We help families protect what matters. This short guide explains how UK rules can affect what your loved ones receive when you die. IHT is generally charged at 40% above the £325,000 nil-rate band, so early action can make a big difference.
We will outline practical steps you might choose, such as wills, lasting powers of attorney and professional advice. Our aim is clear guidance, not jargon. Clarity and simplicity are our priorities.
Even if you do not think you are wealthy, property or life cover can push an estate over the threshold. A major change from 6 April 2025 will base exposure on residence history rather than old domicile labels, so many residents should take note.
Key Takeaways
- UK rules can mean a 40% charge above the nil-rate band; early steps reduce uncertainty.
- We explain simple actions: wills, LPAs and where to get professional help.
- Property and insurance can push an estate into charge sooner than expected.
- From 6 April 2025, residence history will affect exposure to IHT.
- Good work now brings clarity and fewer surprises for partners and children.
Who this buyer’s guide is for and what UK inheritance tax means for foreign nationals
We wrote this guide for people whose lives and assets cross borders. It suits individuals now based in the UK, those thinking of moving, and families with property or accounts overseas who want clear next steps.
When charges usually apply
Charges are assessed on the value of an estate at death. They become relevant when that value exceeds the allowances available. Acting early gives a person more choice than leaving decisions to executors.
Key terms to know
- Estate / assets: all property, savings, shares, and certain life cover — including items people often forget.
- Tax year: runs 6 April to 5 April. Your pattern across tax years helps decide exposure.
- Residence: set by the Statutory Residence Test, not just passport or visa status.
- Liability: what HMRC can charge and collect, which can change with your status and years of residence.
Think of your situation as four parts: who you are, what you own, where it sits, and when events happen. If you want a practical walkthrough of how non-resident exposure works, see our guide to navigating non-resident exposure.
UK inheritance tax basics: rates, thresholds and the allowances you can use
We begin by setting out the main thresholds and how they affect the money you leave behind.
Nil-rate band: Every estate has a £325,000 allowance. If the estate value exceeds this, the excess is usually charged at the standard 40% rate. For simple calculation purposes: estate value minus allowances equals the taxable amount, which is then taxed at the standard rate.
Residence Nil-Rate Band: If you pass your main home to direct descendants, an extra allowance can apply. This residence benefit can add up to £175,000 to the total allowance for many homeowners.
Spouse and charity rules: Transfers between spouses or civil partners are generally exempt. Leaving at least 10% of the net estate to charity reduces the rate on the taxable amount to 36% rather than 40%.
Practical example: a £700,000 estate with main home and children might use the £325,000 nil-rate band plus some or all of the residence allowance. The remaining amount would be the taxable amount charged at the standard rate (or 36% if the 10% charity condition is met).
Note: These rules apply to all residents and to domiciled individuals where relevant. Ownership of property overseas, prior gifts and complex assets can change the picture, which we address in later sections.
inheritance tax planning for foreign nationals living in uk under the new residence-based rules
Since April 2025, whether overseas assets fall within scope depends on your pattern of UK residence over twenty years.
In plain terms, the government moved away from relying on domicile status. The new rules use residence history instead. That matters if you are a long-term resident.
Long-term residence and the ten-year test
Long-term residence means being tax resident in the UK for at least ten of the last twenty tax years. If you meet that test, worldwide assets can become chargeable.
Leaving the UK — the residence “tail”
Leaving does not always stop exposure straight away. A residence “tail” can apply for between three and ten years after you leave, depending on how long you were resident.
Split years, young people and transitional rules
- Split years count as full tax years when checking the ten‑year rule.
- Under‑20s use a 50% since‑birth test — parents should note how moves affect a child’s position.
- Transitional rules protect people who were non‑resident in 2025–26 and not domiciled on 30 October 2024. Past tests may still apply to them.
Practical tip: Review your residence history before major gifts or trust decisions. Small timing choices can change whether you become subject iht or liable iht.
What assets are in scope: UK property, UK-situs assets and worldwide assets
We map which assets fall inside the charge net and which remain outside it.
How scope works. Non‑long-term residents are generally subject only to UK‑situs assets. Once someone becomes a long‑term resident (LTR), worldwide assets can become chargeable. This change depends on residence history and status.
Typical UK‑situs holdings
- UK residential property and land.
- UK bank accounts and savings.
- Shares in UK companies and some UK investment products.
Residential property and cross‑border pitfalls
Property often causes surprise. Joint ownership, overseas company ownership or trusts can still fall within scope. Executors check title and structures closely.
| Asset type | Often in scope | Notes |
|---|---|---|
| UK property | Yes | Includes homes and land, even if used by family abroad. |
| Offshore bank accounts | Depends | May be in scope once someone is an LTR. |
| UK shares | Yes | Held directly or via UK nominee accounts. |
Excluded property changes. From 6 April 2025 the rules tightened. Some non‑UK items are excluded only where the person is not a long‑term resident. That means location alone no longer guarantees protection.
Quick checklist: list what you own, note where it sits, check ownership structure and review residence history. For an example on property abroad, see our guide to owning property abroad. Later sections explain trusts and gifting and how they interact with these scope rules.
Wills, probate and lasting power of attorney: the legal foundations you may need to buy
We believe tidy legal documents are the foundation of sensible estate work. A clear will tells executors what you want and reduces disputes across different jurisdictions.
Wills and intestacy
A will controls distribution. Without one, intestacy rules decide who inherits and that can produce unexpected results in modern family circumstances.
Grant of probate
A grant of probate is usually needed for higher‑value estates and certain property. Joint assets held as joint tenants often pass automatically and may avoid probate, but this can create other issues.
Lasting power of attorney
LPAs cover health and welfare and property and financial affairs. They must be registered with the Office of the Public Guardian to be used for legal purposes.
