Inheritance Tax if You Die While Living Outside the UK

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Inheritance Tax Rules for UK Assets When Living Abroad

If you are living abroad at the time of your death, Inheritance Tax (IHT) only applies to your UK-based assets—such as property or bank accounts held in the UK.

HMRC considers you as “living abroad” for IHT purposes if you have spent fewer than 10 years in the UK during the last 20 years.

Some assets are classed as excluded and are not subject to IHT. These include:

Foreign currency accounts held with a bank or the Post Office.
Overseas pensions.
Investments in authorised unit trusts and open-ended investment companies.

Special rules may apply if you hold assets in a trust, own government gilts, or are part of visiting armed forces. If you are unsure whether your assets qualify as excluded, you can contact the Inheritance Tax helpline for clarification.

For deaths before 6 April 2025

A person will still be treated as UK-based if:

Their permanent home (domicile) was in the UK.
They lived in the UK for 15 of the last 20 years.
They had their permanent home in the UK at any point in the last 3 years of their life.

Double-Taxation Treaties

If both the UK and the country where you lived charge IHT on the same assets, your executor may be able to claim relief through a double-taxation treaty.

1. What is the 7-year rule for Inheritance Tax on gifts?

The 7-year rule means that if you give away money, property, or assets and live for at least 7 years after the gift, it is usually exempt from Inheritance Tax (IHT). If you die within 7 years, the gift may be taxed depending on when it was given, with taper relief reducing the tax rate for gifts made 3–7 years before death.

2. Which gifts are exempt from Inheritance Tax in the UK?

Some gifts are completely tax-free, including:

Gifts to your spouse or civil partner (if they live in the UK).
Gifts to charities or political parties.
Small gifts of up to £250 per person per year.
Annual exemption of up to £3,000 per tax year.
Wedding or civil partnership gifts (up to £5,000 for a child, £2,500 for a grandchild, or £1,000 for others).

3. How much can I give as a gift without paying Inheritance Tax?

You can give away up to £3,000 each tax year under the annual exemption, plus as many small gifts of £250 or less per person as you like. You can also combine exemptions, for example by giving your child a £3,000 annual gift plus a £5,000 wedding gift in the same year.

4. What happens if I give my house to my children before I die?

If you gift your home to your children and move out, there’s normally no Inheritance Tax to pay if you live for 7 more years. However, if you continue to live in the house without paying full market rent, it will be treated as a gift with reservation and added back into your estate for tax purposes.

5. Do I need to keep records of the gifts I give?

Yes. Keeping records helps your executor calculate whether Inheritance Tax applies. You should record:

The date of each gift.
The amount or value of the gift.
Who received it.

This is especially important if you give large gifts, as HMRC will look at the last 7 years of your life when assessing IHT.

FAQs

1. Do I pay UK Inheritance Tax if I live abroad?

Yes, if you are still considered UK-domiciled, the UK treats your worldwide estate (all property, money, and possessions, wherever located) as taxable for IHT.

👉 Even if you’ve lived abroad for many years, your domicile may remain in the UK unless you have formally acquired a foreign domicile of choice.

2. What if I am non-domiciled but own UK assets?

If you are legally non-UK domiciled, only your UK-based assets are subject to IHT.

Examples: property in the UK, UK bank accounts, UK shares, or certain business interests.

👉 Overseas assets (like property abroad) are usually not taxed by the UK if you’re non-domiciled.

3. Is there a tax-free threshold for IHT while abroad?

Yes. The nil-rate band (£325,000) applies regardless of where you live.

👉 This means the first £325,000 of your estate is tax-free. Anything above this may be taxed at 40%.

Additionally:

If you leave your main home to children or grandchildren, the residence nil-rate band can increase the tax-free allowance up to £500,000.
Transfers between spouses or civil partners (if both are UK-domiciled) are usually exempt from IHT.

4. Can double taxation happen if I die abroad?

Yes — some countries (e.g., the US, France, Spain) charge their own estate or inheritance tax. This means the same asset might be taxed twice — once in the UK and once abroad.

👉 To help, the UK has double taxation treaties with certain countries, which allow tax credits or exemptions so you don’t pay the full tax twice.

5. How can I reduce Inheritance Tax liability while living abroad?

Options include:

Changing domicile: If you establish a permanent domicile abroad, the UK may only tax your UK assets.
Gifting assets: Gifts made during your lifetime may be free of IHT if you survive 7 years after making them.
Trusts: Using offshore trusts or estate structures can help protect overseas wealth.
Professional planning: An expert can review your residency, domicile, and available tax treaties to minimise exposure.

👉 Proper planning ensures more of your estate goes to your loved ones rather than the taxman.

👉 Plan Ahead for Your UK Assets While Living Abroad

Don’t let unexpected Inheritance Tax rules catch your family off guard. Our specialist team at PKPI Chartered Accountants can help you understand exclusions, protect your estate, and ensure your loved ones benefit fully.

Book a free consultation today at PKPI Chartered Accountants and secure your legacy with expert tax planning.