Inheritance Tax on Foreign Assets UK (2026): How Overseas Property and Investments Are Taxed

UK inheritance tax is not based on where you live but on where you are legally domiciled. Domicile is the crucial concept: (1) UK-DOMICILED INDIVIDUALS — WORLDWIDE ESTATE: if a person is domiciled in England and Wales (or in the UK more broadly for IHT purposes), their entire worldwide estate is subject to UK inheritance tax at 40% (above the nil-rate band). This includes: (a) property in France, Spain, Portugal, or anywhere else; (b) foreign bank accounts and savings; (c) overseas investments and shares; (d) holiday homes abroad; (e) foreign pensions (though many pension death benefits are excluded from the estate as trust assets). IHTA 1984 s.1 and s.5 define the estate as all property to which the deceased was beneficially entitled — no geographical restriction applies for UK domiciliaries; (2) NON-UK DOMICILED INDIVIDUALS — UK-SITUS ASSETS ONLY: if a person is domiciled outside the UK, only their UK-situs assets are subject to IHT. Non-UK situs assets are 'excluded property' (IHTA 1984 s.6(1)) and are completely outside the scope of UK IHT. This can be a significant advantage — a French national who retires to the UK for several years, while still UK tax resident, may still be French domiciled and therefore only pay UK IHT on UK assets; (3) WHAT IS 'DOMICILE' FOR IHT: domicile is a concept of private international law — it is not the same as tax residence, habitual residence, or nationality. There are three types: (a) domicile of origin: acquired at birth — usually the domicile of the father (or mother for illegitimate children); it is extremely 'sticky' and is hard to lose; (b) domicile of choice: acquired by settling in a country with the intention of making it a permanent home — 'animus manendi' (intention to remain indefinitely). Strong evidence required: selling the house abroad; severing business ties; registering to vote; stating in a will that you intend to remain; (c) domicile of dependency: minors take their parents' domicile; (4) PRACTICAL EXAMPLES: UK national who bought a holiday villa in Spain: the villa IS in their worldwide estate for IHT; Spanish succession tax may also apply — the double tax treaty operates; French national living in London: if still French domiciled, UK property (apartment in London) IS in estate; French property is excluded; all depends on domicile analysis.

Deemed domicile is the mechanism by which a person who is not UK domiciled at common law can still be treated as UK domiciled for IHT purposes, bringing their worldwide assets into scope: (1) THE PRE-APRIL 2025 RULE (IHTA 1984 s.267): under the rules that applied before 6 April 2025, a person was deemed UK domiciled for IHT if they had been resident in the UK for tax purposes in at least 15 of the 20 tax years immediately preceding the relevant year. If a non-dom had been UK resident for 15 out of the last 20 years, they were treated as UK domiciled for IHT — worldwide assets became liable. The 15/20-year rule still applies to deaths that occurred before 6 April 2025; (2) THE POST-APRIL 2025 LONG-TERM RESIDENT (LTR) RULES: from 6 April 2025, the government announced replacing the 15/20-year deemed domicile rules for both income tax/CGT and IHT with new 'Long-Term Resident' (LTR) rules. Under the LTR rules: (a) a person becomes a Long-Term Resident (and therefore UK domiciled for IHT) after being UK tax resident for 10 years in the 20 years preceding the relevant year (compared to 15/20 previously — a lower threshold, pulling more non-doms into scope sooner); (b) once LTR status is acquired, the deemed domicile for IHT applies and worldwide assets are in scope. The LTR rules are the policy announcement for 2025 onward. For estates in 2026: check the current legislation and HMRC guidance, as transitional rules will apply; (3) LEAVING THE UK: a person who was deemed domiciled (under either rule) and then leaves the UK does not immediately shed their UK deemed domicile. There is a 'tail' period: under the old rules, 3 tax years after ceasing to be UK resident. Under the LTR rules, the tail may differ — professional advice is essential for non-doms planning to exit the UK; (4) NON-DOM SPOUSE ELECTION (IHTA 1984 s.267ZA): a surviving spouse who is non-UK domiciled (or deemed domiciled) whose deceased spouse was UK domiciled may elect to be treated as UK domiciled. This allows them to use the unlimited spouse exemption (not the capped £325,000 — see below). The election is irrevocable for 7 years and brings the non-dom's worldwide assets into UK IHT scope; (5) WHY THIS MATTERS FOR PLANNING: a US citizen who has lived in London for 11 years may now be within the LTR rules. Their worldwide estate — including US real estate, US investment accounts — may be subject to UK IHT. The interaction with US federal estate tax (which also taxes the worldwide estate of US citizens) requires careful analysis using both countries' estate tax rules and the UK-USA double taxation treaty.

