Inheritance Tax on Overseas Property: What UK Expats Must Know
For UK nationals who own property abroad, inheritance tax (IHT) is one of the most consequential — and most misunderstood — risks in their financial planning. The assumption that leaving the UK removes UK IHT exposure is a dangerous one. This guide explains the rules clearly, including the significant changes introduced in April 2025, and what overseas property owners need to consider.
Important: Tax law changes frequently, and individual circumstances vary considerably. Nothing in this guide constitutes legal or tax advice. Always seek qualified advice from a UK tax adviser and a lawyer qualified in the relevant property country before making decisions.
How UK Inheritance Tax Works
UK IHT is charged at 40% on the value of an estate above the nil-rate band. The standard nil-rate band is £325,000 per person (frozen until at least April 2030 under current government policy). A residence nil-rate band of up to £175,000 applies where a main residence is left to direct descendants, giving a potential combined threshold of £500,000 per individual.
Spouses and civil partners can transfer their unused nil-rate bands to each other, so a married couple can potentially shelter up to £1 million from IHT — but only where the estate is structured correctly and conditions are met.
The critical point for expats: these thresholds apply to the entire worldwide estate, not just UK assets, where the individual is within the UK IHT net.
The Key Test: Domicile, Not Residence
Unlike income tax and capital gains tax, UK IHT is primarily based on domicile, not residence. You can be non-UK resident for decades and still owe UK IHT on your entire worldwide estate if you remain UK-domiciled.
Domicile of origin is typically the country your father treated as his permanent home when you were born. Most British nationals have a UK domicile of origin.
Domicile of choice can be acquired by living in another country with the intention to remain there permanently. The bar for establishing a domicile of choice is high — HMRC scrutinises these claims closely, and a lack of clear, documented intention to remain permanently abroad will undermine the claim.
UK-domiciled individuals are subject to UK IHT on all worldwide assets — including overseas property, foreign bank accounts, and investments held anywhere in the world.
Non-UK domiciled individuals are only subject to UK IHT on UK-situated assets.
Deemed Domicile: The Trap for Long-Term Expats
Even if you have successfully acquired a non-UK domicile of choice, you may still be treated as UK-domiciled for IHT purposes under the deemed domicile rules.
If you were UK-domiciled at any point and have been UK tax resident for 15 of the previous 20 tax years, HMRC treats you as deemed UK-domiciled. This means your entire worldwide estate — including that villa in Spain or apartment in Dubai — falls within UK IHT, regardless of your legal domicile.
This rule catches many British nationals who moved abroad mid-career, maintained UK connections, and assumed their overseas assets were outside the UK IHT net.
The April 2025 Change: A Shift to Residence-Based IHT
The Finance Act 2025 introduced the most significant change to UK IHT in decades. From 6 April 2025, the government has moved to a residence-based system running alongside the existing domicile framework.
The new test works as follows:
| UK Residence History | IHT Exposure |
|---|---|
| UK resident for 10+ of last 20 years | Worldwide assets within scope of UK IHT |
| Non-UK resident for 10+ consecutive years | Only UK-situated assets in scope |
This change has substantial implications:
- Expats with long UK work histories who previously relied on acquiring a non-UK domicile of choice may now find their worldwide assets in scope of UK IHT if they spent 10 or more of the past 20 tax years as UK residents.
- Recent emigrants should track their UK residence days carefully — the 10-year "tail" of worldwide IHT exposure continues even after leaving the UK.
- Non-domiciled individuals who were not UK resident for 10 years and had limited UK ties may find the new rules more favourable than the old deemed-domicile rules in some cases.
The interaction between the old domicile rules and the new residence rules is complex. Specialist UK tax advice is essential for anyone with a significant international property portfolio.
The April 2017 Change: Closing the Enveloping Loophole
One planning structure that was widely used — and has since been closed — is worth understanding for context. Prior to April 2017, holding UK residential property through an offshore company or trust could shelter it from UK IHT for non-UK domiciled individuals. This was known as "enveloping."
From April 2017, HMRC closed this loophole. Overseas structures (companies, trusts, partnerships) that hold UK residential property are now transparent for IHT purposes — the underlying UK property is treated as a UK asset regardless of how it is held.
Double Taxation Agreements
Where an individual's estate is subject to IHT in both the UK and an overseas country, double taxation agreements (DTAs) may reduce the combined burden. The UK has IHT-specific DTAs with a number of countries, including:
- Ireland
- United States
- South Africa
- Netherlands
- Sweden
- Switzerland
- France
- India
- Pakistan
- Italy
(The treaties with France, India, Pakistan and Italy are older-style agreements.)
Notably absent from this list: the UAE, Thailand, Spain, Greece, Indonesia, and Egypt — markets where many British investors own property. In these countries, local inheritance or estate taxes (where they exist) and UK IHT may both apply, with no formal mechanism for relief beyond each country's own unilateral relief provisions.
