A UK property is always within the scope of UK Inheritance Tax when its owner dies, regardless of where that owner lives, holds citizenship, or is treated as resident for other UK taxes. IHT is charged at 40 percent on the value of the estate above the 325,000 pound nil rate band, and since April 2025 the rules that decide whether an owner’s worldwide assets are also caught have changed from a domicile test to a residence based test.
Why Non-Residents Are Still Liable
UK Inheritance Tax has always applied to UK situated assets no matter where the owner lives. A house in Mayfair, a country estate in Surrey, or a flat bought as an investment all count as UK situs property, and their value falls into the estate calculation on death even if the owner never spent a day in the UK. This is separate from income tax or capital gains tax residence rules, and it catches buyers who assume that being non-resident for other purposes keeps them outside UK inheritance rules entirely.
The 2025 Shift From Domicile to Residence
Before 6 April 2025, a non-UK domiciled owner’s liability was generally limited to UK assets, while their worldwide estate stayed outside the charge. From that date, HMRC uses a long-term residence test instead. An owner who has been UK resident for 10 of the previous 20 tax years is treated as a long-term resident, and their worldwide estate becomes subject to UK Inheritance Tax, not just their UK property.
A tail provision then keeps a former long-term resident within scope for a period after they leave the UK, with the exact length depending on how many of those 20 years were spent as UK resident. For a buyer who has lived and worked in the UK before relocating abroad, this tail can matter more than the property purchase itself, and it should be checked with a UK tax adviser rather than assumed away.
Worked Example at Luxury Price Points
Consider a non-resident, non-long-term-resident owner whose only UK asset is a 4,000,000 pound house in Kensington, held personally and left to adult children. The nil rate band shelters the first 325,000 pounds. The remaining 3,675,000 pounds is taxed at 40 percent, giving an Inheritance Tax bill of roughly 1,470,000 pounds, payable by the estate before the property can be transferred or sold.
On an 8,000,000 pound property under the same conditions, the taxable value after the nil rate band is 7,675,000 pounds, producing a bill of roughly 3,070,000 pounds. These figures assume no other reliefs apply and no double tax treaty offset is available, and they should always be checked against the current thresholds and the estate’s full circumstances before relying on them.
The Offshore Company Route No Longer Works
Before April 2017, holding UK residential property through an offshore company was a common way to keep it outside the IHT net, because shares in a foreign company were themselves treated as excluded property. HMRC closed this route from 6 April 2017. Since then, the value of an offshore company’s shares that comes from UK residential property is brought back into the scope of UK Inheritance Tax on a chargeable event such as the owner’s death, so buyers who structured a purchase this way before 2017 should have the arrangement reviewed rather than assuming it still shelters the property.
How the Bill Gets Paid
IHT is owed by the estate, not by the beneficiaries directly, and is generally due six months after the end of the month of death, with interest accruing on late payment. Because the tax is usually due before probate is granted and before the property can be sold, executors of a non-resident owner’s estate often need to fund the bill from other assets, a mortgage against the property, or HMRC’s instalment option for property, which allows payment over 10 years with interest on the outstanding balance.
Reducing the Exposure
A small number of practical steps come up repeatedly in non-resident IHT planning for UK property.
- Life insurance written into trust: a policy written under trust from the outset pays out to beneficiaries directly and sits outside the estate, giving the family funds to cover the tax bill without needing to sell the property quickly.
- Reviewing pre-2017 company structures: older enveloping arrangements should be checked against the current rules rather than assumed to still work.
- Tracking the long-term residence tail: owners who have spent time UK resident before buying should know whether they are still inside the 10-of-20-year test before assuming only their UK property is at risk.
- Checking for a double tax treaty: the UK has a limited number of estate tax treaties, including with the United States and France, which can sometimes credit tax paid in one country against the other.
None of these substitute for advice from a UK-qualified tax adviser or solicitor, since the right approach depends on the owner’s residence history, domicile, and the value and structure of the wider estate.
How This Fits With Other Non-Resident Property Taxes
Inheritance Tax is only one of four separate UK tax charges that apply specifically to non-resident owners of UK property. It sits alongside the stamp duty surcharge paid on purchase, capital gains tax paid on sale, and ATED, the annual charge on property held through a company. Buyers structuring a purchase should look at all four together rather than in isolation, since the ownership structure that reduces one charge can increase exposure to another.
Frequently Asked Questions
Do non-residents pay UK inheritance tax on UK property?
Yes. UK situated property is always within the scope of UK Inheritance Tax on the owner’s death, regardless of the owner’s residence or domicile status.
What changed with inheritance tax for non-residents in 2025?
From 6 April 2025, HMRC replaced the domicile test with a residence based test. An owner who has been UK resident for 10 of the previous 20 tax years has their worldwide estate brought into scope, not just their UK property.
Does holding UK property through an offshore company avoid inheritance tax?
No, not since 6 April 2017. The value of an offshore company’s shares attributable to UK residential property is brought back into the UK Inheritance Tax charge on a chargeable event such as death.
How long do executors have to pay UK inheritance tax?
Payment is generally due six months after the end of the month of death, with interest applying after that date. HMRC offers an instalment option for property, spreading payment over 10 years.
Can double taxation on inheritance be avoided?
Sometimes. The UK has estate tax treaties with a limited number of countries, including the United States and France, which can allow tax paid in one country to be credited against the other. This needs to be checked case by case with a tax adviser.
Written and reviewed by the My Luxury Property editorial team, who research premium property markets and buying costs across the UK and internationally. This article is for general information only and is not tax advice. Figures should always be confirmed with a solicitor or accountant, since rates, thresholds and reliefs are periodically revised. Have a question about a specific estate? Get in touch with us here.