If you’re a UK resident receiving inheritance from abroad, working out how UK inheritance tax (IHT) on overseas property applies can seem complex and overwhelming.
But when your loved one has worked hard to build a nest egg, including properties and investments, it’s important to understand how inheritance tax might affect these international assets.
In fact, with more people investing beyond their home country’s borders, understanding inheritance tax on foreign assets isn’t just smart; it’s essential. This knowledge can save your loved ones from unexpected financial headaches and help you plan a smoother legacy.
Keep reading to find out everything you need to know as a UK resident receiving inheritance from abroad.
The Basics of UK Inheritance Tax on Overseas Property
Inheritance tax (IHT) in the UK is a tax on the estate of a deceased person. For long-term residents, the estate includes all assets, regardless of whether they are in the UK or overseas.
However, there are a few important differences to keep in mind when dealing with property located abroad.
From 6 April 2025, the UK scrapped the old domicile rules. Whether overseas assets face UK inheritance tax now depends on the residence of the person who died. Let’s break it down.
If the person who passed away was a long-term UK resident, any assets from abroad — property, bank accounts, investments, etc. — may be subject to inheritance tax.
If a long-term resident leaves the UK, any assets can remain subject to inheritance tax for between three and 10 years after they left. However, this depends on how long they were living in the UK with residence status.
To be a long-term UK resident, the person must have been a UK tax resident for at least 10 of the previous 20 tax years.
If a person isn’t a long-term resident, only their UK assets can be subject to inheritance tax. Any overseas property falls outside the scope of UK inheritance tax in that instance.
What Are the UK Inheritance Tax Rates?
UK inheritance tax is charged at 40% on the part of an estate above the £325,000 nil-rate band.
If the deceased’s estate includes a main residence, and it’s left to direct descendants (children, grandchildren), it may qualify for the residence nil-rate band (RNRB). Currently, the RNRB stands at an additional £175,000. However, for every £2 over £2 million that the estate is worth, the RNRB tapers down by £1.
Spouses and civil partners can leave assets to each other tax-free, provided they have a UK domicile. Any unused nil-rate band, including the RNRB, can be transferred to their surviving spouse. As such, the total tax-free amount a married couple can pass on to children is up to £1 million. However, there are conditions to be aware of when it comes to RNRB specifically:
- The surviving spouse or civil partner must have died on or after 6 April 2017
- The estate must include a home the deceased lived in as their main residence at some point (a property that was only ever let out won’t qualify)
- The home must be left to direct descendants, such as children, grandchildren, step-children, adopted or fostered children, and their spouses or civil partners
- The estate must be worth £2 million or less to get the full RNRB. Above that, it’s reduced by £1 for every £2 over the threshold
Until 5 April 2031, the UK inheritance tax thresholds are frozen, meaning they’re not due to change within that period.
Does Inheritance Tax Apply to Foreign Property?
Yes, inheritance tax can apply to foreign property, provided the deceased was a long-term UK resident.
If they were a long-term UK resident, the UK will tax their overseas property just as it does domestic property. The value of property overseas will be added to the rest of their estate. Inheritance tax is then calculated on that total.
If they weren’t a long-term UK resident, only their UK assets will be taxed, meaning any overseas property falls outside the scope of inheritance tax.
However, the inheritance tax treatment of foreign assets can be influenced by a couple of factors, such as:
1. Double Taxation Treaties
Several countries have agreements with the UK that allow for the avoidance of double taxation on inheritance:
- France
- India
- Ireland
- Italy
- The Netherlands
- Pakistan
- South Africa
- Sweden
- Switzerland
- USA
If the country where the property is located has a double taxation agreement (DTA) with the UK, the inheritance tax liability on the foreign property may be reduced or removed entirely.
If there’s no treaty in place, it doesn’t automatically mean you’ll have to pay twice. The UK can usually give ‘unilateral relief’, which is a credit for inheritance tax already paid abroad on the same property.
2. Foreign IHT Laws
Some countries impose their own inheritance tax, which could result in a double hit on the inherited property.
Make sure you seek expert advice because tax laws vary greatly from country to country.
