Inheritance Tax on Overseas Assets UK: Foreign Property, Non-Dom Rules, and LTUKR 2025 (2026)
UK-domiciled individuals pay IHT on worldwide assets — including overseas property, foreign shares, and foreign bank accounts. Non-UK domiciled individuals pay IHT only on UK-situs assets. Since April 2025, the new LTUKR test means 10+ years of UK residence can trigger worldwide IHT even for non-doms.
| Asset Type | Situs Rule | UK IHT for UK Dom? | Notes |
|---|---|---|---|
| Land and buildings (including overseas property) | Where the property is physically located | YES — UK property always in IHT estate for UK dom; NOT for non-UK dom (excluded property) | A Frenchman living in UK but with French domicile: UK property = IHT; French villa = excluded property |
| UK company shares (listed on LSE or UK register) | UK — always UK situs | YES for all — UK-domiciled and non-UK domiciled alike: UK company shares are UK situs and always in the IHT estate | Non-doms holding UK shares: these ARE subject to IHT despite non-dom status; important planning point |
| Non-UK company shares (e.g., US or French company) | Where the share register is maintained — usually the country of incorporation | YES for UK-domiciled; NO for non-UK domiciled (excluded property — s6(1) IHTA) | A UK domicile holding Apple shares (US register): subject to IHT; a French domicile holding Apple shares in UK: excluded property |
| UK bank account | UK — where the account is held | YES for all — UK bank accounts are UK situs; included in IHT estate for all domiciles | A non-dom with a UK current account at Barclays: the account is UK situs; subject to IHT even for non-dom |
| Foreign bank account (e.g., French bank) | Where the bank account is held — France in this example | YES for UK-domiciled; NO for non-UK domiciled (excluded property) | UK-domiciled person with a French bank account: worldwide assets — French account IN estate. Non-dom: French account excluded property |
| UK government gilts held by non-UK domiciled person | Under specific rules, government gilts held by non-UK domiciled in certain circumstances may be excluded property (s6(2) IHTA 1984 — FOTRA securities) | Historically exempt for non-dom holders; rules changed but some legacy positions exist | FOTRA (Free Of Tax to Residents Abroad) securities — complex; specialist advice needed |
| UK residential property held through offshore company (pre-April 2017) | Pre-April 2017: shares in offshore company (non-UK situs); now: s6(1A) IHTA 1984 — UK residential property held through non-UK entities treated as UK situs for IHT | YES — from April 2017, UK residential property held via offshore companies, partnerships, or trusts is UK situs for IHT; the 'enveloping' exemption was abolished | Finance Act 2017 closed the offshore envelope loophole; all UK residential property now IHT-exposed regardless of holding structure |
UK domicile: worldwide assets subject to IHT (s5(1) IHTA 1984). Non-UK domicile: UK-situs assets only (s6(1) IHTA 1984 — foreign assets = excluded property). Situs rules: immovable property = where located; UK company shares = UK situs; non-UK company shares = situs of share register; bank accounts = where held; debts = residence of debtor. April 2025 LTUKR test (Finance Act 2025): 10 of 20 preceding tax years UK resident = worldwide IHT; replaces 15-year deemed domicile rule (s267(1)(b) IHTA repealed); LTUKR tail = up to 20 years worldwide IHT exposure after leaving UK. Non-dom spousal exemption cap: s18(2) IHTA 1984 — £325k only where transferor UK dom, transferee non-dom; non-dom election: s267 IHTA — removes cap but makes non-dom's worldwide estate subject to IHT. UK residential property through offshore company: s6(1A) IHTA 1984 (Finance Act 2017) — UK residential property held via non-UK entities = UK situs from April 2017. Double tax treaties: USA, France, Italy, India, Netherlands, Pakistan, South Africa, Sweden, Switzerland. Unilateral relief: s159 IHTA 1984. FOTRA securities: s6(2) IHTA — government gilts exempt for non-doms in certain circumstances. Spanish succession tax: by autonomous community; varies significantly.
IHT on Overseas Assets: Complete Guide
Domicile — the key concept for overseas asset IHT
Whether overseas assets are subject to UK IHT depends on domicile — not residence. Domicile is a legal concept distinct from tax residence. A person has only one domicile at any time. The UK IHT rules apply to: (a) UK-domiciled individuals: IHT on worldwide assets (s5(1) IHTA 1984 — 'the estate of a person' includes all property anywhere in the world); (b) non-UK domiciled individuals: IHT only on UK-situs assets (s6(1) IHTA 1984 — property situated outside UK is 'excluded property' for non-doms). Domicile types in English law: (1) Domicile of origin: the domicile acquired at birth — usually the domicile of the father (for children born in wedlock); hard to lose; automatically revives if domicile of choice is abandoned. (2) Domicile of choice: acquired by living in a country with the clear intention of living there permanently or indefinitely ('animus manendi'). This requires substantial evidence — length of residence, property ownership, family ties, cutting ties with domicile of origin. A person who has lived in the UK for 30 years but always 'intends to return home eventually' may NOT have acquired UK domicile of choice. (3) Deemed domicile (IHTA): under the pre-April 2025 rules (s267 IHTA 1984), a person was 'deemed UK domiciled' for IHT purposes if they were domiciled in the UK within the previous 3 years, or had been resident in the UK for at least 15 of the previous 20 tax years. From April 2025, the 15-year rule is replaced by the LTUKR test (see below).
