One of the most common — and costly — misunderstandings in international estate planning is the assumption that UK inheritance tax (IHT) only applies to assets located in the United Kingdom. For UK long-term residents, this is wrong. UK IHT applies to your worldwide estate: your Spanish villa, your Dubai apartment, your Hong Kong brokerage account, your US equities, and every other asset regardless of where in the world it is situated.
This guide sets out the rules clearly, explains what counts as a UK or non-UK asset for IHT purposes, and outlines the planning options available to those who want to reduce their exposure.
The Territoriality Principle — And Why It Does Not Help Long-Term Residents
UK IHT has an unlimited territorial reach for individuals who are within its worldwide scope. Until 5 April 2025, that scope was set by domicile; from 6 April 2025 it is set by the long-term residence (LTR) test — broadly, having been UK resident for at least 10 of the last 20 tax years. If you are a long-term resident, your entire worldwide estate is chargeable at 40% on death above the available nil-rate band. Section 6 of the Inheritance Tax Act 1984 still defines "excluded property", but the gateway to excluded-property status is now your residence history rather than your domicile.
This is the fundamental point many international families underestimate. A family that has spent years accumulating foreign property, overseas investments, and international business interests may be facing a substantial UK IHT bill — and, because of the post-departure "tail", that exposure can persist for several years even after they cease to be UK resident.
Note: this is a change from the pre-April 2025 regime, in which UK domicile (including "deemed domicile" for long-term UK residents) determined worldwide IHT exposure. Domicile concepts still appear in older guidance and remain relevant to certain pre-April 2025 trust structures, but they no longer determine whether your worldwide estate is in scope.
What Counts as a UK Asset for IHT?
Understanding the situs rules (the rules that determine where an asset is located for legal purposes) is important for IHT planning. UK-situs assets include:
- UK land and property (freehold or leasehold)
- Shares in UK-registered companies (where the share register is in the UK)
- UK Government securities and gilts
- Debts owed by UK debtors
- UK bank accounts (where the account is maintained in the UK)
- Assets physically located in the UK (vehicles, art, jewellery present in the UK)
Non-UK situs assets include:
- Overseas land and property (wherever located)
- Shares in foreign-registered companies (share register abroad)
- Foreign bank and investment accounts
- Assets physically located outside the UK
For UK long-term residents, both UK and non-UK assets are chargeable. For those who are not long-term residents, only UK-situs assets are chargeable — non-UK assets are excluded property.
How Double Tax Treaties Interact With IHT
The UK has a limited number of inheritance/estate tax treaties (far fewer than income tax treaties). Where a treaty exists, it may provide relief from double taxation — for example, if Spain imposes its own inheritance tax on a Spanish property, and the UK also imposes IHT on the same property, the UK-Spain estate tax treaty provides a mechanism for relief so that neither country can tax in full without credit for the other's charge.
Where no estate tax treaty exists, the UK provides unilateral relief under IHTA 1984 s.159 for foreign taxes paid on the same asset. This limits but does not eliminate the double charge.
Many popular jurisdictions for wealthy international families — including UAE, Singapore, and the BVI — do not impose inheritance or estate taxes. In these cases, there is no double taxation concern for assets located there, but the UK IHT charge still applies to a UK long-term resident's assets in those jurisdictions.
Planning Options to Reduce Exposure
The following routes are available, in increasing order of complexity. All require careful, timely planning — some options become unavailable or less effective the longer they are left.
1. Lifetime gifts (Potentially Exempt Transfers) Any outright gift from an individual to another individual is a Potentially Exempt Transfer (PET). If the donor survives seven years from the date of the gift, it falls outside the estate. Gifts of foreign assets are PETs in the same way as gifts of UK assets.
The practical constraint is the donor's ability and willingness to give up control of the asset during their lifetime. For foreign property, additional local law considerations apply — some jurisdictions require formal deed of gift or similar procedures.
2. Gifts with reservation of benefit A gift where the donor continues to benefit (for example, continuing to live in a gifted property) is a "gift with reservation of benefit" and does NOT fall outside the estate, even if the donor survives seven years. This rule catches many attempted planning arrangements. The gift must be genuine — the donor must genuinely give up benefit.
3. Spousal exemption — transfers to a spouse who is not a long-term resident Transfers between spouses are generally exempt from IHT without limit where both have the same UK IHT scope. However, where the transferor is within scope on worldwide assets but the receiving spouse is not a UK long-term resident, the exemption is limited to a capped amount equal to the nil-rate band (£325,000). Following the April 2025 reforms this restriction is framed by reference to long-term resident status rather than domicile. The receiving spouse can elect to be treated as a long-term resident for IHT purposes to access the unlimited exemption — but this brings their worldwide estate into the UK IHT net.
4. Ceasing to be a long-term resident Since 6 April 2025, worldwide IHT exposure turns on the long-term residence test rather than domicile. To fall outside worldwide IHT you must cease to be UK resident and then remain non-resident for the relevant "tail" period (between 3 and 10 years, depending on how many of the last 20 tax years you were resident) before your non-UK assets become excluded property again. This is a slow process and requires genuinely breaking UK tax residence under the Statutory Residence Test — simply retiring abroad for a year or two is not sufficient.
