Inheritance Tax on Overseas Property UK (2026): Do You Pay IHT on a Foreign Holiday Home?

Yes — if you are UK-domiciled, HMRC assesses IHT on your worldwide estate, including property, bank accounts, investments, and other assets held anywhere in the world: (1) THE DOMICILE RULE: IHT in the UK is primarily based on domicile, not residency. A person who is UK-domiciled at death is subject to IHT (IHTA 1984 s.6) on all assets wherever they are situated (situs) — UK and non-UK alike. Domicile is a legal concept distinct from tax residence — broadly, your 'permanent home' country; you generally acquire the domicile of your country of birth/upbringing and can only change it by taking genuine and permanent steps to settle in another country; (2) UK-DOMICILED = WORLDWIDE ESTATE ASSESSED: for a UK-domiciled person, everything — the Spanish holiday home, the French bank account, the US investment portfolio, the Irish farmland, the Dubai apartment — is included in the estate for IHT at 40% above the NRB (£325,000) and RNRB (£175,000 if applicable). HMRC requires these assets to be declared on the IHT400 form (or IHT205/IHT207 if applicable); (3) NON-UK DOMICILED — 'EXCLUDED PROPERTY': if a person is NOT UK-domiciled, their non-UK situs assets are 'excluded property' (IHTA 1984 s.6(1)) and are not subject to UK IHT. Only UK-situs assets are assessed. A person domiciled in France who owned UK property would pay UK IHT on the UK property only — not on their French estate; (4) DEEMED DOMICILE: for people who have lived in the UK for a long time, the 'deemed domicile' rules apply (IHTA 1984 s.267). You are deemed UK-domiciled for IHT if you have been UK-resident for at least 15 of the last 20 tax years. Deemed domicile means worldwide IHT applies even if your legal domicile of origin is outside the UK. Non-doms who became deemed domiciled lost 'excluded property' status and must now include worldwide assets; (5) DOUBLE TAXATION RELIEF: where another country also taxes the same overseas asset on death, the UK has double taxation agreements (DTAs) for IHT/estate taxes with some countries. Where there is no DTA, unilateral double taxation relief is available under IHTA 1984 s.159 — a credit against UK IHT for tax paid to the foreign country on the same assets.

Overseas property must be declared on the IHT return and valued at open market value as at the date of death: (1) VALUATION PRINCIPLES: the overseas property is valued at its open market value on the date of death — the price it would fetch in an arm's-length sale on that date. This is the same principle as for UK property. For property in countries with active estate agent markets (Spain, France, Portugal, USA), a local estate agent's valuation or a specialist international property surveyor's report is the appropriate evidence; (2) CURRENCY CONVERSION: the overseas asset value must be converted to sterling at the exchange rate on the date of death. Use HMRC's exchange rate (published monthly) or the Bank of England spot rate for the date of death; (3) DECLARING ON IHT400: overseas assets are declared on IHT400 Schedule IHT417 (Form IHT417 — Foreign Assets). This form requires: (a) Description of the asset; (b) Country where situated (situs); (c) Value in local currency; (d) Sterling equivalent at date-of-death exchange rate; (e) Any local inheritance tax or estate duty paid (for double taxation relief); (4) FOREIGN MORTGAGES AND LOANS: a mortgage or secured loan against overseas property is a deductible liability if it is secured against that specific asset. Foreign property net of its mortgage is the assessable value (IHTA 1984 s.5). Unsecured debts may also be deductible but with restrictions post-Finance Act 2013 anti-avoidance provisions; (5) SMALL ESTATES AND EXCEPTED ESTATES: for excepted estates (where the total estate is below the IHT threshold and the overseas assets are small), a simplified process applies. However, from January 2022, all UK excepted estate rules changed — overseas assets above £100,000 in value may mean the estate cannot be treated as excepted and a full IHT400 is required; (6) DIFFICULTIES WITH VALUATION: some overseas property (farmland; property in countries with restricted property markets; shares in foreign private companies) can be difficult to value. A qualified local valuer or international accountant with estate valuation experience is needed. HMRC can challenge an undervaluation, especially on high-value overseas assets.

Where a UK-domiciled person's overseas property is taxed by both the UK (IHT) and the foreign country (local inheritance or estate tax), double taxation relief prevents the same asset being fully taxed twice: (1) COUNTRIES WITH UK DOUBLE TAXATION AGREEMENTS FOR IHT: the UK has estate duty double taxation agreements with a limited number of countries — the main ones are: France (1963 convention); USA (1978 convention); Netherlands (1953 convention); Sweden (1980 convention — but Sweden abolished estate tax in 2005); India (1956 convention); Pakistan (1957 convention); Ireland (1978 convention — Ireland abolished estate tax in 1982). Most other countries (Spain; Portugal; Italy; Germany; Australia; Canada) do NOT have IHT DTAs with the UK. For countries with DTAs, the agreement determines which country has primary taxing rights and how relief is given; (2) NO DTA — UNILATERAL RELIEF (IHTA 1984 S.159): where there is no DTA, UK law provides a credit against UK IHT for foreign tax paid on the same property. The credit is the lower of: the UK IHT attributable to that asset; or the foreign tax paid on that asset. The credit prevents double taxation but does not create a refund — if the foreign tax rate is higher than the UK rate, no additional UK IHT arises; (3) SPAIN — COMMON SCENARIO (NO DTA): Spain has succession tax (Impuesto sobre Sucesiones y Donaciones). Different rates apply depending on the Spanish autonomous community where the property is situated (e.g. Madrid has significant exemptions; Catalonia has higher rates). With no DTA, a UK-domiciled person owning a Spanish property pays: (a) UK IHT at 40% on the worldwide estate (including the Spanish property); (b) Spanish succession tax on the Spanish property; (c) UK unilateral relief (IHTA 1984 s.159) — a credit against UK IHT for the Spanish tax paid. Net effect: the higher of UK IHT or Spanish succession tax on that property; (4) FRANCE — DTA EXISTS: the UK-France DTA generally gives France primary taxing rights on French immovable property. The executors pay French succession tax first; the UK gives credit for the French tax paid against the UK IHT attributable to the French property; (5) PRACTICAL ADVICE: for any overseas property of significant value, engage a lawyer or tax adviser qualified in both the UK and the relevant foreign country. Timing of payments matters — UK IHT and foreign succession tax often have different deadlines.

