Is an Inheritance From Abroad Taxable in the UK? IHT and Income Tax Rules

Receiving money or property from a family member who lived abroad — or from an estate that holds assets outside the UK — raises a natural question: does HMRC want a share? The answer depends on several factors: the deceased's domicile, the type of asset, and what you do with the inheritance afterwards. This guide sets out the 2026/27 rules clearly.

How UK Inheritance Tax Works on Overseas Estates

Inheritance Tax (IHT) is charged on the estate of the person who has died — not on you as the beneficiary. The rate is 40% on the value of the estate above the nil-rate band (NRB) of £325,000. A further residence nil-rate band (RNRB) of up to £175,000 applies where a main residence passes to direct descendants such as children or grandchildren.

The critical question for overseas assets is where the deceased was domiciled at the time of death.

• UK-domiciled deceased: HMRC taxes the entire worldwide estate, including overseas bank accounts, foreign property, shares in non-UK companies, and any other assets held abroad. The executor or personal representative must report and pay IHT on these assets before distributing the inheritance to beneficiaries.
• Non-UK-domiciled deceased: UK IHT applies only to assets that are UK-sited — for example, property located in England, Wales, Scotland, or Northern Ireland; UK bank accounts; and shares in UK-registered companies. Overseas assets are generally outside UK IHT for a non-dom deceased.

Deemed Domicile Rules

Even if someone was originally from another country, they can become deemed UK-domiciled for IHT purposes if they were resident in the UK for at least 15 of the previous 20 tax years. Once deemed UK-domiciled, their worldwide estate is treated the same as that of any UK-domiciled individual.

This catches many long-term UK residents who may never have formally intended to make the UK their permanent home.

Is the Inheritance Taxable When You Receive It?

As a UK-resident beneficiary, you do not pay income tax or capital gains tax on receiving an inheritance, whether it comes from the UK or from abroad. The distribution of an estate is not treated as income under UK tax law.

This applies whether you receive:

• A lump sum of cash transferred from an overseas bank account
• The proceeds of a foreign property sale handled by the estate
• Shares in a non-UK company forming part of the estate
• Personal possessions or jewellery held abroad

None of these trigger an income tax or CGT charge at the point of receipt. The estate itself bears the IHT liability (if any) before assets reach you.

Income and Gains After You Inherit

The position changes once the assets are in your hands and begin to generate returns.

Foreign Rental Income

If you inherit an overseas property and let it out, the rental profits are subject to UK income tax at your marginal rate:

• 20% (basic rate) on income between £12,570 and £50,270
• 40% (higher rate) on income between £50,270 and £125,140
• 45% (additional rate) on income above £125,140

You can deduct allowable expenses — mortgage interest (subject to restrictions), letting agent fees, maintenance costs — before calculating the taxable profit. Foreign tax paid on the rental income may be credited against your UK tax bill under a double taxation agreement.

Foreign Interest and Dividends

Interest earned on an inherited overseas bank account and dividends from foreign shares are taxable as UK income. The dividend allowance is £500 for 2026/27; above this, dividend rates are 8.75% (basic), 33.75% (higher), and 39.35% (additional). Interest from savings falls within your Personal Savings Allowance (£1,000 for basic-rate taxpayers, £500 for higher-rate taxpayers, nil for additional-rate taxpayers) and is taxed at your marginal rate above that.

Capital Gains on Inherited Overseas Assets

If you later sell an inherited overseas asset — property, shares, or anything else — you may have a capital gain. The base cost for CGT purposes is normally the market value at the date of death rather than what the deceased originally paid. This often reduces or eliminates the gain.

For 2026/27, the Annual Exempt Amount (AEA) is £3,000. CGT rates on residential property are 24% (higher/additional rate) and 18% (basic rate). Gains on other assets are also taxed at 24%/18% following the rate alignment in the Autumn 2024 Budget.

Double Taxation: Paying Tax in Two Countries

It is possible that both the UK and the country where the assets are held want to tax the same inheritance. The UK has double taxation agreements (DTAs) with many countries, including the United States, France, the Netherlands, and others, specifically covering estate and inheritance taxes. These treaties typically:

• Allocate taxing rights to one country for each category of asset
• Provide tax credits so that tax paid in one country reduces the bill in the other
• Prevent double payment on the same asset

Where no DTA exists, HMRC may still allow unilateral relief for overseas IHT paid, under specific conditions. The executor should obtain a certificate or confirmation of foreign tax paid before claiming relief on the UK IHT return.

Practical Steps if You Expect an Overseas Inheritance

1. Establish the deceased's domicile at the time of death — check how long they lived in each country and whether they took any formal steps to change domicile.
2. Value all worldwide assets if the deceased was UK-domiciled or deemed UK-domiciled. A professional valuation of overseas property is usually required.
3. Check for a DTA between the UK and the country where the assets are held. HMRC's guidance lists the countries with which the UK has agreements.
4. File the IHT return (IHT400 or IHT205 for smaller estates) and pay any IHT due within six months of death to avoid interest.
5. Keep records of what you inherited, including the date-of-death value. These become your CGT base cost if you later sell.
6. Declare ongoing income from inherited overseas assets on your Self Assessment tax return each year.

Remittance Basis and Non-Domiciled Beneficiaries

If you (the beneficiary) are a non-UK-domiciled individual and you use the remittance basis of taxation, the rules become more complex. Under the remittance basis, foreign income and gains are only taxed in the UK when you bring them into (remit them to) the UK. However, since April 2025 the remittance basis has been abolished for new arrivals and a new four-year foreign income and gains (FIG) regime has taken its place for the first four tax years of UK residence.

If you are in your first four years of UK tax residence, income and gains from inherited overseas assets may fall within the FIG exemption — meaning no UK tax is due even if you remit the funds to the UK. After the four-year period, normal UK tax rules apply. Take professional advice if this applies to your situation.

Useful Calculators

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This guide reflects UK tax law and HMRC practice for the 2026/27 tax year. Tax rules are complex and depend on individual circumstances. This article is for informational purposes only and does not constitute tax advice. Consult a qualified tax adviser or solicitor before making decisions about an overseas inheritance.