For a non-domiciled individual (or where a double tax treaty is involved), determining where an asset is situated ('situs') is critical to whether it is subject to UK IHT: (1) IMMOVABLE PROPERTY: situs is the place where the land or building is physically located. A holiday villa in France = French situs. A buy-to-let flat in London = UK situs. UK real property is always within scope for IHT regardless of the owner's domicile; (2) REGISTERED SHARES AND SECURITIES: the situs of shares is generally the place of incorporation of the company. Shares in a UK company (registered at Companies House, UK share register) = UK situs. Shares in a French company = French situs. US shares = US situs. EXCEPTION: shares held through nominee arrangements or overseas depositaries may have a different situs — specialist advice required; (3) BANK ACCOUNTS: the situs is the country in which the account is held (i.e. the branch of the bank where the account is operated). A UK bank account with HSBC in London = UK situs. A Swiss bank account = Swiss situs. Online accounts with overseas-headquartered banks require analysis of where the account is actually operated; (4) CHATTELS (PERSONAL PROPERTY): the situs of tangible personal property (jewellery, art, furniture, vehicles) is where the item is physically located at the date of death. Artwork kept in France = French situs. Jewellery kept at the UK home = UK situs; (5) DEBTS: a debt has its situs where it is recoverable — generally, where the debtor resides or is incorporated; (6) LIFE ASSURANCE POLICIES: the situs of a life assurance policy is generally where the insurance company is registered or where the policy was entered into. UK insurance policies = UK situs. However, policies written under trust are not included in the estate (they are held on trust and paid outside the estate — IHTA 1984 s.3(4)); (7) PENSION FUNDS: most UK pension funds are held in trust and are excluded from the estate for IHT (IHTA 1984 s.151). Foreign pension funds follow their own rules; (8) INTELLECTUAL PROPERTY: UK IP rights (UK registered patents, trademarks, copyright in works first published in the UK) = UK situs; (9) WHY SITUS MATTERS: for a non-dom: only UK-situs assets are subject to UK IHT. A careful situs analysis can identify opportunities to restructure (hold non-UK assets in non-UK holding structures) while avoiding HMRC's anti-avoidance rules.

Yes — a UK-domiciled person pays IHT at 40% on their entire worldwide estate, but relief may be available under double taxation treaties and through careful planning: (1) FRANCE: the UK has a double taxation convention on estates and inheritances with France (UK-France Treaty 1963). The treaty prevents double taxation on the same asset. For immovable property in France: France charges droits de succession (French inheritance tax); the UK IHT credit system allows a credit against UK IHT for French succession tax paid on the same asset. In practice, French succession tax rates can be higher than UK IHT — so the UK credit may eliminate UK IHT on the French property entirely; (2) SPAIN: the UK–Spain double taxation treaty does NOT currently include a specific estate/inheritance tax convention. UK IHT and Spanish Impuesto sobre Sucesiones y Donaciones (ISD) can both apply to the same asset without treaty relief. HMRC allows a 'unilateral relief' credit under IHTA 1984 s.159 for foreign tax paid on overseas property — this can reduce the UK IHT bill, but is less favourable than a treaty; (3) USA: the UK-USA Estate Tax Convention (1979, as amended) is the relevant treaty. It covers: US citizens/residents and UK domiciliaries whose estates are subject to both US estate tax and UK IHT. The treaty generally gives each country the right to tax immovable property in their own territory and provides credits to prevent double taxation. However: US citizens are taxed by the USA on their worldwide estates regardless of where they live — a US citizen living in the UK pays BOTH US estate tax (if above the federal exclusion of $13.6m in 2024) AND UK IHT on their UK estate. Treaty credits reduce but may not eliminate the combined tax; (4) OTHER COUNTRIES: UK has estate tax treaties with India, Pakistan, the Netherlands, Sweden, Switzerland, South Africa, Ireland, and some others. For countries with no treaty, unilateral double tax relief (IHTA 1984 ss.158–159) applies; (5) REPORTING AND VALUATIONS: for a UK IHT estate that includes overseas property, foreign assets must be valued in the local currency at the date of death and converted to sterling using the exchange rate at that date. The IHT400 supplementary form IHT418 covers foreign assets.

There are legitimate planning strategies for both groups — but they require specialist advice and must be implemented carefully: (1) FOR NON-DOMS (PROTECTING EXCLUDED PROPERTY STATUS): (a) do not become UK domiciled or deemed domiciled — monitor the LTR clock (10 years UK residence from April 2025 rules) and take professional advice well before crossing the threshold; (b) EXCLUDED PROPERTY TRUSTS: a non-dom can settle non-UK situs assets on trust while they are non-domiciled. Even if the settlor later becomes UK domiciled (or deemed domiciled), the trust assets retain their excluded property status UNLESS the trust contains UK situs assets. This is one of the most effective structures for a non-dom who expects to become UK domiciled; (c) KEEP NON-UK ASSETS GENUINELY NON-UK SITUS: hold foreign investments in foreign structures (foreign company, foreign trust, foreign depositary). Be wary of HMRC's Ramsay/Furniss doctrines — arrangements whose dominant purpose is IHT avoidance may be challenged; (2) FOR UK DOMICILIARIES WITH OVERSEAS ASSETS: (a) claim double taxation treaty relief on the estate — ensure foreign taxes are properly credited in the IHT return (IHT418); (b) if the treaty credit does not fully cover the overseas tax, unilateral relief (IHTA 1984 s.159) applies; (c) OVERSEAS PENSION FUNDS: most are excluded from the estate (IHTA 1984 s.151) but this depends on the specific pension structure — check the overseas pension rules in each country; (d) LIFE INSURANCE UNDER TRUST: place overseas life assurance policies under trust to remove them from the estate — value the trust properly; (e) BUSINESS PROPERTY RELIEF: if the foreign assets are a business or business property, BPR (IHTA 1984 s.105) may apply — 100% relief up to £1m; 50% above £1m (from April 2026). BPR is available on overseas business assets provided the business qualifies; (3) THE NON-DOM SPOUSE ELECTION: where one spouse is UK domiciled and one is non-UK domiciled, the non-dom spouse may elect to be treated as UK domiciled (IHTA 1984 s.267ZA). This gives the estate the unlimited spouse exemption on the first death — saving the IHT that would otherwise be due on the capped £325,000 limit. But it comes at a cost: the non-dom spouse's worldwide assets are then subject to UK IHT on their own death. Only beneficial where the non-dom spouse has limited assets; (4) REVIEW WILLS FOR OVERSEAS ASSETS: a UK will is effective to deal with UK assets. For immovable property in France or Spain or elsewhere, a separate local will (or a will drafted to be effective in that jurisdiction) is usually required. Review domicile and property situs in each jurisdiction to ensure the will structure works.