5. Excluded Property Trusts (EPTs) An EPT is a discretionary trust holding non-UK situs assets settled before the settlor became a UK long-term resident. Under the pre-April 2025 rules, assets held in an EPT remained excluded property even if the settlor subsequently became deemed UK-domiciled — making EPTs a valuable way for internationally mobile individuals to "lock in" IHT exemption for their foreign assets.
Post-April 2025, excluded-property status is tied to the settlor's long-term resident status rather than domicile. EPTs established before April 2025 remain effective for assets contributed before that date. New contributions to EPTs made after the settlor has become a long-term resident (UK-resident 10 of the last 20 years) may not qualify as excluded property. This is an area of ongoing complexity and requires specialist advice.
6. Business Property Relief (BPR) and Agricultural Property Relief (APR) Qualifying business interests and agricultural property can receive up to 100% IHT relief regardless of their location, provided the relevant conditions are met. From April 2026, BPR and APR relief is being restricted to £2.5m of qualifying assets per estate at 100%, with assets above that limit qualifying for 50% relief only. (The cap was originally announced as £1m in the October 2024 Budget and raised to £2.5m in December 2025; the allowance is transferable between spouses and civil partners.) The April 2026 changes also affect assets held in AIM portfolios, which have been widely used as BPR-qualifying investments.
The April 2025 Long-Term Residence Test — An Important Change
From 6 April 2025, a new long-term residence (LTR) test applies for IHT purposes, replacing domicile as the connecting factor for IHT. Under the LTR test, an individual who has been UK-resident for at least 10 of the last 20 tax years is treated as a long-term resident and their worldwide estate is chargeable to UK IHT — regardless of where they are domiciled under general law.
This catches individuals with foreign origins who have been living in the UK for a decade or more. It also has a "tail": if you leave the UK after being a long-term resident, you remain within the worldwide IHT net for a further 3 to 10 years after departure, depending on how long you were resident.
This is a fundamental change to the legal landscape. International families need to reassess their estate plans in light of these reforms. The interaction with pre-April 2025 structures, EPTs, and existing wills requires careful review.
How Global Investments Can Help
The interaction of UK IHT, local inheritance taxes in the countries where assets are held, domicile law, and the new long-term residence rules creates genuine complexity — particularly for families with assets spread across multiple jurisdictions. Global Investments works with internationally mobile clients to review their worldwide estate, identify where UK IHT exposure arises, and develop planning strategies that are commercially sensible and legally robust. With the landscape having changed significantly in April 2025, now is the right time to review any existing arrangements. Please speak with one of our advisers to get started.
Frequently Asked Questions
If I own a villa in Spain, is it subject to UK inheritance tax?
If you are a UK long-term resident at death (broadly, UK resident for at least 10 of the last 20 tax years), yes — your Spanish property forms part of your worldwide estate for UK IHT purposes. Spain may also impose its own succession tax. Depending on the UK-Spain double tax treaty, you may be able to offset Spanish inheritance tax against UK IHT on the same asset, but both countries have a potential claim.
How can I remove foreign assets from the UK IHT net?
The main routes are: ceasing to be a UK long-term resident (which requires breaking UK tax residence and then remaining non-resident through the relevant 3-to-10-year tail); making lifetime gifts to begin the seven-year clock; using the spousal exemption; or placing assets into an excluded property trust before you become a long-term resident. Since the April 2025 reforms, those who have been UK-resident for 10 of the last 20 years are long-term residents and face IHT on worldwide assets regardless of domicile.
Are shares in overseas companies subject to UK IHT?
Yes, if you are a UK long-term resident. Shares are generally treated as situated where the register of members is kept. Shares in overseas companies whose register is held abroad are foreign-situs assets but still within your worldwide estate for UK IHT if you are a long-term resident.
What is an excluded property trust and does it still work?
An excluded property trust (EPT) is a trust holding non-UK situs assets settled by someone before they became a UK long-term resident. Assets settled while the settlor was not a long-term resident can remain outside the UK IHT net — but the April 2025 reforms link excluded-property status to the settlor's ongoing long-term resident status, and new contributions made after the settlor has become a long-term resident may not qualify. EPTs should be established before long-term resident status arises and require specialist advice.
Does the nil-rate band apply to foreign assets?
Yes. The nil-rate band (currently 325,000 pounds) and the residence nil-rate band (where applicable) are applied against your total worldwide estate. They are not ring-fenced for UK assets — they reduce the overall IHT charge, whether the estate is composed of UK or foreign assets.
This guide is for general information only and does not constitute financial advice or a personal recommendation. The value of investments can fall as well as rise and you may get back less than you invest. Tax rules, pension legislation, and investment regulations change — always verify current rules and seek advice from a qualified independent financial adviser before making any financial decisions.