How Inheritance Tax Works on Overseas Property
14th March, 2025
If you’re a UK resident receiving inheritance from abroad, the question of how inheritance tax (IHT) applies to overseas property can seem complex and overwhelming.
Imagine you’ve worked hard to build a nest egg that includes properties or investments around the world. But have you ever wondered how inheritance tax might affect these international assets?
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…
The Basics of Inheritance Tax on Overseas Property
Inheritance tax in the UK is a tax on the estate of a deceased person. 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.
As a UK resident, you are subject to UK inheritance tax on your worldwide assets. This means that even if you inherit property from abroad, it could still be subject to UK IHT.
But how does this work in practice? And, what can you do to manage it?
What Are the UK Inheritance Tax Rates?
UK inheritance tax is charged at a standard rate of 40% on estates worth over the nil-rate band threshold.
For the 2025/2026 tax year, the nil-rate band is set at £325,000, and the residence nil-rate band (RNRB), which is available if the deceased’s estate includes a main residence, stands at an additional £175,000.
Overseas property is treated the same as UK property for IHT purposes. The main complication arises when there are international factors involved, such as differing tax rules in the country where the property is located.
Does Inheritance Tax Apply to Foreign Property?
Yes, it does.
The UK government taxes overseas property just as it does domestic property.
That means if you inherit property abroad, the value of the asset will be included in the total value of the estate and will be taxed accordingly.
However, the IHT treatment of foreign assets can be influenced by several factors, such as:
1. Double Taxation Treaties
Several countries have agreements with the UK that allow for the avoidance of double taxation on inheritance, including the Republic of Ireland, South Africa, USA, Netherlands, Sweden and Switzerland.
If the country where the property is located has a double taxation agreement (DTA) with the UK, the IHT liability on the foreign property may be reduced or exempted.
These agreements determine which country gets to tax the inheritance and how much.
2. Foreign IHT Laws
Some countries impose their own inheritance tax, which could result in a double hit on the inherited property.
In these cases, a DTA may help mitigate some of the burden.
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 IHT is properly calculated and that the estate complies with both UK and local laws.
They must report all assets, including foreign property, to HMRC and calculate the appropriate IHT.
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 IHT 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
There are various reliefs available that could reduce the amount of inheritance tax you owe, such as agricultural or business property relief.
It’s worth exploring whether any of these can be applied to your overseas property.
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
Proper planning is essential. If you know you’ll be inheriting overseas property, take the time to plan ahead.
Review your estate and the potential tax implications, and consider tax-efficient strategies such as gifting assets before death or establishing a trust.
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 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 inheritance from abroad or if you’re considering leaving property overseas to your heirs, it’s vital to understand how IHT will affect your estate.
At Haggards, we specialise in offering tailored IHT 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.
If you act now, you’ll safeguard your estate and decrease potential tax burdens, ensuring that your legacy remains intact.
Don’t wait until it’s too late – take control of your inheritance planning today!
Andrew founded Haggards Crowther with his brother in 2004 and took over as Managing Partner in May 2023. He has always been closely involved in client work, in particular providing high level strategic tax and structuring advice, business advice and supporting the technical and compliance teams.
As Managing Partner, he has focussed on growing the business and ensuring the firm upholds its core values of Quality of Service, Innovation, Collaboration and Integrity. These remain central to all that we do both internally and in serving our clients.
A Fulham resident for over 30 years Andrew is closely connected with the local business community and supporting many of them on their journeys. He is especially linked with fellow start-up entrepreneurs advising them on their growth strategies and optimal structures.
A passionate Fulham FC supporter, along with his two sons, Andrew rarely misses a game. He plays and coaches volleyball, something he has done since university in Edinburgh, and which offsets another of his passions: exploring the vast and diverse range of food that London’s restaurants have to offer.
He has a keen interest in many conservation projects especially in protecting endangered species of birds and actively supports the Mabula Project in South Africa. This charity supports the Southern Ground Hornbill, a charismatic species of cultural and ecological importance threatened by loss of habitat through the encroaching development of the savannah.
