UK Tax on Inheritance from Abroad (2025/26 Guide)

The core principle — IHT is an estate tax, not a beneficiary tax

UK Inheritance Tax falls on the personal representatives of the deceased's estate before any distribution happens. The 40% headline rate (with reduced 36% if 10% goes to charity) applies to the chargeable estate above the nil-rate band of £325,000 and any available residence nil-rate band of £175,000. The beneficiary receives net of any UK IHT already paid; the cheque you get is yours free and clear from an income-tax perspective. This is a fundamental design point that catches many UK residents off-guard when they brace for a 40% bill on a German bank transfer that simply never arrives.

The follow-on is that everything depends on the deceased's status, not yours. If your aunt in Munich was never UK resident, her estate has no UK IHT exposure on her German assets at all — irrespective of the fact you live in Croydon. The UK only reaches into a foreign estate when the deceased themselves had a UK connection deep enough to trigger worldwide taxation, or when specific UK-situs assets sit inside the estate.

Post-April 2025 non-dom abolition — what actually changed

The Finance Act 2025 (Schedule 9) abolished the concept of domicile for UK tax purposes from 6 April 2025 and replaced it with a residence-based test. For Inheritance Tax this is one of the biggest structural shifts in 50 years. The old "domicile" and "deemed domicile" rules — which considered an individual's permanent home, their father's domicile of origin, and a 15-of-20 deemed-domicile test — are gone. In their place sits a mechanical "long-term resident" test.

• Long-term resident = UK tax resident (under the Statutory Residence Test) in at least 10 of the previous 20 tax years.
• A long-term resident's estate is exposed to UK IHT on worldwide assetson death. A non-long-term resident's estate is exposed only on UK-situs assets.
• The status applies to lifetime gifts too: gifts of non-UK assets by a long-term resident remain within IHT for seven years (PETs / chargeable lifetime transfers) and may interact with the new regime.
• The tail rule means UK IHT exposure does not end the day someone leaves the UK. Once long-term resident, an individual remains within the worldwide net for between three and ten further tax years, scaling with their accumulated residence record.

For UK residents inheriting from foreign relatives, the practical effect is that you need to ask one question first: was the deceased UK resident in 10 of the last 20 tax years? If no, the foreign estate is entirely outside UK IHT on its foreign-situs assets. If yes — perhaps because Mum spent 12 years in London before retiring to the Algarve five years ago — the estate may still be exposed.

Inheriting cash from abroad

Cash transfers from a foreign estate are the simplest case. There is no UK tax on receipt of the principal, regardless of amount. A €200,000 wire from a Berlin executor lands in your UK current account net of German Erbschaftsteuerif any was due, and HMRC has no further claim on the capital. There is no equivalent of US gift tax, no "gift receipts" tax, and no income reporting requirement merely because a large sum arrived.

What is taxable is what the money then does. From the day it sits in your account it is yours, and any:

• Interest earned on it (UK or foreign deposits) is taxable savings income, subject to your Personal Savings Allowance.
• Dividends from invested funds are taxable at 8.75% / 33.75% / 39.35% above the £500 dividend allowance.
• Capital gains on assets bought with the money fall under the 18%/24% CGT rates.
• Foreign exchange gains on the inherited foreign currency are generally outside CGT for personal use (a sterling-based UK resident can convert at will), but speculative FX or business use can be taxable.

If the foreign country levied an estate or inheritance tax before the cash reached you, that foreign tax was paid by the estate, not by you. It does not give rise to a personal UK credit because you never had a UK liability on the receipt in the first place. The credit is only relevant if a parallel UK IHT charge arose on the same asset — in which case the estate's personal representatives, not the beneficiary, claim the relief.

Inheriting property abroad

Inherited foreign property — a Spanish apartment, a Greek villa, an American condominium — comes with three UK tax angles, none of them about the act of inheritance itself.

1. CGT base cost. Under TCGA 1992 s.62 the asset is treated as acquired by the beneficiary at its market value on the date of death (the probate value). That sterling-converted value becomes your base cost on any future sale. If you sell within months at the same price, you have no UK gain. If you hold for ten years and the property doubles, the gain is calculated only from probate value forwards.
2. Rental income while you hold the property is taxable in the UK each year on the arising basis if you are UK resident. Report on the foreign property pages of SA106. The situs country will normally have primary taxing rights and the UK gives Foreign Tax Credit Relief for foreign tax paid up to the UK liability on the same income.
3. CGT on disposal.If you sell while UK resident, UK CGT of 18%/24% applies on any gain over probate value. Foreign CGT (Spain's 19-26% plusvalia, France's 36.2% combined, US federal and state) is creditable under the relevant treaty or unilateral relief. Private Residence Relief is available on a foreign main home if you genuinely occupied it as your only or main residence (the 90-day occupation rule applies).

One trap: if the deceased's estate was within UK IHT (long-term resident) and the foreign country also levied estate tax, the estate may use IHTA 1984 s.159 unilateral relief or a treaty credit. That happens at estate level. You as beneficiary inherit the asset net of those taxes.

Inheriting foreign investments

Foreign shares, mutual funds, ETFs and bonds inherited from an overseas estate follow much the same logic as foreign property.