Who does what
Executors manage the estate after death. Attorneys act while you are alive if you cannot act. Clear roles help families act quickly and with less stress.
Cross-border note: If you are a resident with assets abroad, make documents consistent across jurisdictions. Good legal housekeeping makes later steps—gifts, trusts and investments—work better.
Gifting strategies to reduce IHT over time
Gifting steadily over years can be one of the simplest ways to reduce estate exposure while keeping family harmony. We favour a gradual approach rather than ad‑hoc large transfers.
The annual £3,000 exemption and carry‑forward
Annual exemption: You may give up to £3,000 each tax year free of charge. If unused, you can carry forward one year’s allowance once.
Potentially exempt transfers and the seven‑year rule
Potentially exempt transfers (PETs) become fully exempt if you survive seven years after the gift. Keep dated records so executors can verify when the clock started.
Taper relief and how it helps
Taper relief can reduce the amount of tax due on gifts made between three and seven years before death. It reduces tax, not the amount you gave.
Gifts with reservation of benefit
Warning: If you give away an asset but keep a benefit—such as living rent‑free in a “given” home—HMRC may still add it back to your estate.
“Small, regular gifts and good records make life easier for families and executors.”
- Common uses: house deposits, school fees, investment transfers.
- Checklist: date, amount, recipient, bank evidence, purpose.
- Cross‑border note: check residence history; rules after 6 April 2025 can affect which gifts are caught.
Trusts for foreign nationals: when they work and the tax trade-offs
Trusts can help families manage money across borders while setting clear rules about who benefits and when.
What is a trust? It is a legal container that holds assets for beneficiaries. Trustees run the trust under written terms.
When a trust may help
Trusts suit protective purposes. They can guard funds for children, simplify cross-border ownership and give clarity on timing of gifts.
Common types, in plain terms
- Bare trust: Beneficiaries have an immediate right to capital. It is simple and usually clear-cut.
- Discretionary trust: Trustees choose who gets what and when. It is flexible for changing family needs.
- Interest in possession: Someone receives income while capital passes later. It suits lifetime income needs.
| Trust type | Control | Typical liability |
|---|---|---|
| Bare | Beneficiary | Low ongoing reporting |
| Discretionary | Trustees | Higher reporting and possible trust-level tax |
| Interest in possession | Income beneficiary | Income taxed at beneficiary rates |
Excluded property trusts historically sheltered non-UK assets. Since 6 April 2025, long-term residence status changes that outcome. Becoming a long-term resident later can bring overseas assets back into charge and create fresh tax liability.
Practical note: Avoid retaining benefit. If you still use trust assets, the intended outcome can be undone. Review residence history and get tailored advice—see our guides on excluded property issues and cross-border estate options.
Pensions and investments in inheritance tax planning
Your pension can behave very differently from savings when assessing what your estate may face.
Why pensions stood apart. Pensions have typically sat outside the estate for IHT and often passed to named beneficiaries via a scheme nomination rather than a will. That route can be quicker and avoid probate delays.
How beneficiaries are taxed before and after 75
Death before age 75 usually means beneficiaries can receive pension funds tax-free. After 75, withdrawals are subject to income tax at the beneficiary’s marginal rate.
| Situation | Typical treatment |
|---|---|
| Death before 75 | Often tax-free to beneficiaries |
| Death after 75 | Withdrawals taxed as income |
Proposed changes from April 2027
There are proposals to include unused pension funds in the estate from April 2027. If enacted, this could bring more pension value within IHT scope and change how families balance retirement income and succession.
Reliefs, wrappers and practical prompts
Business Property Relief and Agricultural Property Relief can shelter qualifying business or farm property from IHT if conditions are met. These are long‑term investment options rather than quick fixes.
Tax‑efficient wrappers such as ISAs help manage income tax and gains during life and reduce what passes as part of the estate.
- Review pension nominations and beneficiary details.
- Check accessibility and likely withdrawals to estimate future income and income tax.
- Stress‑test your plan against the proposed April 2027 rule change.
In short: balance retirement income needs with strategies that guard capital for heirs. Review regularly as rules and years evolve.
Cross-border considerations: double taxation agreements, overseas wills and forced heirship
Cross-border succession raises practical issues that often catch families by surprise. Multiple jurisdictions can claim a share of the same estate, creating delay and extra costs.
Double taxation agreements exist to reduce the risk of being charged twice on the same assets. They may give credits, exemptions or clear priority rules where liability overlaps. Check whether a treaty covers your country before deciding next steps.
When a second will abroad may help
A separate will for overseas property can speed local administration. It can also avoid probate duplication when done alongside a UK will. Take care: one will must not accidentally revoke the other. We recommend coordinated drafting and clear clauses.
Forced heirship and aligning outcomes
Some countries (for example France and Spain) reserve parts of an estate to close relatives. That can conflict with UK-style testamentary freedom. Early action helps align what you want with what local rules allow.
- Gather asset locations, local rules and any treaty details before advice.
- Think in timelines: what you own now, what you may buy, and how residence status may change liability.
- Consider professional help when you own property abroad; see our guide to expat wills.
Conclusion
A simple, regular review keeps your family safe and reduces unexpected costs at a difficult time.
Early action matters. IHT applies at 40% above the nil‑rate band, residence history from 6 April 2025 can bring worldwide assets into scope, and pension rules may change from April 2027.
Three practical levers are within your control: tidy legal documents such as wills and LPAs, clear records of what you own and where, and careful use of gifts, trusts, pensions and investments.
Start by listing assets, checking beneficiary details and aligning any overseas wills. For a focused guide, see our non-domicile IHT guide.
We are here to help you review and update your plan as rules and years change.