Inheritance tax UK: Will IHT be due if you live abroad? Check if you have ‘excluded’ asset

Inheritance tax (IHT) is levied on certain estates when a person dies and is handing down their assets. It generally only concerns large assets as it paid on those valued higher than £325,000.


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Estates valued over £325,000 will have 40 percent charged on the portions of the estate over this limit.

So, as an example, say a person has died and their estate is worth £400,000 and it is being passed on to beneficiaries.

The 40 percent will be levied on the £75,000 above the threshold.

There are many rules in place which can affect the end bill and reduce the burden on the estate.

However, there are specific rules in place which can affect those living abroad.

If a British person dies outside the UK and their permanent home (where they’re “domiciled”) is abroad, they’ll only pay IHT on their UK based assets.

This includes property or cash held in bank accounts.

There are certain “excluded assets” which will not be counted at all

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There are many assets that can fall into this bracket but it includes things such as:

  • Foreign currency accounts with a bank or the Post Office
  • overseas pensions
  • holdings in authorised unit trusts and open-ended investment companies


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To complicate things further, there are different rules if the person held assets in a trust or government gilts, or if they were a member of visiting armed forces.

The government seem to recognise that IHT can be a confusing tax and as such, they have an IHT and probate helpline which can be called for guidance.

There are definitions in place for when someone will not count as living abroad.

HMRC will treat people as being domiciled in the UK if they:

  • Have lived in the UK for 15 of the last 20 years
  • Had their permanent home in the UK at any time in the last three years of their life

If IHT is due, funds from the estate will be used to cover the IHT bill.

It will be paid to HMRC and will usually be handled by the person dealing with the estate.

If a will is involved, the person handling the admin will be the “executor”.

The beneficiaries of the assets will not normally pay tax on the things they inherit but they may have to pay capital gains tax if they go on to sell the assets for a profit.

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