What Are the Implications for Executors and Beneficiaries?
When dealing with overseas property, the role of the executor becomes even more important.
The executor is responsible for ensuring that inheritance tax is properly calculated and that the estate complies with both UK and local laws.
They must report all assets, including foreign property, to HM Revenue & Customs and calculate the appropriate inheritance tax.
If you are a beneficiary receiving overseas property, you may face additional challenges, including the following:
- Estate administration costs in the foreign jurisdiction
- Currency exchange issues when valuing and transferring the property
- The necessity to consult local experts in both the UK and the country where the property is located
What Are the Next Steps to Manage UK Inheritance Tax on Overseas Property?
Handling inheritance tax on overseas property takes careful planning to avoid extra costs and complications. If you’re inheriting property from abroad or planning your estate, taking the right steps now can save time, money, and stress later.
Here are some key actions to consider:
1. Understand Double Taxation Treaties
Before making any decisions, check whether a double taxation treaty exists between the UK and the relevant country.
This can help reduce or eliminate potential double taxation on foreign assets.
2. Use the IHT Reliefs Available
The standard allowances, including the nil-rate band, residence nil-rate band and spouse exemption, apply to the whole estate, including property abroad.
Business and agricultural property relief rarely apply to overseas homes or rental properties, so don’t count on them without expert advice.
3. Consider Making a Will in the Relevant Jurisdiction
In some cases, making a will in the country where the property is located can simplify the estate administration process.
This is particularly important for assets like foreign property, which may be subject to different inheritance laws.
4. Plan Ahead
If you know you’ll be inheriting overseas property or own a property abroad yourself, take the time to plan. Planning can allow you to take advantage of tax-efficient strategies, such as gifting assets before death or establishing a trust.
Gifts become fully exempt after seven years, and tax on gifts made three to seven years before death may be reduced through taper relief. If you keep using the property after gifting it, for example, still holidaying in the villa, it’s treated as a ‘gift with reservation’ and stays in your estate.
Trusts can also play a part, but the rules on overseas assets in trusts changed in April 2025. Get expert trust and settlement advice before setting one up or adding to an existing one.
5. Seek Expert Advice
Due to the intricacies of inheritance tax on foreign property, working with tax professionals who understand both UK and international tax laws is essential.
The team at Haggards Crowther has the expertise to guide you through the process and ensure that you are fully informed of your rights and obligations.
Why Act Now?
Inheritance tax can take a significant chunk out of an estate’s value, and when foreign property is involved, the process becomes even more complex.
Different countries have their own tax laws, and without careful planning, beneficiaries may face unexpected costs, delays, or even double taxation.
Taking proactive steps — such as understanding tax treaties, structuring ownership correctly, and seeking expert advice — can help minimise liabilities and ensure a smoother transition of assets.
Take Action With Haggards Crowther Today!
If you are a UK resident receiving an inheritance from abroad or you’re considering leaving property overseas to a loved one, it’s vital to understand how inheritance tax will affect it.
At Haggards Crowther, we specialise in offering tailored inheritance tax planning advice on overseas property inheritance, helping you make the most informed decisions.
Get in touch with our team today to schedule a consultation. You can contact us directly via email at enquiries@haggards.co.uk or fill in our online form for a free 30-minute consultation.
Take control of your inheritance planning today!
UK Inheritance Tax on Overseas Property FAQs
Usually you won’t, at least not directly. UK inheritance tax is paid by the estate, not the person inheriting. Overseas assets are only subject to UK inheritance tax if the deceased was a long-term UK resident.
Keep in mind that the country where the property is located may also charge its own inheritance tax on you as the recipient.
Inheritance tax in the UK needs to be paid within six months of the end of the month in which the person died. HMRC charges interest on any tax paid late.
Overseas property is valued at its market value on the date the person passed away. This is then converted into pounds sterling. Executors report foreign assets to HMRC as part of the estate’s inheritance tax return.
You might have to pay Capital Gains Tax if you sell an inherited overseas property. The gain is based on the property’s value at the time the person passed away, not what the original owner paid. The other country may also tax the gain, but relief is often available so you’re not taxed twice.
