Foreign Property and UK Inheritance Tax (2026): Worldwide Assets, Double Tax Treaties and IHT Relief

Whether overseas assets are subject to UK IHT depends on the deceased's domicile: (1) UK DOMICILIARY — WORLDWIDE ASSETS (IHTA 1984 s.6): a person who is domiciled in the UK at the date of death is subject to UK IHT on ALL their worldwide assets — regardless of where those assets are located: (a) Foreign real estate (a holiday home in France; an apartment in Spain; a villa in Italy): subject to UK IHT; (b) Overseas bank accounts and deposits: subject to UK IHT; (c) Foreign shares and investments: subject to UK IHT if the deceased is UK domiciled; (d) Foreign business interests: potentially subject to UK IHT (subject to BPR if qualifying); (e) Foreign life insurance policies: subject to UK IHT if the policy is not written in trust; (f) Art, jewellery, and personal property abroad: subject to UK IHT; (2) NON-UK DOMICILIARY — UK SITUS ASSETS ONLY (IHTA 1984 s.6(1)): a person who is not domiciled in the UK (and not deemed domiciled for IHT) is only subject to UK IHT on assets SITUATED in the UK (UK situs assets — see the excluded property trust guide for situs rules). Their foreign assets are excluded from UK IHT; (3) DEEMED DOMICILE (IHTA 1984 s.267): a person who is not UK domiciled under general law may still be deemed UK domiciled for IHT purposes — and therefore subject to IHT on worldwide assets — if they have been UK resident for 15 of the preceding 20 tax years (pre-FA 2025 rules) or 10 years (FA 2025 reform). Once deemed domiciled, all worldwide assets are within the scope of UK IHT; (4) INTERACTION WITH THE ESTATE: when valuing the worldwide estate for IHT, the executors must include a valuation of all foreign assets at their market value at the date of death. HMRC requires foreign property to be valued in sterling at the date of death exchange rate. The costs of valuing foreign assets can be significant.

Where a foreign country also taxes the same asset on the death of a UK-domiciled person, the same property can be subject to inheritance/estate tax in BOTH countries. Double tax relief prevents complete double taxation: (1) THE UK'S IHT DOUBLE TAX TREATY NETWORK: the UK has concluded specific inheritance tax double tax conventions (distinct from income tax treaties) with a limited number of countries. The main IHT treaty countries (as at 2026) include: France; Ireland; Italy (though this treaty is of limited practical effect); India; Pakistan; South Africa; Switzerland; USA; Netherlands. This is a significantly smaller network than income/corporation tax treaties — many countries that tax on inheritance (Germany; Spain; Belgium; Japan) have no IHT treaty with the UK; (2) CREDIT RELIEF — THE MOST COMMON MECHANISM (IHTA 1984 s.158): where a double tax treaty is in place, the more common mechanism is credit relief: (a) the UK calculates its own IHT on the foreign asset; (b) the foreign country calculates its own inheritance/estate tax on the same asset; (c) the taxpayer pays the HIGHER of the two taxes; (d) a credit is given in whichever country charges the lower tax — the credit reduces its tax by the amount paid to the other country. The result: tax is paid once at the higher rate, with the lower-rate country giving credit for the full amount paid to the higher-rate country; (3) EXEMPTION RELIEF: in some treaties (or for some asset categories within a treaty), the asset is taxed exclusively in one country and completely exempted in the other. For example, under the UK-US estate tax treaty, immovable property (real estate) is taxed exclusively in the country where it is situated — so a UK domiciliary's US vacation home would be taxed only in the US, and exempted from UK IHT; (4) UNILATERAL RELIEF (IHTA 1984 s.159): where there is no treaty between the UK and the foreign country (the majority of cases), UNILATERAL relief is available. The UK gives credit for the foreign inheritance/estate tax paid, up to the amount of UK IHT attributable to that asset. The unilateral credit prevents complete double taxation even without a treaty; (5) THE POSITION IN PRACTICE: the UK executor must: (a) obtain a valuation of foreign assets; (b) identify any applicable treaty; (c) calculate the foreign inheritance tax paid; (d) claim the credit on HMRC Form IHT400 Schedule D18.

