UK Inheritance Tax on Overseas Assets: Reduce Your Liability
- Omar Aswat
- Feb 25, 2025
- 5 min read
Updated: Dec 22, 2025
Dealing with inheritance tax (IHT) can be challenging enough; it’s an extremely complex area of UK taxation.
And if you have assets spread across multiple countries, the complexity increases. When it comes to inheritance tax in the UK, the rules for overseas property might not be as straightforward as you think. Understanding inheritance tax on foreign property is crucial for estate planning, especially if you have assets in multiple countries.
Table of Contents
What is UK Inheritance Tax?
The UK charges inheritance tax on a person’s estate after they pass away, including property, money, and other assets. The tax applies if the estate exceeds a certain threshold, known as the "nil-rate band" (currently £325,000 and stuck there since 2009!). Amounts above this threshold may face a 40% tax, with exemptions for gifts, spousal transfers, and charity donations. There are also certain tax planning strategies, structures and solutions we advise and implement for our clients.
For a full breakdown of UK inheritance tax rates, exemptions, and thresholds, visit the official HMRC guidance on IHT.
Does Inheritance Tax Apply to Overseas Property?
Yes, the UK applies inheritance tax to overseas property if it considers you domiciled or deemed domiciled in the country. If you live in the UK and own property abroad, it remains part of your estate and subject to IHT.
For example, if you own property in Australia, the UK will include its value in your estate if it considers you domiciled there, even though it's outside the UK.. The key factor is your domicile status, which determines whether you are liable for UK inheritance tax on overseas assets.
Different countries set their own inheritance tax rules, which affect how they tax foreign property. The OECD Tax Database offers a comparison of inheritance tax policies worldwide.
Domicile and Inheritance Tax: Why It Matters
Your domicile status plays a crucial role in how IHT applies to your estate. UK-domiciled individuals are liable for inheritance tax on all of their worldwide assets, including foreign properties. If you're not domiciled in the UK, you may pay tax only on assets within the UK, though complex rules depend on your residency status.
If unsure about your domicile status, seek expert advice, as it affects estate planning and foreign asset distribution.
Starting in April 2025, the UK will abolish the domicile concept and base everything on residency, negatively impacting even more individuals and families.
How Forced Heirship Rules Can Affect UK Inheritance Tax
When you own property abroad, you must consider forced heirship. In certain countries, this concept requires you to allocate a portion of your estate to your children, regardless of your will's instructions. Countries like Spain, Italy, and other civil law jurisdictions follow forced heirship laws.
If you're UK-domiciled and leave a Spanish holiday home to your spouse, Spanish law may still require giving part to your children. The UK may exempt spousal transfers from inheritance tax (IHT), but forced heirship could still trigger IHT on your children's portion.
However, there is a way to manage this. If you own property in a country with forced heirship rules, you may be able to specify in your will that you want your assets to be administered according to UK inheritance law, rather than the foreign country’s forced heirship laws. You must elect under the foreign jurisdiction's laws, if allowed, to apply UK inheritance rules. This could help avoid complications and potential conflicts between the foreign laws and your personal intentions.
Case Study
Our client, a UK tax resident, owned a portfolio of properties in both the UK and Australia. Concerned about UK inheritance tax on overseas assets, they sought our expertise to structure their estate efficiently and stay tax-compliant. Under standard rules, worldwide assets are subject to 40% IHT, meaning their Australian properties could face a significant tax liability upon their passing, in excess of £1m just on the overseas properties.
We undertook a detailed domicile review and explored tax-efficient structures to mitigate UK IHT exposure on the Australian properties. By utilising an offshore trust structure and restructuring ownership, we successfully ring-fenced the non-UK assets from the UK IHT net while ensuring the client retained control over their investments. Additionally, we advised on the use of excluded property status to keep the offshore assets outside the UK estate for IHT purposes.
As a result, our client significantly reduced their UK inheritance tax liability while maintaining a compliant and flexible ownership structure. This not only safeguarded their overseas investments for future generations but also provided peace of mind that their estate planning was fully optimised and tax-efficient. If you have international assets and want to ensure they are structured tax-efficiently, our team at ASWATAX is always here to help.
What Can You Do to Plan Ahead?
The key to managing inheritance tax on overseas property is effective planning. With foreign properties, the rules can vary greatly, so it’s crucial to:
Consult a tax professional: Estate planning across multiple jurisdictions can be tricky, so getting advice specific to your situation is essential. We are connected worldwide.
Consider multiple wills: Separate wills for UK and foreign assets can speed up the process but must be coordinated to prevent conflicts. Creating separate wills for UK and foreign assets can simplify estate administration. The UK Law Society provides guidance on making legally sound wills.
Understand forced heirship laws: If you own property in a country with these rules, determine how they affect your UK IHT obligations and whether you can make any elections.
Domicile and residency planning: If you’re unsure about your domicile or UK residency status and how it affects your estate, it’s worth discussing with us. Making the right choices following our advice can protect you from complicated tax issues later.
Planning ahead is crucial to managing inheritance tax on overseas assets efficiently. To help you navigate IHT and asset management, we’ve created a comprehensive free guide packed with expert insights. Download it now and take control of your estate planning!
Conclusion
Inheritance tax on overseas property adds another layer of complexity to estate and tax planning. Planning ahead or handling a loved one's estate? Understanding UK IHT on foreign assets is crucial.
Plan ahead (sooner is always better) by assessing your domicile, residency, and international inheritance laws like forced heirship. This way, you can pass on your assets according to your wishes and minimize the tax burden on your heirs.
If you own overseas property, seeking early professional advice can save your family from future tax and legal complications.
Need expert guidance on inheritance tax for foreign property? The ASWATAX team is here to help. Contact us today to speak with our specialists!
Meet Omar
Omar is a Chartered Tax Advisor (a.k.a an expert on tax issues) and founder of ASWATAX. He regularly shares his knowledge and best advice here in his blog and on other channels such as LinkedIn.
Book a call today to learn more about what Omar and ASWATAX can do for you.
*Disclaimer: ASWATAX is a firm of Chartered Tax Advisors, and we strive to provide accurate, up-to-date tax insights. Tax laws may change, so this content is for general guidance only and not a substitute for professional advice. Seek independent tax and legal counsel before making decisions. ASWATAX is not liable for any loss from reliance on this information. Use at your own risk.
Comments