• Base cost = market value of each holding on the date of death, converted to sterling at the spot rate on that date.
• Dividends received post-inheritance are foreign dividends taxable at UK dividend rates, with FTCR for any foreign withholding.
• Interest on inherited foreign bonds is foreign savings income, again with FTCR for treaty-rate withholding.
• Disposal triggers UK CGT on the gain from probate value to sale proceeds.
• Reporting uses SA106 for ongoing income and the main SA108 capital gains supplementary pages for disposals.

Special care is needed for non-reporting offshore funds. If you inherit shares in an offshore fund that has not applied for UK reporting status, any growth on disposal is taxed as offshore income gains at income tax rates (up to 45%), not at the lower CGT rates. The same problem can hit inherited US mutual funds and many continental SICAVs. Where possible, consider switching to a UK reporting-status equivalent fund soon after inheritance to reset the tax treatment going forward.

Double Taxation Treaties for IHT

The UK has surprisingly few IHT-specific treaties — most of its 130+ Double Tax Treaties cover income and capital gains only. The IHT/estate-tax treaty list is:

• France (1963)
• Ireland (1977)
• Italy (1968)
• Netherlands (1979, amended)
• South Africa (1978)
• Sweden (1980)
• Switzerland (1993)
• United States (1978 — wide and well-used)
• Pakistan (1957)
• India (1956 — old and limited; still in force)

These treaties typically allocate primary taxing rights according to domicile/residence and asset situs, then provide a credit for tax paid in the other country. For estates of long-term UK residents with assets in the treaty country, the relief mechanism is treaty-specific. For all other countries — Germany, Spain, Australia, Canada, most of Asia and Latin America — the UK falls back on unilateral relief under IHTA 1984 s.159, allowing credit against UK IHT for foreign IHT/estate tax suffered on the same asset, capped at the UK tax on that asset.

Worked examples

Reporting obligations

• IHT400 + IHT401 (deceased's domicile/residence) and IHT417(foreign assets) are filed by personal representatives only if there is UK IHT exposure — i.e. the deceased was a long-term UK resident or held UK-situs assets. Beneficiaries do not file these.
• SA106 (Foreign) — required for any ongoing foreign income or gains on inherited assets (rental, dividends, interest), reported each year on Self Assessment.
• SA108 (Capital Gains) — required on disposal of inherited foreign property or investments where a gain arises.
• Worldwide Disclosure Facility — if you have failed to disclose foreign income or gains in past years (perhaps because you inherited an account and quietly received interest for several years before realising), the WDF is the formal route to put matters right with tax, interest and a reduced self-assessed penalty. The alternative is HMRC opening an enquiry under the offshore penalty regime, with charges of up to 200% of tax.
• Common Reporting Standard (CRS) means HMRC will already have visibility of inherited foreign accounts in the major jurisdictions — banks in Spain, France, Germany, Switzerland, Ireland, Singapore, the Channel Islands and the UAE all report UK-resident account holders annually. Disclosure is the only sensible course.

Trust issues — offshore trusts and Excluded Property Trusts

A meaningful slice of overseas inheritances arrives via offshore trust structures — common where a non-UK family has used Channel Islands, BVI or Cayman trusts for generational planning. From 6 April 2025 the rules tightened considerably.

• Excluded Property Trusts (EPTs): a non-UK trust holding non-UK assets settled by a non-UK-domiciled settlor was historically permanently outside UK IHT. From April 2025 EPT status depends on the settlor's long-term residence status at each ten-year anniversary and exit event. If the settlor is or becomes a long-term UK resident, non-UK trust assets are pulled into the UK relevant-property regime with 6% periodic charges every 10 years and exit charges on distributions.
• Settlor-interested offshore trusts: a UK-resident settlor who can benefit (or whose spouse/minor children can benefit) is taxed personally on the trust's income and gains on an arising basis. Distributions to UK-resident beneficiaries from non-settlor-interested trusts are matched against the trust's relevant income and stockpiled gains under the Transfer of Assets Abroad and s.87 TCGA 1992 rules — capable of producing effective rates above 60% once the supplemental charge is applied.
• Inherited beneficiary interests: if you inherit an interest in an offshore trust (e.g. as a discretionary beneficiary following a death), tax advice beforeaccepting any distribution is essential. Receiving a distribution can crystallise large UK charges retroactively if stockpiled gains are matched. Pre-distribution planning — sometimes waiting a tax year, sometimes restructuring — can save five-figure sums.
• Protected trusts set up before 6 April 2017 by individuals who later became deemed-domiciled enjoyed protected status that has now been largely repealed; review of all such structures is overdue.

Practical checklist for a UK beneficiary

• Establish the deceased's UK residence record over the last 20 tax years — long-term resident or not?
• Obtain a sterling-equivalent probate valuation for every inherited asset; keep the date-of-death FX rate evidence.
• For property and investments, decide early whether to hold or sell — base cost is fixed at probate, so disposal soon after death usually yields nil UK gain.
• If non-UK-resident relatives left UK-situs assets (UK bank account, UK shares, UK property), expect UK IHT on those at estate level.
• Set up SA106 reporting from year one of any ongoing foreign income — do not wait until HMRC notices.
• For trust interests, take advice before accepting any distribution.
• Retain certified copies of foreign tax assessments, foreign probate, and the will — HMRC may ask up to 20 years later.