Planning Strategies
Spousal Exemption
Transfers between UK-domiciled spouses are IHT-free during lifetime and on death. This is the most straightforward way to defer the IHT liability, though it does not eliminate it — the surviving spouse's estate then carries the full liability.
Gifts and the Seven-Year Rule
Gifts to individuals are potentially exempt transfers (PETs). If the donor survives seven years after making the gift, it falls outside the estate entirely. Taper relief reduces the IHT charge if death occurs between years three and seven. Note, however, that gifting overseas property is also a disposal for capital gains tax purposes — the tax cost of triggering CGT must be weighed against the IHT benefit.
Life Insurance Written in Trust
A whole-of-life insurance policy written in trust can be used to meet the IHT liability without the policy proceeds forming part of the estate. The annual premiums are typically treated as gifts from surplus income (exempt from IHT if they meet conditions). This is a common and practical solution for many investors.
Trusts
Discretionary trusts can remove assets from the estate, but the rules are complex. The gift with reservation of benefit rules mean that if the settlor continues to benefit from the trust assets, the assets remain in the estate for IHT. Entry charges, 10-year anniversary charges, and exit charges apply. Trusts must be professionally structured.
QROPS and Pension Assets
Pension assets — including Qualifying Recognised Overseas Pension Schemes (QROPS) — are generally outside the scope of UK IHT. This makes pensions a tax-efficient vehicle for passing wealth, though the rules are subject to change. Global Investments' broader wealth management services include pension structuring and QROPS advice.
Overseas Property in Our Key Markets
The IHT treatment of overseas property varies by market. For country-specific guidance on ownership structures, succession law, and local taxes, see our location guides:
- Buying property in Spain
- Buying property in the UAE
- Buying property in Greece
- Buying property in Cyprus
- Buying property in Thailand
For those considering residency programmes that may affect your domicile or residence status, see our residency and citizenship programmes guide.
You may also find our guides on estate planning for international investors and transferring overseas property to family members useful reading alongside this article.
How Global Investments Can Help
UK inheritance tax on overseas property sits at the intersection of UK tax law, local succession law, and international treaty provisions — an area where errors are costly and difficult to unwind. Global Investments works with qualified tax advisers and estate planning lawyers across all eight of our core markets to help clients understand their exposure and structure their affairs efficiently.
We can introduce you to specialists in UK IHT planning, local will drafting, and trust structuring, and co-ordinate advice across jurisdictions so that your UK and overseas advisers are working from a consistent picture of your estate.
To discuss your situation, contact our team.
This guide is for general information only, as of June 2026. Tax law — particularly the April 2025 residence-based IHT changes — is subject to further legislative development and HMRC guidance. Rules differ by individual circumstance. Seek qualified legal and tax advice before acting.
Frequently asked questions
Do I pay UK inheritance tax on a property I own in Spain if I live there?
It depends on your domicile, not your residence. If you are UK-domiciled or deemed UK-domiciled, your Spanish property falls within UK IHT at 40% above the nil-rate band. From April 2025, a new residence-based test also applies: if you have been UK resident for 10 of the last 20 years, your worldwide assets are in scope regardless of domicile.
What is deemed domicile for IHT purposes?
If you were UK-domiciled and have been UK tax resident for 15 of the previous 20 tax years, you are treated as deemed UK-domiciled for IHT — even if you have since left the UK. This catches many long-term expats who assumed they had escaped UK IHT by moving abroad.
What changed for IHT from April 2025?
The Finance Act 2025 introduced a residence-based IHT system alongside the existing domicile rules. From 6 April 2025, if you have been UK resident for 10 of the last 20 years, your worldwide estate falls within UK IHT. Conversely, if you have been non-UK resident for 10 or more consecutive years, only your UK-situated assets are in scope.
Does the UK have inheritance tax treaties with countries where I might own property?
The UK has double taxation agreements covering estate and inheritance taxes with a limited number of countries: Ireland, the USA, South Africa, the Netherlands, Sweden, Switzerland, France, India, Pakistan and Italy. There is no such treaty with the UAE, Thailand, Spain, Greece, Bali (Indonesia), or Egypt. Where a treaty exists, foreign inheritance tax paid may be credited against UK IHT.
Can I give my overseas property away to avoid IHT?
Gifts to individuals are potentially exempt transfers (PETs) — they fall outside your estate for IHT if you survive seven years after making the gift. Taper relief reduces the IHT charge if you die between years three and seven. However, gifting triggers a UK capital gains tax disposal at market value, so the CGT cost must be weighed carefully before proceeding.
This guide is for general information only and does not constitute financial, legal or tax advice. Programme rules, prices and tax rates change; verify current requirements with a qualified adviser before acting.