Yes — the UK IHT spouse exemption (IHTA 1984 s.18) applies to overseas property in the same way as to UK property, subject to the spouse being UK-domiciled: (1) BOTH SPOUSES UK-DOMICILED: if both spouses/civil partners are UK-domiciled and the estate passes to the surviving spouse absolutely (or into a qualifying IPDI trust — IHTA 1984 s.49A), the entire estate including overseas property qualifies for the spouse exemption. No UK IHT on first death. On second death, the combined estate (including the overseas property) is assessed, with the benefit of the transferred NRB from the first death; (2) UK-DOMICILED TRANSFERRING TO NON-UK DOMICILED SPOUSE: where the surviving spouse is NOT UK-domiciled, the spouse exemption is capped at £325,000 (the NRB amount) — IHTA 1984 s.18(2). Any transfer above £325,000 to a non-UK-domiciled spouse is subject to IHT at 40%. This cap exists because the foreign spouse's own estate is not subject to UK IHT (unless they become deemed domiciled) — without the cap, assets could be passed to the non-UK-domiciled spouse permanently out of the UK IHT net; (3) ELECTION FOR NON-UK-DOMICILED SPOUSE: a non-UK-domiciled surviving spouse can elect to be treated as UK-domiciled for IHT purposes (IHTA 1984 s.267A). This removes the £325,000 cap on the spouse exemption — the full estate can pass to them IHT-free on first death. The downside: the electing spouse's worldwide assets are then subject to UK IHT. The election lasts until revoked (minimum 4 years after the election is made); (4) OVERSEAS PROPERTY AND RNRB: the Residence Nil-Rate Band (£175,000/person) applies only to a 'qualifying residential interest' — a property that the deceased owned and that at some point was their residence. A foreign holiday home that was never the deceased's main residence does not qualify for the RNRB. However, a former UK main residence now let out or a UK property used partly as a holiday home can qualify; (5) ESTATE PLANNING FOR OVERSEAS PROPERTY: consider: (a) Joint ownership with the spouse (survivorship passes the property outside the estate entirely in some jurisdictions — though UK IHT still applies to the transferor's share); (b) Local trust or company structures (a property held in a local company changes the 'situs' from real property to shares in a company — with different tax consequences; must be reviewed by local lawyers); (c) Life insurance in trust to cover the IHT and foreign succession tax liability.

Including overseas property in an estate plan requires careful thought about whether one UK will is sufficient or whether a separate will in the property's country is also needed: (1) ONE UK WILL CAN COVER WORLDWIDE ASSETS: in principle, a UK will can direct the disposition of all assets worldwide — including overseas property. English law allows a testator to make a universal will covering the worldwide estate. However, whether the UK will is effective in relation to overseas property depends on the law of the country where the property is situated (the 'lex situs'); (2) FORMALITY AND RECOGNITION OF FOREIGN WILLS: the Wills Act 1963 provides that a will is formally valid in England if it complies with the formal requirements of: (a) the law of the testator's domicile; (b) the law where the will was executed; (c) the law of the property's location; (d) the law of the testator's habitual residence. An English will will usually be recognised as formally valid throughout the EU under the EU Succession Regulation (Brussels IV), which allows a testator to choose the law of their nationality to govern the succession of their entire estate; (3) PRACTICAL REASONS FOR A SEPARATE LOCAL WILL: despite a UK will being theoretically valid for overseas property, a separate will in the property's country is often advisable because: (a) Probate or local administrative proceedings may be faster with a local will; (b) A local will in the local language avoids translation costs and delays; (c) Some countries require local form requirements that an English will may not satisfy; (d) Local succession law may impose 'forced heirship' rules (France, Spain, Germany) that override the testator's chosen distribution — a local will drafted with local forced heirship rules in mind is more effective; (4) FORCED HEIRSHIP (EU COUNTRIES): many EU countries have 'forced heirship' rules that give children (and sometimes spouses) an indefeasible right to a minimum share of the estate regardless of what the will says. EU Succession Regulation (Regulation EU 650/2012) allows testators to elect the law of their nationality to govern succession — for UK nationals, choosing English law (which has no forced heirship) avoids EU forced heirship. However, the UK left the EU — a post-Brexit position remains complex and specialist advice is essential; (5) REGISTERING THE UK WILL ABROAD: the executor may need to obtain a 'certificate of succession' or apostille-authenticated grant of probate from the English court to prove the UK will's validity in the foreign country. An apostille under the Hague Convention 1961 is widely accepted.