zone 2-3 can be worth £700,000 to £1.2 million — the nil-rate band is often exhausted by the home alone. Liquid investments, pensions, ISAs, and any Indian-side assets layer on top. Many families that consider themselves middle-income discover an unexpected six-figure IHT bill on the first generation's death.
The good news is that significant planning options exist. The bad news is that they require deliberate action — typically several years before death — and most NRI families do not engage with them until it is too late.
UK IHT applies to the worldwide estate of UK-domiciled individuals, but only to UK-situs assets of non-domiciliaries. The shift from non-domiciled to UK-domiciled status is the single most important planning question for any UK-resident NRI.
Domicile in UK law has two components: domicile of origin (where the individual was born or their father was domiciled) and domicile of choice (acquired by long residence with the intention to remain permanently). An NRI born in India to Indian-domiciled parents has an Indian domicile of origin. Acquiring a UK domicile of choice requires forming an intention to remain in the UK permanently.
But UK tax law also imposes 'deemed domicile' — a person becomes deemed UK-domiciled for IHT purposes after 15 of the previous 20 UK tax years. So even if you have not changed your conscious domicile, long UK residence sweeps you in. Many NRIs in London for 20+ years are deemed UK-domiciled without realising it.
Once an NRI becomes deemed UK-domiciled, all their worldwide assets — including assets in India — fall within the scope of UK IHT. The Indian flat, the Indian mutual funds, the NRE/NRO balances, all become potentially subject to 40% IHT on the testator's death.
There is a partial relief: assets in a 'protected settlement' (a trust set up before deemed domicile arose) may continue to benefit from non-domiciled treatment for IHT purposes. This is one of the few significant planning structures available, and it must be set up before the deemed-domicile threshold is crossed.
For NRIs approaching 15 years of UK residence, this is a critical planning window. We have seen multiple cases where families realised the implications too late and faced significant IHT exposure that would have been avoided with action two or three years earlier.
Each individual has a nil-rate band of £325,000 — the threshold below which no IHT is charged. The residence nil-rate band adds up to £175,000 where the main residence is passed to direct descendants, taking the combined exemption to £500,000 per individual.
On a married couple's combined estate, any unused nil-rate band of the first to die transfers to the survivor. So a couple's combined exemption can be up to £1 million if structured correctly. Importantly, this transfer happens automatically only if the couple are married or in a civil partnership — long-term unmarried partners do not benefit.
Above the combined £1 million threshold, the 40% IHT rate kicks in. For high-value London families, this is often where serious planning is needed — through lifetime gifts, life insurance held in trust, or business and agricultural property reliefs.
Gifts made during life are 'potentially exempt transfers' — they fall out of the estate for IHT purposes if the donor survives seven years from the date of the gift. Gifts made within seven years of death are clawed back, with the IHT rate tapering down based on the years elapsed.
For NRIs with substantial estates, structured lifetime gifting can materially reduce IHT exposure. Annual gift exemption (£3,000 per year), small gifts allowance (£250 per recipient per year), and gifts on marriage are immediately exempt. Larger gifts start the seven-year clock.
Gifts to charity are immediately exempt regardless of timing. A charitable bequest in the Will not only achieves philanthropic goals but also, where the charitable component exceeds 10% of the net estate, qualifies the entire estate for a reduced 36% IHT rate rather than 40%.
A standard estate-planning tool in the UK is to hold life insurance policies in trust — typically a discretionary trust or a flexible life-interest trust. Held in trust, the policy proceeds are outside the deceased's estate for IHT purposes, so the payout reaches the beneficiaries free of 40% deduction.
Setting up the trust is straightforward (most insurers provide standard trust deeds at policy inception), but it must be done correctly and the policy ownership must be transferred to the trustees. Policies left in personal name are inside the estate.
For UK-resident NRIs with substantial life cover (often taken out alongside mortgages), this is one of the highest-impact planning actions available. We routinely see policies of £500,000 to £2 million held in personal name that should be in trust.
For UK-domiciled (or deemed-domiciled) NRIs, Indian assets are within the scope of UK IHT. The valuation is taken at the date of death in sterling, and the 40% rate applies above the combined nil-rate band.
The UK-India Double Taxation Convention provides relief — IHT paid in one country can be credited against tax in the other to avoid double taxation. India does not currently have inheritance tax, so the practical effect is that the UK IHT is the binding charge, with no Indian-side credit available.
FEMA and India-side compliance still apply. The Indian executor (under the Indian Will) must comply with FEMA in transmitting the assets to the UK-resident beneficiary, and the beneficiary may need RBI permissions for repatriation depending on the asset type and amount.
The standard structure for a UK-resident NRI is dual Wills — a UK Will for UK assets, an Indian Will for Indian assets, each explicitly preserving the other. The UK Will is executed under the Wills Act 1837 and (post-Brexit) is recognised by EU jurisdictions only under specific treaty arrangements.
