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Business Property Relief – Last Call Before the Cap

The changes to Business Property Relief (BPR) that come into force on 6 April 2026 are fast approaching. There is however still time to mitigate your exposure to IHT and the potential impact of the new regime.

For a full summary of the changes coming into effect, please see our previous article here. By way of brief summary, the changes will mean that from 6 April 2026 a cap will be introduced on the total value of property on which BPR can be claimed at a rate of 100%. The subsequent changes announced on 23 December 2025, mean that the 100% relief will be available on up to £2.5million of qualifying business assets and anything above this will be limited to a 50% relief.

The introduction of this threshold is likely to result in more individuals having a sizeable IHT bill on their passing. There is, however, still time to utilise the current regime related to BPR before the 6 April 2026, and this could include making lifetime gifts of company shares or redirecting those assets into a trust.

Let us consider an example of gifting assets to a trust:

An individual currently holds unquoted shares valued at £8,000,000 in their personal name.  The unquoted shares have been held by the individual for over two years and meet the requirements and therefore would qualify for BPR at a rate of 100%.

The gift to the trust is made before 6 April 2026:

If the individual was to set up a trust (for the benefit of their children, for example) and make a gift of the total value of the unquoted shares which qualify for BPR before 6 April 2026 into this trust, the value chargeable to IHT on the entry of the assets into the trust would be zero as the gift qualifies for BPR in full. The individual would have therefore made a gift removing the assets from their estate without any immediate IHT charge.

The gift to the trust is made after 6 April 2026:

If, however, the same individual was to make a gift into the trust after 6 April 2026, only the first £2,500,000 would qualify for relief at the 100% rate.  The remaining £5,500,000 would benefit from relief at a rate of 50%, leaving £2,750,000.  After deducting the Nil Rate Band of £325,000, this leaves £2,425,000 which is subject to a lifetime IHT rate of 20%, meaning that the IHT payable upon putting these assets into trust is £485,000.  In effect, this will be 10% of the value of the transfer in excess of £3,150,000 (assuming the Nil Rate Band is available in full).

Tax on Death

In either case, if the individual dies within seven years of the transfer, the gift would potentially be subject to tax upon death at the full 40% rate of IHT.  If that death takes place from 6 April 2026, the new restrictions on BPR will apply, even if the gift was made before that date.

What Should I Do?

At the time of publication, there is still just about time to explore the options to mitigate your exposure to IHT in relation to your qualifying business assets. Whilst making a gift to a trust for example could result in no immediate IHT implications, anyone looking to make those gifts should be aware of the potential implications if they were to die within seven years of making this gift as well as the ongoing tax liability in relation to the assets being held within the trust. Further planning to consider therefore could be term life insurance policies which could pay out to cover the IHT due in the event of death within seven years.  Alternatively, whole of life policies could be used to provide a payment on death to cover the IHT due on a business.  When creating trusts, it is also worth considering whether it is possible to split the gift with a spouse or civil partner, in order to make the most of both parties’ allowances.

If you are planning to utilise BPR as part of your succession plan before the changes on 6 April 2026, please do contact the Private Wealth and Tax team at Quastels.

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When a Treaty Becomes a Treat: Inheritance Tax and Indian Domiciliaries

Introduction

Almost a year has passed since the abolition of the concept of non-domicile for UK tax purposes and for us advisors, this year has felt like a decade. With the dust settling and our fiscal fatigue beginning to lift, many global families are still wondering how to approach the most emotive tax of them all: UK inheritance tax (IHT). Here is where treaties can become quite the treat.

For many UK resident individuals with Indian roots, one source of potential assistance is the 1956 UK India Estate Duty Treaty (the Treaty). In short, the Treaty can, in certain circumstances, override and effectively disapply the UK’s statutory concept of long-term residence (formerly deemed domicile). The surprising effect of this is that UK residents who would otherwise be long-term resident and exposed to IHT on worldwide assets, are saved by virtue of their Indian domicile status and taken out the the IHT net on on-UK assets.

Some will point out that there is a similar provision under the treaty between the UK and Pakistan but this article focuses on the Treaty and Indian connected individuals.

The Treaty and UK Domestic Law

Now, importantly, although India abolished estate duty in 1985, the Treaty remains in force for IHT purposes. Even more interestingly for tax aficionados like us is that, unlike most of the UK’s estate tax treaties, the Treaty contains a deemed domicile/long-term residence override.

So, let’s recap the UK position:

Under UK tax law, IHT applies to:

• UK-situated assets of all individuals; and
• Worldwide assets of individuals who are UK domiciled or long-term residence/deemed domiciled.

