UK Inheritance Tax on Foreign Assets: Rules for Overseas Property and Inheritance From Abroad

When you hold property abroad, have overseas investments, or maintain foreign bank accounts, understanding how His Majesty’s Revenue and Customs (HMRC) applies inheritance tax to foreign assets is a central consideration for estate planning.

With the tax rules changing in 2025 to bring more foreign property within the scope of inheritance tax, you could face increased liability. This guide to UK inheritance tax on foreign assets will provide all the relevant information to help you determine the best course of action. 

You will learn: 

• When the UK inheritance tax applies to overseas assets
• How the new tax residence rules determine whether you’re UK-based
• Which assets are excluded or fall under special categories for IHT

Does the UK Inheritance Tax Apply to Overseas Assets?

The UK inheritance tax is a 40% tax applied to estates and typically funded by assets held within those estates. Since an estate can include overseas property, it can be subject to IHT. 

The limiting factor to your estate’s IHT liability is your status in the UK. The tax is only applied to overseas property if you are considered UK-based. In that case, your whole estate, including your UK-situated assets and worldwide assets, is liable for inheritance tax. 

If you’re considered non-UK-based, only eligible assets with a UK situs are subject to IHT.

Who Is Liable for IHT: UK-Based vs. Non-UK

Before 6 April 2025, the UK used deemed domicile rules to determine the liability of foreign assets to IHT. Under those rules, you were considered UK-based if you met one of two conditions: 

1. You were born in the UK with a UK domicile of origin, and you were a resident of the country
2. You were a UK resident for 15 of the last 20 years

The tax system reform that came into effect in the tax year 2025–2026 replaced the deemed domicile with a long-term residency framework. Under the new system, you’ll be considered UK-based for IHT purposes if you meet one of two criteria: 

1. You were a tax resident for the previous 10 consecutive years
2. You were a tax resident for 10 or more non-consecutive years in the previous 20 years

Meeting either criterion brings your UK assets within the scope of IHT. 

Extended Liability After Leaving the UK: The IHT Tail

Leaving the UK doesn’t automatically remove your IHT liability. Depending on how long you were a long-term resident of the country, you can still be liable for IHT for up to 10 years after leaving the country: 

Long-Term Residence	Additional Tax Liability
10–13 years	3 years
14 years	4 years
15 years	5 years
16 years	6 years
17 years	7 years
18 years	8 years
19 years	9 years
20+ years	10 years (maximum)

If a chargeable event occurs while this tail is in effect, your estate will be liable to inheritance tax on your worldwide and UK-situs assets.

What Counts as UK vs. Foreign Assets for IHT?

The location of your asset is the other important determinant of its IHT treatment. UK-situs assets are subject to inheritance tax regardless of your long-term residence status, while assets with a situs abroad are liable depending on your status. 

The situs of immovable physical property is usually straightforward to determine: property located in the UK has a UK situs, while property located outside of the UK doesn’t. 

The same extends to most movable properties. For example, if you own a boat, it will have a UK situs if it’s located in the UK’s territorial waters at the time of transfer. 

Some exemptions may apply. For example, a work of art can be physically present in the UK and still considered a foreign asset if it meets the following criteria: 

• It is usually kept outside the UK
• It was brought to the UK explicitly for restoration, exhibition, or cleaning, and no other purpose
• It would fall under the scope of IHT solely because of its presence in the UK on a specific date when the transfer of value occurs 

For assets such as bank accounts or shares, situs is generally determined by the jurisdiction where the account is registered, or the share register is kept. In the case of shares, this could be complex for multinational or non-UK companies.

Which Assets Are Excluded? 

The UK Inheritance Tax Act recognizes certain types of properties as excluded from the scope of IHT. Foreign assets are considered excluded property when they are part of the estate of a non-long-term resident. 

Other assets that have this status for non-long-term residents include: 

• Holdings in authorized unit trusts (AUTs) and open-ended investment companies (OEICs)
• Foreign currency bank accounts held with a UK bank or the Post Office 
• UK government securities known as Free of Tax to Residents Abroad gilts
• Overseas pensions

Is Foreign Property in Trusts Excluded?

Trusts can also fall within the scope of excluded property, but only in specific circumstances. If you enter property with foreign situs into a trust (settled foreign property), its status will be determined by your long-term residence status at the time of a chargeable event. 

In case the chargeable event happens after your death, the foreign property in the trust will be excluded if you weren’t a long-term resident at the time of death. 

Because this rule allows foreign assets to go in and out of the scope of excluded properties, it’s possible to incur IHT liability for assets you settled when you weren’t a long-term resident. 

In certain cases, different rules for settled foreign assets may apply: 

• Interest in possession trusts: Foreign assets in the trusts will be excluded if neither you nor the person entitled to benefit from the trust is a long-term resident
• Purchased life interests: If a long-term resident purchases an interest in your trust, property within will not be excluded even if you are not a long-term resident
• Reversionary interests: The situs of the asset is determined by where the trustees are residents rather than where the assets are located, while your residence status as the settlor is used for determining whether the asset qualifies for exclusion

Trust rules are complex and often require counsel from experienced professionals. 