The UK Will should be drafted by a qualified UK solicitor with attention to IHT-efficient structuring — appropriate use of trusts, nil-rate band allocation, business and agricultural relief claims, charitable component if relevant. The Indian Will is drafted under Section 63 of the ISA with the standard formalities.
Coordination is essential. The executor of one Will may not be the executor of the other; if so, the two executors need to communicate. The total estate value for UK IHT calculation includes Indian assets — the Indian executor's role in transmitting and valuing Indian assets affects the UK IHT computation.
England and Wales have a unified probate system through the Probate Registry. The application for grant of probate is straightforward for uncontested estates and typically takes 8-16 weeks for the grant to issue. Once granted, the executor has clear authority to deal with all UK assets.
Scotland operates a different system (confirmation rather than probate). Northern Ireland has its own probate registry. For NRIs with assets across these jurisdictions, separate applications may be required.
Probate fees are based on the gross value of the estate. For substantial estates, the fees can be material, though they are dwarfed by the IHT charge for high-value estates.
Priya and Rajiv Shah, both 60, have lived in London for 28 years. Both are British citizens with OCI status. Their estate: a Hampstead home (£1.8 million, mortgage paid off), London ISAs and investment portfolios (£1.4 million combined), pensions (£700,000 in defined contribution pots), an Andheri flat (₹3.5 crore), NRE deposits and Indian mutual funds (₹85 lakh).
Both are deemed UK-domiciled (well past 15 years of UK residence). Worldwide estate is approximately £4.5 million sterling-equivalent. Combined nil-rate bands (including residence nil-rate) cover £1 million. The IHT on the remaining £3.5 million is at 40% — a £1.4 million UK IHT charge on the second-spouse death without planning.
Planning recommendations: life insurance in trust to fund the IHT liability; structured lifetime gifting to children using the seven-year rule; consideration of a charitable bequest large enough to qualify for the 36% reduced rate; dual Wills with the UK Will handling structuring for IHT and the Indian Will dealing with Andheri flat and NRE deposits with explicit preservation of the UK Will.
Error one: assuming deemed domicile does not apply. Many long-resident NRIs assume they remain Indian-domiciled because they 'intend to return.' Deemed domicile applies regardless of intention.
Error two: holding life insurance in personal name. The proceeds are then within the IHT-able estate, defeating the protective purpose of the cover.
Error three: failing to use the residence nil-rate band. Bequeathing the main residence to children (or grandchildren) is required to claim the additional £175,000 exemption.
Error four: relying on a single Will from India. The Indian Will alone is unlikely to satisfy UK probate requirements without exemplification, slowing administration of UK assets significantly.
For UK-based NRIs, our standard advice is: dual Wills with explicit preservation; UK Will drafted by a UK solicitor with IHT planning competence; Indian Will drafted under Section 63 with attention to FEMA implications for the UK-resident beneficiary; life insurance in trust where applicable; lifetime gifting strategy where the estate exceeds the combined nil-rate band; deemed-domicile review every five years.
We work with several UK estate solicitors who handle the UK side competently. If you do not have UK counsel, we can recommend two or three with strong Indian-client experience.
The UK IHT exposure is one of the few estate planning issues where the math is genuinely large and the planning genuinely effective. Get good advice on both sides. The investment pays off many times over.
UK IHT offers significant reliefs for business and agricultural property — up to 100% relief for qualifying business assets, including shareholdings in unlisted companies and interests in partnerships, and agricultural land that has been owned for the required period.
For UK-resident NRIs who own businesses or business shareholdings, business property relief is often the largest single planning opportunity available. The relief reduces the IHT-able value of qualifying business assets to zero, with proper structuring.
The rules are technical and the relief can be lost by recent transactions or by certain types of business structuring. Engaging UK estate counsel with business relief expertise is essential where this is relevant.
The UK non-domiciled tax regime — under which non-domiciliaries paid tax only on UK-source income and gains (with the remittance basis option) — has been substantially replaced from 6 April 2025 with a four-year foreign income and gains regime for new arrivals.
For Indian-origin NRIs who arrived recently or are planning to relocate to the UK, the new regime offers a four-year window of relief on foreign income and gains, after which worldwide taxation applies. This is more restrictive than the previous remittance basis option.
Planning around this requires care — particularly for high-earning NRIs whose Indian investment portfolios generate significant foreign income. Pre-arrival planning is far more efficient than post-arrival remediation.
Before sitting with a UK estate solicitor, organise the following: an asset schedule listing every UK and Indian asset with current value; your immigration history showing dates of UK arrival and departures; details of any prior gifts above £3,000 made in the past seven years; existing life insurance policies and their ownership / trust status; current pension positions including any QROPS / QNUPS transfers; details of beneficiaries with current addresses and ages.
Coming to the consultation with this information saves several hours of advisor time and substantially reduces the cost of the engagement. We routinely send NRI clients a structured intake form covering all of the above before their first UK consultation.
Many UK solicitors offer a free initial 30-minute consultation. Use that time to confirm fit and approach rather than diving into substantive planning — the substantive work properly begins from the second meeting onwards.