Do you pay UK tax on inheritance from abroad?

Full answer

**The basic principle** In the UK, Inheritance Tax (IHT) is paid by the estate of the deceased person, not by the beneficiary receiving the inheritance. This means that as a beneficiary living in the UK receiving an inheritance from abroad, you typically do not pay UK tax on the inherited funds. **However: UK domicile determines IHT on the estate** IHT in the UK is based on the domicile of the deceased: - **UK-domiciled deceased**: worldwide estate is subject to UK IHT at 40% above the nil-rate band (£325,000, plus residence nil-rate band if applicable) - **Non-UK-domiciled deceased**: only UK-situated assets are subject to UK IHT; overseas assets are excluded **Example: James inherits from a parent abroad** James is UK-resident. His parent died in Italy (non-UK-domiciled, no UK assets). James receives €200,000 inheritance. This is outside UK IHT — no UK tax liability for James. The Italian estate may have paid Italian succession tax. **Example: Sarah inherits from a UK-domiciled parent** Sarah's parent had a UK estate of £800,000. IHT: (£800,000 − £325,000) × 40% = £190,000 paid from the estate before Sarah receives her share. Sarah gets the net amount — no further UK tax for her to pay. **Income from inherited assets** Although the inheritance itself is not taxable, any income generated by inherited assets (interest, dividends, rent) is taxable in the UK via Self Assessment. **Double tax treaties** Some countries have IHT/estate duty double tax treaties with the UK (e.g. USA, France). These prevent the same assets being taxed twice. If the foreign estate paid estate tax abroad, relief may be available under the relevant treaty.

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