Is There a UK Inheritance Tax on Foreign Inheritance?

In general, the UK doesn’t charge the beneficiaries for the inheritance, whether it’s from the UK or overseas. Any tax liabilities are settled from the estate before it’s distributed. The estate might be subject to IHT if the deceased was a long-term UK resident, or if the estate contains UK-situs assets.

However, your inheritance can still become subject to taxes in certain situations:

• Income tax: If you receive income from your inheritance, either by renting a property or benefiting from certain types of trusts
• Capital gains tax: If you decide to sell your inheritance 
• Inheritance tax: If you include your inheritance in your estate

Double Taxation on Foreign Assets

Your estate might be subject to inheritance tax in the country where you have domicile or hold assets, as well as in the UK. When that happens, tax liability is determined in accordance with the double taxation agreement between that country and the UK. 

These conventions generally manage double taxation using the following arrangement:

1. Your worldwide estate is taxed in your country of domicile (or, in jurisdictions like the UK, where you hold a long-term residency status)
2. The foreign jurisdiction taxes assets located within its borders 

In case this arrangement leaves you with a double liability, the convention might also prescribe how to claim double taxation relief and in which country. This relief will award you credit towards the inheritance tax charge. 

The UK has a double taxation convention with a small number of countries: 

• Ireland
• U.S.
• South Africa
• France
• Netherlands
• Sweden
• Switzerland
• Italy 
• India
• Pakistan

In the absence of a double taxation convention, the executor of your estate might be able to claim unilateral relief. It’s usually applied when a foreign country charges tax on domestic-situs assets that are also liable to UK IHT. The relief also covers situations in which assets are located in a third country, or when both countries claim local situs over the same assets.

How To Report Foreign Assets to HMRC

Foreign assets are reported to HMRC for IHT liability in the event of your death if you were a long-term resident and your estate is subject to tax. 

The estate executor or administrator will determine the value of the estate and, if taxes are due, fill out and submit the appropriate forms: 

• Form IHT400: The inheritance tax account form
• Form IHT417: The form for disclosing foreign property of long-term residents
• Form IHT418: The form for disclosing the end of a qualified interest in possession after death

The estate executor or administrator has 12 months to report the assets. 

Foreign Assets and IHT Tax Planning Considerations

If one of the goals of your tax planning is to protect your estate from UK inheritance tax on overseas property, structuring your assets can provide some relief if timed carefully.

The main method for reducing IHT liability on foreign assets is to manage your long-term residency status. In addition to leaving the country promptly to reduce the IHT tail, be mindful of breaking your tax residency status. 

The UK uses three types of tests to determine your tax residence status if you are situated overseas: 

Test	Prior UK Residence	Conditions
First automatic overseas test	Resident for at least one of the previous three tax years	Fewer than 16 days in the UK in the tax year
Second automatic overseas test	No residence in the previous three tax years	Fewer than 46 days in the UK in the tax year
Third automatic overseas test	Not relevant	Full-time work overseasFewer than 91 days in the UK in the tax yearFewer than 31 workdays for longer than 3 hours in the UKNo significant break from overseas work

If you cannot determine your status using these tests, a test of your meaningful ties, combined with days spent in the country, will apply. The ties in question include: 

• A spouse, civil partner, or children living in the UK (unless they’re staying for education purposes)
• Readily available accommodation in the UK 
• Employment in the UK for a certain number of days
• Time spent in the UK

Keep in mind that moving abroad to limit IHT exposure is a complex process, and the various tax residence tests may create additional compliance challenges. It’s advisable to seek professional guidance when securing residence abroad and ensuring compliance with the condition of non-UK tax residency. 

For help from experienced professionals in the field, contact Nomad Capitalist.

Limit Your IHT Exposure With Nomad Capitalist

Nomad Capitalist is an advisory firm that’s helped over 1,500 clients improve their global mobility and preserve their wealth. We routinely assist our clients with obtaining second residency and citizenship, legally optimizing their tax footprint, and finding foreign investment opportunities.

To help you reduce the exposure of your overseas assets to IHT, we create a customized Action Plan detailing all the steps necessary to exit long-term UK residence status.

Here’s what partnering with Nomad Capitalist looks like: 

1. We ask you to fill out a form to help us determine whether we’re a good match
2. We schedule a 45-minute onboarding call to learn more about your situation and needs
3. Our agents create an Action Plan and present it to you for approval
4. We implement the Plan over a year-long period
5. You continue receiving lifelong support from us after the Plan’s implementation

Nomad Capitalist can help you determine the best tax jurisdiction to establish your new residency. We can help you regulate your legal status there and provide guidance on severing your ties with the UK to avoid being pulled back into tax residence.