Foreign real estate is one of the most commonly encountered overseas asset types in UK estates. The IHT treatment for a UK domiciliary is as follows: (1) FOREIGN REAL ESTATE IS SUBJECT TO UK IHT: a UK-domiciled person's holiday home, investment property, or any other real estate situated abroad is a UK IHT asset. It is included in the worldwide estate at its market value at the date of death; (2) FOREIGN FORCED HEIRSHIP LAWS — A SEPARATE ISSUE: many countries with foreign property have their own succession laws that apply to real estate situated in their territory — regardless of the owner's nationality or the terms of their will. Examples: (a) France: the French 'réserve héréditaire' gives protected shares to children, limiting testamentary freedom for French-situated property (though the EU Succession Regulation 650/2012 allows a non-French national habitually resident in France to choose UK succession law for their worldwide estate); (b) Spain: similar forced heirship rights for children under Spanish civil law; (c) These forced heirship laws operate independently of UK IHT — a UK domiciliary with French property may have to comply with French inheritance law for the property AND pay UK IHT on the same asset; (3) HOW TO INCLUDE FOREIGN REAL ESTATE IN PROBATE: (a) a UK grant of probate does not automatically confer authority to deal with foreign real estate — most countries require either a local grant or a form of recognition of the UK grant; (b) the executor may need to obtain a local grant of administration in the country where the property is situated; (c) local inheritance taxes (e.g. French droits de succession; Spanish Impuesto de Sucesiones) must be paid before the property can be transferred; (4) MORTGAGES ON FOREIGN PROPERTY: where a mortgage secures a foreign property, the net equity (property value minus mortgage) is the IHT asset. HMRC allows the mortgage as a deduction on the IHT return (IHT400); (5) TAX PLANNING — FOREIGN REAL ESTATE: options include: (a) holding the property through a foreign company — though this may trigger specific IHT anti-avoidance provisions for certain jurisdictions (notably France — the 3% tax regime and de Gaulle decree); (b) lifetime gift of the property — subject to CGT and the 7-year PET rule; (c) structuring via a trust (for non-doms only — UK domiciliaries cannot create an excluded property trust of foreign real estate).

A UK will can technically cover worldwide assets — but for foreign real estate, a separate will in the country where the property is situated is often strongly advisable: (1) THE PRINCIPLE — ONE WILL CAN COVER ALL: a UK will drafted on 'all my estate wherever situated' technically covers all the deceased's worldwide assets. HMRC accepts the UK will as the basis for the IHT calculation. So technically, a UK will is sufficient; (2) WHY A FOREIGN WILL IS OFTEN NEEDED IN PRACTICE: (a) Foreign probate: most countries require a local grant of administration (or equivalent local probate process) before the executor can deal with locally-situated real estate. The UK grant of probate is often not directly recognised — it may need to be 're-sealed' (i.e. authenticated) in the foreign country, or a fresh application made; (b) Time and cost: obtaining a foreign grant adds time (months) and cost to the administration. A local will already admitted to probate in the foreign country can speed this up; (c) Language: a UK will must often be translated for use in foreign proceedings, adding cost; (d) Local law compliance: the UK will may not comply with the formal execution requirements of the foreign country (different witnessing rules; notarisation requirements). A locally drafted will ensures compliance; (3) THE INTERACTION OF MULTIPLE WILLS: if the deceased has a UK will and a French will (for example), the wills must be carefully coordinated so that: (a) each will covers only the assets in that country (or the worldwide assets are specifically split); (b) neither will accidentally revokes the other (a new will that contains a general revocation clause may revoke a prior foreign will); (c) the same asset is not disposed of twice; (4) EU SUCCESSION REGULATION — ARTICLE 22: where a UK national (post-Brexit, a 'third country national') has assets in EU member states, they may choose the law of their nationality (UK law) to govern their worldwide succession — by making a formal choice of law in their will. This can allow avoidance of forced heirship rules in EU countries for persons who are not habitual residents there; (5) PRACTICAL ADVICE: always take specific legal advice from a lawyer qualified in the country where foreign real estate is held. The WillSafe UK kit covers your UK estate — UK-situated assets are governed by your UK will.

UK domiciliaries with overseas assets have limited options to remove those assets from the UK IHT net — but there are several planning approaches: (1) LIFETIME GIFTING — THE 7-YEAR RULE: the most straightforward approach. Gifts of overseas assets to individuals are PETs (IHTA 1984 s.3A) — they leave the estate if the donor survives 7 years. A foreign property gifted to a child during the donor's lifetime will be out of the UK IHT net if the donor survives 7 years. CGT consequences on the gift must also be considered; (2) SETTLING INTO TRUST — LIMITED BENEFIT FOR UK DOMICILIARIES: unlike a non-UK domiciliary (who can create an excluded property trust of foreign assets), a UK domiciliary CANNOT shelter foreign assets from IHT by putting them into a trust — the trust is subject to the relevant property regime and the foreign assets are still within the UK IHT net; (3) USING BPR FOR OVERSEAS BUSINESS ASSETS: a foreign business (e.g. shares in a foreign family company qualifying as a business) may attract BPR at 100% if: the business qualifies as BPR-eligible; the shares have been held for at least 2 years; the business does not consist mainly of investment. BPR can shelter overseas business assets from IHT — specialist advice is needed on whether a foreign business qualifies; (4) DOUBLE TAX RELIEF — CLAIM ALL AVAILABLE CREDITS: ensuring that all available double tax relief (treaty and unilateral) is claimed on the IHT return can significantly reduce the overall IHT cost on foreign assets. Executors should obtain specialist advice on the treaty position for each country where assets are held; (5) REVIEW DOMICILE STATUS: if the person has genuine connections to a foreign country (spent significant time there; property ownership; professional and social ties), it may be possible to establish non-UK domicile of choice. Acquiring a non-UK domicile removes all non-UK assets from UK IHT. This is a significant legal and factual change — not something that can be achieved by simply spending time abroad. Specialist domicile advice is essential; (6) ENSURE WILLS COVER ALL JURISDICTIONS: reviewing both the UK will and any foreign wills is the most basic and essential planning step for a UK domiciliary with overseas assets — ensuring the estate can be administered efficiently and all available reliefs are claimed.