Exposure to Inheritance Tax On Overseas Property Holdings

I’ve recently left the UK or am considering leaving, so will I still be liable for Inheritance Tax (“IHT”) on my foreign properties? Yes, unfortunately, you will remain liable for inheritance tax on overseas property and your UK properties if you’ve been a long-term resident of the UK.

Since 6 April 2025, the UK has moved from a system which levied IHT based on whether you are domiciled in the UK to a system that is based on your long-term tax residence. Basically, if you have been a UK tax resident for at least 10 of the last 20 tax years, you will be regarded as a Long-Term Resident or “LTR” and you will remain liable for IHT on both your UK and non-UK situated assets for up to 10 years after you leave.

Who is liable for UK inheritance tax on overseas property?

Anyone who has been UK tax resident for 10 years or more in the last 20 tax years will be classed as a Long-Term Resident or “LTR” and liable to UK inheritance tax on all their assets whether UK or non-UK situated, even if they have since left the UK. If you are a LTR then you will remain liable for IHT for a “tail period” of up to 10 years after you depart the UK.

The length of the tail period during which you will remain liable for IHT depends on how long you were UK tax resident. The shortest tail period is three years and this applies if you were UK resident for 10 to 13 of the previous 20 years. The tail period then increases by one year for each additional year that you were UK resident up to the maximum period of 10 years.

How does domicile status affect inheritance tax exposure abroad?

Generally speaking, your domicile status no longer affects your IHT liability because it has been replaced by the long-term residence system explained above. However, domicile remains relevant for certain trust and estate planning arrangements and for assets held in per-April 2025 trusts, certain exemptions and protections may still be relevant.

Are foreign properties included in a UK person’s estate for IHT purposes?

Yes, if you are classed as a Long-Term Resident or “LTR” of the UK then your world-wide assets are subject to IHT when you die.

Can double taxation occur on international property, and how is it mitigated?

Yes, your estate can get hit for Inheritance Taxes twice if you die as a Long-term Resident of the UK or the IHT “tail” still applies to you after you left the UK (see above) and you own an asset in another country that also levies an Inheritance tax.

However, where both countries charge Inheritance Tax your executors or personal representatives may be able to claim a credit for the tax paid in the other country or avoid or reclaim the tax through a double taxation convention between that country and the UK. Please note that the double tax treaties still refer to where a person is domiciled but HMRC have confirmed that for these purposes from 6 April 2025, a person is treated as having deemed UK domicile if they are a long-term UK resident. 

What role do double tax treaties play in cross-border inheritance tax planning?

The UK has IHT double tax conventions with Ireland, the USA, South Africa, France, Netherlands, Sweden, Switzerland, Italy, India and Pakistan. These treaties play a vital role in helping to limit the estate of a person with assets overseas to exposure to two lots of Inheritance Tax so that either only one lot of Inheritance Tax is charged or in some cases, the total Inheritance Tax charged does not exceed the higher of the two taxes.

How can UK individuals structure foreign property holdings to reduce IHT liability?

It is unrealistic to think that as a UK resident there are magic trust or company structures that exist that can reduce your UK IHT liability on foreign assets due to the wide coverage of UK anti-avoidance tax legislation that exists to defeat attempts to “hide” foreign assets from HMRC. This means that you should focus on sensible and legitimate basic strategies which include the following:

• Leave the UK for long-term residence abroad but be aware of the “tail” that ties you to the UK for up to 10 years after you have left (see above)
• Gift assets to your intended heirs more than 7 years before your death as these gifts will fall out of any IHT charge, but be aware of any gift taxes on the country where the asset is located
• Take out life insurance to cover the IHT charge should a tax liability arise
• Be very careful before placing assets in a foreign trust or company structure without taking detailed tax advice both in the UK and in the foreign country concerned because of the likelihood that such structures will be ineffective and looked through for tax purposes and may even generate additional tax charges

Has the legislation changed on IHT on international property holdings?

Yes, since 6 April 2025, the UK has moved from a system which levied IHT based on whether you are domiciled in the UK to a system that is based on your long-term tax residence. Basically, if you have been UK tax resident for at least 10 of the last 20 tax years you will be regarded as a Long-Term Resident or “LTR” and you will remain liable for IHT on both your UK and non-UK situated assets for up to 10 years after you leave.

Conclusion 

If you own property outside the UK then you are in principle liable to IHT in respect of it on your death and even if you leave the UK you will remain liable for up to 10 years after your departure from the UK. Of course, once you permanently depart the UK, have no UK situated assets and have a foreign will and do not die in the UK, then HMRC will rely on your foreign executors informing them of your passing so that they can levy Inheritance Tax.

Crypto assets are regarded as situated wherever the owner happens to be located and so converting your assets to crypto and holding them in a cold wallet will also mean that HMRC are reliant on your executors to notify them to HMRC on your death. Doubtless you will want your executors to comply with the UK’s IHT so do choose them wisely.

While I do not possess a crystal ball, the likelihood of either a future Labour or Conservative government abolishing IHT appears to be low to non-existent as they both support the existence of the tax but for different reasons. It may be however that a future government formed either by an insurgent party or at least a coalition government of which an insurgent party was a member might grasp the nettle and abolish what in my opinion is a hurtful and hateful tax.

Contact me if you require detailed inheritance tax advice but do please note that I do not offer advice for free.