UK Property & Inheritance Tax

What Expats and Overseas Owners Need to Know

Whether you are a British expat living abroad or a non-UK resident investor with property in the UK, it is important to understand how Inheritance Tax (IHT) could affect your estate.

UK property is always within the scope of IHT, regardless of your residency or citizenship status.

With proper planning, however, you can structure your property holdings in a way that reduces the tax burden on your heirs, while retaining control and income during your lifetime.

This guide explains the key strategies available, along with important updates from the UK government’s recent tax changes.

Does Inheritance Tax Apply If You Are Living Abroad?

Yes. UK-situated assets, including residential and investment property, are always subject to UK IHT. This is true whether you are a British citizen or a foreign national.

• If you are a British expat, your liability to IHT depends on your domicile and now increasingly your UK residency history.

• If you are a foreign investor with no UK ties beyond property, you are generally taxed only on your UK-based assets.

From April 2025, IHT will be based on residency rather than domicile. Anyone who has been a UK resident for 10 out of the last 20 years will be taxed on their worldwide estate, not just UK assets.

If you have been non-UK resident for more than 10 years and are not domiciled in the UK, you may escape IHT on your global assets. However, any UK property will still be taxed under UK law.

Key IHT Planning Strategies for UK Property Owners

1. Own Property Through a Limited Company

Holding property through a UK limited company offers greater flexibility than personal ownership. This approach allows you to:

• Transfer ownership over time by gifting shares in the company.

• Start the seven-year IHT clock with each gift. If you survive seven years, the value of that gift usually falls outside your estate.

• Retain control of the company even while transferring economic benefit.

Shares in a property company are easier to divide, gift and manage than direct ownership of bricks-and-mortar assets. This is especially useful for parents or grandparents looking to pass wealth on gradually, while maintaining control.

For overseas owners, a UK limited company may also offer administrative or tax benefits in other jurisdictions.

2. Use Life Insurance to Cover the IHT Bill

If you plan to keep your UK property but want to ensure that IHT does not force your heirs to sell it, you may consider a life insurance policy.

• The policy is typically placed in trust so that the proceeds fall outside your estate and can be paid directly to your beneficiaries.

• It provides liquidity to cover IHT without requiring the sale of assets.

• Premiums can sometimes fall within your annual gift allowances.

This approach is often used by expats who want to maintain their portfolio but protect their heirs from tax complications.

3. Gifting Property or Company Shares

You can reduce your IHT exposure by gifting UK property or shares during your lifetime. Each gift starts the seven-year clock for IHT taper relief.

• Gifting a directly owned property may trigger Capital Gains Tax (CGT), based on the increase in value since purchase.

• Partial gifts are not easy with property held personally, but they are straightforward with company shares.

• Gradual share transfers allow you to retain control while reducing the value of your estate.

This method suits individuals who are willing to give up some economic value during their lifetime in order to reduce future tax exposure.

4. Sell the Property and Reinvest the Proceeds

If you no longer need the income or control that comes with property, selling it may be an effective step.

Proceeds can be reinvested into IHT-efficient alternatives such as:

• Business Relief investments, which can become fully exempt from IHT after two years and allow you to retain access to the capital.

• Enterprise Investment Schemes (EIS), which offer generous tax reliefs but are high-risk and less liquid.

• Flexible reversionary trusts, which allow structured distributions to you and your family while gradually removing value from your estate.

You would need to pay CGT on any property gain at the point of sale, but the long-term IHT savings and investment flexibility may make this worthwhile.

5. Trust Structures (Use with Specialist Advice)

Discretionary trusts have long been used for estate planning, especially by non-residents and high-net-worth individuals.

However, following the Autumn 2024 budget, the UK government has introduced several restrictions:

• Trusts will have a £1 million cap on Business and Agricultural Property Relief from April 2026. Above this threshold, relief drops to 50 percent.

• Trust income is taxed at 45 percent, including rental income.

• Offshore trusts created by long-term UK residents may now be pulled into the IHT net.

If you already have a trust in place, or are considering one, it is essential to seek specialist advice to ensure it still delivers the intended benefits.

Recent Tax Changes You Should Know About

The UK’s Autumn 2024 Budget introduced several important changes:

These changes make early planning more important than ever, particularly for those who have spent time in the UK in the past and may be approaching the 10-year residence threshold.

What You Can Do Now

1. Review how your UK property is owned. Personal ownership, joint names, and corporate structures all have different consequences.

2. Consider gradual gifts or share transfers. This reduces your estate’s value over time while maintaining control.

3. Use life assurance where appropriate. It creates a cash buffer to pay future tax bills.

4. Assess your domicile and residence status. If you are approaching the 10-year UK residency threshold, early action can be critical.

5. Work with an adviser. Tax rules are changing, and strategies that worked in the past may no longer be appropriate.

Conclusion

If you own UK property but live abroad, you are still exposed to UK Inheritance Tax. Whether you are a British expat or a foreign national investor, there are steps you can take to reduce the eventual tax burden and pass on your wealth efficiently.

The key is to plan early, take advantage of available reliefs, and review your structure in light of the changing UK tax rules. With the right advice, it is possible to preserve control and income during your lifetime, while giving your heirs a simpler, more tax-efficient inheritance.