The April 2025 LTUKR reform — the new 10-of-20 year test
Finance Act 2025 replaced the 15-year deemed domicile rule with the Long-Term UK Resident (LTUKR) test, effective from 6 April 2025. Under the LTUKR test: a person is a Long-Term UK Resident (and therefore subject to IHT on worldwide assets) if they have been UK resident for at least 10 of the preceding 20 tax years. This is a statutory residence test (SRT) based year-count — it uses the same residence test as for income tax and CGT (Statutory Residence Test — Finance Act 2013 Schedule 45). The LTUKR test is less demanding than the old 15-year rule: a person can become subject to worldwide IHT after just 10 years of UK residence (vs 15 years previously). LTUKR 'tail' after leaving the UK: a person who ceases to be UK resident after achieving LTUKR status does not immediately lose worldwide IHT exposure. The tail period depends on how long they were a LTUKR: for those resident 10-19 years: 10-year tail after leaving; for those resident 20+ years: 20-year tail. This means a long-term UK resident who emigrates to escape worldwide IHT will remain subject to it for up to 20 years after leaving the UK — a very long tail. The LTUKR reform captures more individuals than the old deemed domicile rules. Non-UK domiciled individuals who arrived in the UK and have lived here for 10+ years should urgently review their IHT position.
The non-dom spousal exemption — a critical limit for mixed-domicile couples
The spousal exemption (s18 IHTA 1984) provides that transfers between spouses and civil partners are fully exempt from IHT — unlimited amounts. However, there is a critical exception under s18(2) IHTA 1984: where the transferor is UK-domiciled and the transferee (recipient) is NON-UK domiciled, the spousal exemption is CAPPED. The cap is equivalent to the NRB: in 2026/27, only £325,000 passes to a non-dom spouse free of IHT; any excess is taxable at 40%. This creates a significant trap for mixed-domicile couples (one UK-domiciled, one foreign-domiciled). Historically this was addressed by the non-dom spouse making a s267 IHTA 1984 election to be treated as UK-domiciled for IHT purposes. The election: (a) allows unlimited spousal transfers (removes the £325k cap); (b) but makes the non-dom spouse's WORLDWIDE assets subject to UK IHT. This election is irrevocable during the first 7 years; can be revoked after that point (with IHT tail consequences). The election creates a worldwide IHT exposure that must be carefully balanced against the benefit of unlimited spousal transfers. Planning for mixed-domicile couples: specialist advice is essential; the decision depends on the relative values of the foreign estate vs the UK estate and the applicable foreign IHT (or equivalent) rules.
Double taxation treaties and overseas IHT — avoiding paying tax twice
Where a UK-domiciled person owns assets in a foreign country, both the UK and the foreign country may seek to tax the same asset on death. The UK has Double Taxation Treaties (DTTs) covering inheritance/estate taxes with the following countries: the USA (1979); France (1963); Italy (1966); India (1956); the Netherlands (1946); Pakistan (1957); South Africa (1979); Sweden (1981); Switzerland (1956). The treaties generally divide taxing rights by: (a) immovable property: taxed in the country where it is located; (b) movable property: taxed in the country of domicile. Where no treaty exists (most countries — including Spain, Portugal, Australia, Germany, the UAE, and many others), UK unilateral relief under s159 IHTA 1984 prevents the double charge: if IHT is paid in both the UK and the foreign country on the same asset, credit is given for the lower of the two charges. The UK taxpayer does not pay both charges in full — they pay the higher of the two. Practical example: a UK-domiciled person dies with a Spanish holiday villa (worth £400,000). Spain imposes Spanish succession tax on the villa. UK also imposes IHT. Under unilateral relief (s159 IHTA), the Spanish tax paid is credited against the UK IHT due on the same asset — so the estate pays the higher of the two (not both). Foreign property and the Spanish succession tax varies significantly by autonomous community in Spain — professional Spanish estate planning advice is recommended for Spanish property ownership.