Deemed domicile historically arose after 15 years of UK residence under the 15 out of 20-year rule. Under the post-2025 long-term residence regime, individuals can similarly fall within the worldwide IHT net after being UK resident for 10 out of the previous 20 tax years.

However, the Treaty contains a provision which focuses on domicile as a common law principle and which means, in practice that:

• If an individual is UK resident; but
• Remains Indian domiciled under general law; and
• Has not acquired a UK domicile of choice,

then the Treaty can allocate primary taxing rights over non-UK assets to India for IHT purposes.

Given that India no longer levies estate duty, the effect is that UK IHT should not apply to non-UK assets, even if the individual is deemed domiciled or a long-term UK resident under UK law.

Considering IHT can apply both on death and in other lifetime circumstances including trust structuring, this is quite the fiscal outcome if the conditions line up.

Key Conditions

As lawyers will say ad nauseam, careful analysis is required and this is certainly no less the case with the Treaty and its application.

Broadly, the individual must:

• Be within the personal scope of the Treaty, and so be UK resident at the time of death or other relevant tax events;
• Be Indian domiciled under Indian law;
• Not have acquired a UK domicile of choice from an English law perspective; and
• Be able to evidence continuing intention to return to India where relevant.

Practical Considerations

Accordingly, this is a question of both law and fact. In this case, the factual pattern is key in establishing the legal position in both jurisdictions. Any clients who may find themselves capable of benefitting from the Treaty should consider:

• Long-term intentions and retirement planning;
• Location of family and social ties;
• Property ownership;
• Wills and succession framework;
• The need for a domicile statement backed up by current and historic behaviour.

As with many areas of law but particularly so with the area of domicile, the absence of documentation can be fatal (without wanting to insert a pun needlessly).

HMRC

Anyone seeking to take advantage of the Treaty should be mindful of a possible investigation by HMRC as to their domicile post death. If this cannot be resolved through correspondence or agreement, then the deceased’s estate may have to seek a court order, as ultimately only the court can determine a person’s domicile. The court is likely to order a full trial, where detailed evidence of the deceased’s life will be reviewed and examined so that the court can come to a final conclusion as to whether the deceased acquired a domicile of choice in the UK or maintained their domicile of origin in India.

How We Can Help

Our Private Wealth & Tax team at Quastels is well placed to advise UK resident individuals and families with Indian roots on whether the Treaty can apply in their circumstances. Our advice would typically involve:

• Analysing domicile status under English common law principles;
• Considering and quantifying exposure under both domestic IHT rules and the Treaty;
• Preparing domicile statements and supporting evidence;
• Coordinating cross-border advice with Indian counsel;
• Designing succession and trust structures aligned with the Treaty.

With the UK’s IHT regime now focused on residence, the Treaty remains one of the most impactful and, in the case of many Indian families, an often overlooked tool in estate planning.

To discuss the content of this article, please contact Ben Rosen, Private Wealth & Tax Partner, and Thomas Klemme, Private Wealth Disputes Partner.

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The English Concept of Domicile and How to Challenge It

This article examines the English concept of domicile, explaining why it is important and should not be confused with residency, nationality or immigration status. It also considers the evidence the English Court will examine when a person’s domicile is challenged.

The English concept of domicile is based on English common law, i.e. historic case law, and it is different to what might be understood by the term ‘domicile’ in other jurisdictions, in particular civil jurisdictions where the term domicile for the most part is interchangeable with residency. It is also not uncommon for people, especially internationally mobile HNW individuals and executives, to have a domicile which is different to their residency and/or nationality. The English meaning of domicile can be partly understood as meaning someone’s “permanent home”.

The Law

There are three types of domicile: a domicile of origin, a domicile of choice and a domicile of dependency.

1. Domicile of Origin

In English common law, every person is born with a domicile of origin, which is then their domicile until it is displaced notwithstanding that it is possessed involuntarily. The domicile of origin of a legitimate child born during the lifetime of his father is his father’s domicile at the time of birth.

For the avoidance of doubt a domicile of origin cannot be chosen and can only be lost if a new domicile of choice (see paragraph 2 below) is acquired. A person’s domicile of origin remains their default domicile for their entire life but can in certain circumstances revive if a person’s domicile of choice is abandoned (see paragraph 3 below).

2. Acquisition of Domicile of Choice

Once 16 years old, a person may displace their domicile of origin by acquiring a domicile of choice. A person acquires a domicile of choice in another jurisdiction by residing there with an intention to do so permanently or for an unlimited time. Therefore, there are two distinct parts to acquiring a domicile of choice, namely:

1. the individual must physically reside in their country of choice (rather than be a mere traveller or occasional visitor); and
2. have an intention to reside in that jurisdiction permanently and indefinitely, which intention is not limited for a particular period or particular purpose.

