UK Inheritance Tax on Overseas Property and Assets

Many British nationals who live abroad or own overseas property assume that their foreign assets are outside the reach of UK inheritance tax. This is one of the most common and costly misunderstandings in private client planning. If you are UK-domiciled — which most British nationals are, unless they have taken deliberate steps to acquire a foreign domicile of choice — your worldwide estate is subject to UK IHT at 40% (above the nil-rate band) on your death.

From April 2025, the additional Long-Term Resident (LTR) test means that even non-domiciled individuals who have been UK resident for 10 of the last 20 years face worldwide IHT exposure. The scope of UK IHT has, if anything, widened.

The Basic Rule: Worldwide Exposure for UK-Domiciled Individuals

UK IHT is charged at 40% on the net estate above the nil-rate band (£325,000 per person; frozen at this level until at least April 2031). For a married couple, the transferable NRB potentially doubles this to £650,000, and the Residential NRB can add up to £175,000 per person where a family home passes to direct descendants.

The charge applies to everything: a Spanish holiday villa, a French apartment inherited from a parent, a US brokerage account, an Australian investment property, a UAE bank account, shares in a Swiss holding company, crypto held on an overseas exchange. If you are UK-domiciled, none of these sit outside the IHT net by virtue of being overseas.

The Double IHT Problem

The risk is not merely that the UK taxes overseas assets — it is that the country where the asset is located may also tax it, and in most cases there is no IHT double tax agreement (DTA) between the UK and that country to provide relief.

The UK has IHT (estate tax / inheritance tax) DTAs with only a handful of countries: France, Ireland, the United States, the Netherlands, Pakistan, India, South Africa, Zimbabwe, and Sweden. These agreements determine which country has the primary right to tax the asset and typically provide a credit in one country for tax paid in the other.

The most popular expat and investment property destinations — Spain, Italy, Portugal, Greece, Cyprus, Turkey, Thailand, Bali, Dubai/UAE — have no IHT DTA with the UK. If you own property in these countries, both the local inheritance or estate tax and UK IHT may apply to the same asset.

A practical example:

A British national, UK-domiciled, dies in 2026 with an estate comprising:

• A UK home worth £600,000
• A Spanish villa worth £400,000
• UK investments worth £500,000
• Spanish bank accounts: €50,000 (approximately £42,000)

Total estate: approximately £1,542,000.

UK IHT: After NRB of £325,000, the taxable estate is £1,217,000. IHT at 40% = approximately £487,000. (Ignoring the RNRB for simplicity.)

Spanish Impuesto de Sucesiones (Inheritance Tax): Spain taxes the inheritance received by each beneficiary. Rates vary by region and the relationship between the deceased and the beneficiary, but they can range from 7% to 34% on the Spanish-situs assets (the villa and bank accounts), with some regional reductions in certain Spanish autonomous communities (Andalusia, for example, has very generous exemptions for direct descendants). Non-resident heirs — the beneficiaries of a British national who was tax-resident in Spain — face different treatment from resident heirs.

There is no mechanism for the UK to give credit for Spanish inheritance tax paid, or vice versa. Both charges apply to the Spanish-situs assets. The effective tax rate on the villa could be extremely high.

The Situs Rules: Where Is an Asset "Located" for IHT?

The "situs" of an asset determines which country has the primary right to tax it. These rules are important both for double IHT risk and for planning purposes.

Land and property: Sited where it is physically located. A villa in Marbella is a Spanish-situs asset for Spanish inheritance tax and also within the UK IHT net for a UK-domiciled owner.

Shares in companies: Sited in the country of incorporation. Shares in a UK plc are UK-situs. Shares in a French SA are French-situs. Shares in a BVI or Cayman company are technically sited in those jurisdictions (though HMRC may look through transparent structures).

Bank accounts: Sited where the account is held — broadly, where the debt is recoverable. A bank account at a UAE bank is UAE-situs.

Debt (money owed to the deceased): Sited where the debtor resides.

Chattels (physical personal property — cars, art, jewellery): Sited where the object is physically located at the time of death.

Crypto-assets: HMRC's current position is that crypto is located where the beneficial owner is resident — meaning a UK-resident individual's crypto holdings are UK-situs assets. This position is evolving as the market and regulatory treatment matures.

Planning Strategies

Life insurance in trust: The most commonly used strategy to fund an IHT liability without restructuring the underlying assets. A life policy written in trust provides a sum on death (outside the estate, as the policy is in trust) to meet the IHT bill. Premiums are ongoing but predictable; the structure is straightforward. For older clients or those with health conditions, the cost of cover can be prohibitive.

Excluded property trusts (for non-doms before LTR status): Overseas assets settled into a trust while non-UK domiciled and before the 10-year LTR threshold is reached remain excluded from UK IHT indefinitely. This is the most powerful available tool for eligible individuals (see the related guide on IHT planning for non-doms for more detail).

Gifts (Potentially Exempt Transfers): Assets gifted outright to individuals are Potentially Exempt Transfers (PETs). If the donor survives 7 years from the date of the gift, it falls entirely outside the IHT estate. For overseas property this is straightforward in principle — but local stamp duty, gift tax, and CGT may apply in the country where the property is located, and in the UK if there is an embedded CGT gain.

Holding property through a corporate structure: In some jurisdictions, holding overseas property through a company rather than directly can affect the situs (UK IHT would apply to the shares, not the land) and the local succession law. However, company structures have their own costs, complexity, and tax implications. HMRC has rules targeting "enveloped dwellings" in the UK; similar issues can arise in other jurisdictions. This route requires specific local and UK tax advice.

Business Property Relief (BPR): Qualifying business assets can receive 100% or 50% BPR relief. Note that from 6 April 2026, combined 100% BPR and APR relief is capped at £2.5 million per estate (originally announced as £1 million in the October 2024 Budget and raised to £2.5 million in December 2025; the allowance is transferable between spouses/civil partners); assets above that threshold attract only 50% relief (a 20% effective IHT rate). BPR applies to UK and overseas trading business assets, provided the relevant conditions are met. This is relevant where overseas assets are genuinely part of a trading business rather than passive investment property.

UK-Situs Assets for Non-Doms

Before April 2025, non-UK domiciliaries were only exposed to IHT on UK-situs assets. Under the new LTR test, non-doms who have crossed the 10-year threshold now face worldwide exposure. But for non-doms in their first 10 years of UK residence, UK-situs assets remain taxable — and the same double IHT risk can apply in reverse: a non-dom who owns UK property may face both UK IHT on the UK property and their home country's inheritance or estate tax on the same asset.

The Importance of Wills in Each Jurisdiction

UK IHT applies regardless of where you hold assets, but succession law (who inherits your assets and in what order) is governed by the law of the country where the asset is located. Many countries have forced heirship rules that override your UK will. In France, for example, children are entitled to a fixed share of the estate (réserve héréditaire). In Spain, similar rules apply.

A UK will may not be recognised or effective in all jurisdictions where you hold assets. Holding separate, locally drafted wills for overseas assets — coordinated carefully with your UK will to avoid duplication or conflict — is often necessary.

How Global Investments Can Help

UK IHT on overseas assets is a genuinely complex area where the cost of getting it wrong — or ignoring it — can be very large. Global Investments works with clients who hold assets across multiple jurisdictions to map the full IHT exposure, identify planning opportunities before they close (particularly for those approaching LTR status), and coordinate with local legal and tax advisers in relevant countries. We help ensure that your estate planning reflects both the UK IHT position and the local succession and tax rules in every jurisdiction where you have meaningful assets.