Practical planning for UK residents with overseas assets
For a UK-domiciled person with overseas assets: (1) Include all worldwide assets in the IHT estate calculation: foreign property, shares in foreign companies, foreign bank accounts, pension schemes held abroad — all are in the estate. (2) Check for applicable double taxation treaty: does the UK have a treaty with the country where the asset is held? If so, the treaty determines the taxing rights; if not, s159 IHTA unilateral relief provides credit for foreign taxes. (3) Review the will: does the will deal with assets in multiple jurisdictions? Some countries require a local will for local assets (particularly immovable property); a grant of probate obtained in England and Wales may not be recognised in all jurisdictions without a local grant ('re-sealing' or an equivalent foreign procedure). An English will can sometimes suffice with an apostille, but many countries require a local will. (4) For non-UK domiciled individuals who have been UK resident for 10+ years: the LTUKR test from April 2025 may now subject their worldwide assets to IHT; urgent review required. (5) Consider a foreign property-holding structure: post-April 2017, UK residential property held through offshore companies is no longer excluded property (s6(1A) IHTA 1984) — but non-UK property may still benefit from exclusion for non-doms. (6) Powers of Attorney: for overseas assets, local powers of attorney may be needed — an English LPA may not be recognised overseas; consider a Hague Convention apostille.
Frequently Asked Questions
Is inheritance tax charged on overseas property owned by a UK person?
Yes — if the deceased was UK-domiciled (or a Long-Term UK Resident under the April 2025 LTUKR test), their worldwide assets are subject to IHT, including overseas property. A UK-domiciled person dying with a Spanish villa, a French farmhouse, or an Australian investment property: all of these enter the IHT estate at their market value on death. Double taxation relief: if the country where the property is situated also charges an inheritance/estate tax, UK unilateral relief (s159 IHTA 1984) ensures the estate pays the higher of the two taxes rather than both. If a double tax treaty exists (the UK has IHT treaties with the USA, France, Italy and several other countries), the treaty determines which country has taxing rights.
What is the LTUKR test and when did it start?
The Long-Term UK Resident (LTUKR) test was introduced by Finance Act 2025 and came into effect from 6 April 2025. It replaced the 15-year deemed domicile rule. Under the LTUKR test: a person is subject to IHT on their worldwide assets if they have been UK resident for at least 10 of the preceding 20 tax years (using the Statutory Residence Test). This means a foreign national who has lived in the UK for just 10 years becomes subject to IHT on their worldwide estate — a lower threshold than the previous 15-year deemed domicile rule. After leaving the UK, the LTUKR 'tail' period maintains worldwide IHT exposure for up to 20 years (depending on the length of prior UK residence). Non-UK domiciled individuals who have been in the UK for 10+ years should urgently review their IHT position under the new rules.
Do non-UK domiciled people pay inheritance tax on overseas assets?
No — if a person is not UK-domiciled (and is not a Long-Term UK Resident under the April 2025 LTUKR rules), their overseas assets are 'excluded property' under s6(1) IHTA 1984 and are not subject to UK IHT. Only UK-situs assets (UK land, UK company shares, UK bank accounts) are taxable. However: (1) UK company shares are UK situs even for non-doms — these ARE subject to IHT; (2) UK residential property held through offshore companies is now UK situs for IHT (from April 2017 — s6(1A) IHTA 1984); (3) after 10 years of UK residence (LTUKR test from April 2025), non-doms become subject to worldwide IHT; (4) where a non-dom marries a UK-domiciled person and receives a gift or bequest exceeding £325,000, the excess is taxable under the non-dom spousal cap (s18(2) IHTA).
Does the UK charge IHT on foreign bank accounts?
It depends on domicile. UK-domiciled individuals: yes — all bank accounts worldwide (UK and foreign) are in the IHT estate. Non-UK domiciled individuals: UK bank accounts are UK situs (and subject to IHT); foreign bank accounts are outside UK IHT as excluded property (s6(1) IHTA). From April 2025, the LTUKR test means that a non-dom who has been UK resident for 10+ of the last 20 years is now subject to IHT on their worldwide assets — including their foreign bank accounts. Exception: certain UK government gilts (FOTRA securities) held by non-UK domiciled persons may historically have been exempt — complex rules; specialist advice needed.
What is the non-dom spousal exemption cap and how does it work?
Under s18(2) IHTA 1984, the spousal exemption is capped when the recipient spouse is non-UK domiciled. Normally, transfers between spouses are unlimited under the spousal exemption (s18 IHTA). But where a UK-domiciled person gifts to (or leaves assets to) a non-UK domiciled spouse, only the first £325,000 (the NRB — 2026/27) passes free of IHT; any excess is taxable at 40%. Solution: the non-dom spouse can make a s267 IHTA 1984 election to be treated as UK domiciled for IHT purposes. This removes the £325k cap — all transfers become exempt. Trade-off: the elected non-dom spouse's worldwide assets are now subject to UK IHT. The election cannot be revoked for 7 years. Specialist advice is essential before making this election.
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