It is the second limb of this test which can mean a domicile of choice is hard to obtain despite many years or even decades of residency in a foreign jurisdiction. Direct evidence that the individual in question intended to reside permanently in his chosen jurisdiction of residence is required before s/he can definitively be said to have lost his or her domicile of origin and acquired a new domicile of choice. This notwithstanding:

1. If a person determines to spend the rest of his life in a jurisdiction, then he has the necessary intention, even if he does not consider that decision to be irrevocable. The absence of any intention to leave may suffice.
2. It will not be sufficient if there is an intention to return to the jurisdiction of previous domicile at some point, so that although present residence is indefinite, it is not unlimited in time, unless that intention is so vague as not to be properly formed.

3. Loss of Domicile of Choice

If a domicile of choice is never acquired, or is acquired but then abandoned, the domicile of origin will prevail (i.e. revive).

A domicile of choice is abandoned by giving up both the residence and the intention necessary for its acquisition in the first place.

4. Domicile of Dependency

This concept is less relevant today but is still worth bearing in mind:

1. Legitimate children up to the age of 16 are dependent on their father’s domicile, as set out above. Where a child is born out of wedlock or their father is deceased, they may take on their mother’s domicile.
2. Women who were married before the Matrimonial Causes Act 1973 came into effect in 1973 took on their husband’s domicile.

Why is Domicile Important?

The English concept of domicile matters because it determines which legal system has the strongest claim over a person’s life for core issues such as taxation, succession, and jurisdiction. It is far more enduring than residence and often decisive in private wealth disputes.

Tax

Domicile is central to determining an individual’s exposure to UK taxation, particularly inheritance tax. It dictates whether a person is taxed on their worldwide estate or only on UK-situated assets, and it governs access to favourable regimes historically available to non-UK domiciled individuals. Because domicile is difficult to change and heavily intention-based, it often becomes a decisive issue in tax planning and disputes involving internationally mobile clients.

Succession

In cross-border estates, domicile determines which country’s succession laws apply on death. This can affect the validity of wills, the distribution of assets, and the interaction with forced-heirship regimes overseas. In contentious private wealth matters, establishing a deceased’s true domicile frequently shapes the entire litigation strategy, as it may determine both the applicable law and the rights of competing beneficiaries. For example, to bring a claim under the Inheritance (Provision for Family and Dependants) Act 1975, the deceased must have died domiciled in England and Wales.

Family Law

Domicile also plays a significant role in family law, influencing jurisdiction for divorce, financial relief, and the recognition of foreign marriages or divorces. Because domicile is treated as a person’s “personal law,” it can affect questions of capacity and personal status. Its enduring nature means that domicile often anchors jurisdiction even when individuals have lived in multiple countries.

How to Challenge Domicile

Where domicile is in dispute, it must be determined by the English Court, which will normally order a hearing so that it can review all the facts and come to a decision. The burden of proof for proving that an individual has acquired domicile of choice is that of the person or entity alleging it.

Domicile disputes are very fact sensitive and judges have a wide amount of discretion to decide them. Therefore, trials regarding domicile can be unpredictable and each case will turn on its own specific facts.

However, the court will tend to examine the following categories of evidence before making an overall assessment on the balance of probabilities:

Family Background: the court will want to review a person’s family background in detail including the birthplace of parents and grandparents. It will also examine marriages, divorces and conduct a careful review of where the person in question lived as a child and with whom. The court will also examine a person’s current family including the birthplace and nationality of any spouse and children. Family ties are also important and the court will look to understand where close family members reside and where a person’s children are educated, as this can indicate where a person’s ‘domicile’ or ‘permanent home’ might be.

Physical Presence: the court will want a full history of where the person in question has lived and why, i.e. for school, work etc. Dates of residence in a particular country and intention regarding residence there will be examined. The court will also examine residency, where a person pays taxes and what citizenship they hold. It will also require information on visits to a person’s country of birth and will want to examine a person’s relationship with their country of origin.

Property and Assets: the court will want to know where a person owns property and hold assets. This includes the location of any family home, pensions, bank accounts, investments etc. The analysis can be quite granular and the court may go as far as to examine which bank accounts etc. are or have been used most frequently to understand where a person has been resident or visits most frequently.

Social Ties: the court will even go as far as examining a person’s social ties, including if they belong to any clubs, what football team they support and where their registered doctor and dentist are located. They will also look to understand where a person has voted and what causes or interests he or she support.

Therefore, for highly mobile individuals, a domicile challenge is likely to involve a significant examination of their personal life. Small and seemingly insignificant details can make all the difference and should not be underestimated.

The Private Wealth Disputes team at Quastels LLP are adept at advising clients on all aspects of domicile, including when to issue or defend a domicile challenge.

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