Inheritance tax applies not only to the UK residents but also to non-UK residents. But the scope of tax is limited in case of non-residents. For non-residents, inheritance tax is normally chargeable only on the UK assets/properties (e.g., UK land and buildings).
So, if you intend to invest in the UK, you need to plan carefully.
Investing in UK assets which are IHT free
Most of the assets the non-residents hold in the UK are chargeable to IHT. But the below assets are IHT free:
Gilts
Gilts are the UK government securities. Amount the non-UK residents own as gilts are free from IHT. It is not necessary to be non-UK domicile. Whether you are UK domicile or non-UK domiciled, gilt is free from IHT for non-residents.
Foreign currency bank accounts
Amount the non-residents hold in the UK bank in foreign currency bank accounts are free from IHT. To get this exemption, they need to be non-resident at the time of their death.
Transferring assets to companies to save IHT
The investors in the UK property can minimise IHT by using Family Investment Companies. This ensures IHT is calculated based on current value of the property (instead of the value at the time of your death).
Note: But this might not always be appropriate option as you might have to pay additional SDLT (non-resident surcharge) and follow ATED compliance.
Limiting your investment in the UK property to save IHT
IHT is payable only when the value of death estate of an individual exceeds £325,000. So, amount up to £325,000 is free of Inheritance Tax. This amount is called Nil Rate Band.
So, non-residents can escape inheritance tax on UK property by restricting investment to £325,000.
In addition to your own £325,000 Nil Rate Band, if you are non-UK domiciled and receive assets from a UK-domiciled spouse, the spouse exemption is capped at an additional £325,000 for transfers made on or after 6 April 2013. However, if you elect to be treated as UK-domiciled for IHT purposes, transfers from your spouse become unlimited (uncapped), though this means your own worldwide assets will then be subject to UK IHT.
IHT on Non-UK residents who were previously UK resident
Normally, IHT is charged to non-UK residents only on properties located in the UK. However, non-residents may be liable to IHT on their worldwide assets, including those held abroad, if they are classified as "long-term residents."
You are a long-term resident if you have been UK resident for at least 10 out of the last 20 tax years. Once you meet this threshold, all your assets worldwide become subject to UK IHT, regardless of where they are located.
Even after leaving the UK, you remain within the scope of UK IHT if you were previously a long-term resident. The period you remain liable depends on how long you were UK resident:
Transitional protection applies if you are non-UK resident in the 2025-26 tax year and were previously non-domiciled. In this case, you will only be treated as a long-term resident if you were UK resident for at least 15 out of the last 20 tax years, rather than the standard 10 out of 20. However, if you return to the UK after 6 April 2025, the 10-year rule will apply to you immediately.
Leaving the UK to Save IHT
If you're liable to UK IHT on your worldwide assets, you may consider leaving the UK to reduce your tax exposure on foreign properties. However, simply moving abroad does not provide immediate IHT relief.
If you have been a long-term UK resident (resident for at least 10 out of the last 20 tax years), you will remain within the scope of UK IHT for a period after leaving. This "tail" period depends on how long you were UK resident:
During this tail period, your worldwide assets remain subject to UK IHT, even though you are no longer UK resident. Only after the tail period expires will you be liable to IHT solely on your UK-situated assets.
There is no way to accelerate or avoid the tail period once you have been classified as a long-term resident. You must wait out the full period before your foreign assets are removed from the UK IHT charge.
FAQ
No tax is charged when money inherited from abroad is brought to the UK (unless you inherited it from a UK domiciled person).
But tax (IHT) might apply later if you retain the money in the UK bank until you die. Your heir might need to pay IHT on the money inherited.
There is UK Inheritance Tax even if someone inherits properties in the overseas. This applies in case of UK domiciled.
So, if your parents are UK domiciled, and own overseas properties, you need to pay Inheritance Tax upon inheriting the abroad properties.
Whether you need to pay IHT depends on from whom you inherited the property (the person who died). You need to pay IHT if:
- If the deceased person is a UK domiciled or
- The property you inherited is UK land or building
So even if you inherited a property from the non-resident, IHT might apply if the non-resident was UK-domiciled or the property you inherited is a UK property.
Conclusion
Non-residents need to plan in advance to save IHT. As IHT rules are not easy to understand, expert guidance is helpful for your IHT planning.
Ready to navigate UK Inheritance Tax as a non-resident?
Contact us today for efficient and hassle-free assistance.
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