Mailbag: Will my heirs pay inheritance tax on my overseas property?

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Dear, I own a property in Spain and would like to leave it to my children. Will they have to pay inheritance tax on it in the UK? Will they have to pay inheritance tax on it in Spain instead, or as well? Either way, is it possible to reduce my estate’s liabilities on it? Thanks, Margaret, Wolverhampton

To answer your question, spoke to Karen Clark, head of private client at Baker Tilly.

She says: “In the UK, the inheritance tax (IHT) threshold is currently £325,000. This means your estate will owe tax on anything above this figure. This even applies to assets held overseas, wherever they are.

“However, this only applies to you if you are domiciled in the UK. If you’re domiciled overseas, you’ll only be liable for IHT on your UK assets.”


An individual’s domicile is initially determined by where their father was domiciled at the time of their birth. Even if you were born in the US (and thus became a US citizen as a result of birthright citizenship), but your father was UK domiciled, you would be UK domiciled.

This can change over time, however. Peter Esders, commercial director at international legal services provider Judicare, notes an individual’s domicile can be influenced by a number of factors.

“This can include how long someone spends in a country (whether 183 days or more annually), where their main residence is, where their immediate family is based, and whether or not they pay taxes anywhere else.”

However, Clark notes there are circumstances in which individuals can be ‘deemed domiciled’ in the UK, even if they are officially domiciled elsewhere.

“If you were UK-domiciled in the three years before a transfer of assets, or were resident in the UK in at least 17 of the 20 tax years ending with the year in which you make a transfer, you are liable for UK IHT on all worldwide assets,” she says.


When you buy a property abroad, you must familiarise yourself with the tax rules in the country where you intend to buy.

“If a country does not have a double taxation agreement with UK, and without proper advice in both countries, IHT (or its overseas equivalent) may be payable here and there,” says Clark.

Click here for a comprehensive list of the territories with which the UK currently has a double taxation treaty.

Reducing liabilities

As with IHT paid on UK assets, a simple way of reducing your estate’s liabilities is by giving it away piece by piece, as gifts. Your children can receive up to £3,000 annually as gifts tax-free.. They can also enjoy one-off wedding gifts of up to £5,000 and your grandchildren up to £2,500.

Other small gifts also don’t count towards the annual exemption – up to £250 can be given to whomever you like, as often as you like, throughout the year.

Any gift you give will be free from IHT liabilities as long as you survive for seven years after the gift is given.

“Property, whether in the UK or overseas, is also subject to this rule – meaning IHT could be due if you pass away before the seven year period is over,” says Clark.

“IHT will still be applicable if you continue to live in the property after giving it away and do not pay a market rent for your occupation, as it becomes a ‘gift with reservation’.”

However, Clark also notes that even if you die before the seven-year time frame is up, IHT liabilities may be reduced via ‘taper relief’. Taper relief reduces IHT on gifts in increments, and is effective if a gift was given over three years prior to an individual’s passing.

“If a gift is given three to four years before death, tax is reduced by 20 per cent. This rises by 20 percentage points for every year subsequent, ending up at 80 per cent if a gift is given six to seven years before death,” she states.

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