Inheritance Tax for UK Situs Assets: Bank Accounts Explained

This distinction matters because the treatment of UK and overseas bank accounts for IHT purposes depends on both their situs and your long-term UK residence status. Even after relocating overseas, certain UK bank accounts may remain within the scope of UK IHT, while foreign accounts may also be exposed if you remain a long-term UK resident.

What Determines the Legal Situs of a Bank Account?

The legal situs of an asset, including bank accounts, is determined by its location. Under general law, a bank account is considered a debt, and it is situated at the branch of the bank where it is held and maintained. This rule typically applies regardless of the account holder’s residence status or the currency denomination of the account.

This distinction is especially relevant where you maintain accounts with international banking groups or hold deposits in several currencies.

For multi-currency accounts, the location of the bank or branch where the account is legally maintained matters more than the currency itself. An account offering several currencies through a UK banking platform is not necessarily an overseas asset. The account terms may need to be checked to establish its situs.

How Are UK and Foreign Bank Accounts Treated Under the UK IHT Framework?

Since 6 April 2025, the UK IHT framework has been based on the individual’s long-term residence (LTR) status rather than domicile. Your LTR status determines whether your worldwide estate is within the scope of UK IHT or your liability is generally restricted to UK assets.

You are generally considered an LTR if you were a UK tax resident for either:

• The previous ten consecutive tax years
• A total of ten tax years in the previous 20 tax years

Factors such as relocating, cutting ties with the UK, or becoming a tax resident in another country do not necessarily remove your estate’s UK IHT exposure. Depending on your UK residence history, the so-called IHT “tail” could apply for up to ten tax years after relocating:

The table reflects the general rules. Transitional provisions may apply to certain individuals who were not UK domiciled under common law on 30 October 2024 and have remained non-UK resident from 2025–26. Depending on their previous UK residence history, these individuals may cease to be long-term UK residents after three tax years of non-residence or earlier where they do not meet the previous 15-out-of-20-year residence threshold.

If you are a long-term UK resident, your worldwide assets (including your bank accounts) will generally fall within the scope of UK IHT, regardless of their location. The legal situs of an asset is particularly important for UK expats who have ceased to be LTRs, as their IHT exposure is generally restricted to UK assets.

The table below compares the general IHT treatment of UK and overseas bank accounts.

The table reflects the general treatment of personally held accounts. Specific exclusions, ownership arrangements and other statutory provisions may affect the outcome.

Consider a euro-denominated bank account at a bank’s London branch and a sterling account at the same bank’s Rome branch.

The account in London would generally be considered UK-situs for IHT purposes, despite being denominated in euros. It would therefore fall within the UK IHT framework regardless of your LTR status, although a specific foreign currency account exclusion may apply.

Conversely, the bank account in Rome would generally be an overseas asset and, if held personally, would normally fall within the UK IHT scope only if you are a UK LTR.

When Can Foreign Currency Bank Accounts Fall Outside Your Estate?

While a bank account’s currency does not determine its situs, it can affect the account’s treatment for UK IHT. Under the Inheritance Tax Act, the balance on qualifying foreign currency accounts of certain depositors is excluded from the charge on death.

A qualifying foreign currency account is an account denominated in a currency other than sterling held with a qualifying bank. Under section 991 of the 2007 Income Tax Act, a “bank” can include one of the following:

1. The Bank of England
2. The European Investment Bank
3. An international organisation designated as a bank by Treasury order
4. A person who has permission to accept deposits under Part 4A of the Financial Services and Markets Act 2000 (subject to exclusions)

For deaths from 6 April 2025, the exclusion applies if, immediately before your death, you:

• Were not a UK resident
• Were not a long-term UK resident

The exclusion can also extend to qualifying foreign currency bank accounts held in trusts where a beneficiary dies with a qualifying interest in possession.

In these circumstances, the beneficiary must have been neither a UK resident nor a long-term UK resident immediately before death, and the trustees must not have been a UK resident at that time.

Additional conditions apply to the settlor under this specific foreign currency account exclusion. These depend on whether the settlor is alive, their residence or domicile status and the relevant dates of death. Different rules apply to beneficiary deaths before 6 April 2025, between 6 April and 24 November 2025, and from 25 November 2025.

The exclusion may also be restricted where the account was funded using proceeds from certain disposals within the previous two years that fall under the anti-avoidance provisions of the Inheritance Tax Act 1984.

How Are Bank Accounts Valued for Inheritance Tax Purposes?

Establishing the value of a bank account for IHT purposes requires contacting the bank that holds it and requesting the necessary information. The assessed value must represent the balance on the date of death, including any interest accrued but not yet paid at that time.

Banks typically provide a “date-of-death balance” statement containing the information needed to calculate the value of the estate.

For joint accounts, executors should include the deceased’s beneficial share, which may be 50% where ownership is equal. If the account holders contributed unequal amounts or have different beneficial entitlements, the share included in the estate may differ.

For foreign bank accounts, executors should establish the date-of-death balance and convert it into sterling using an appropriate exchange rate for that date, supported by relevant records and HMRC guidance.

Why Is Maintaining Accurate Bank Account Records Essential?

Executors administering estates that hold foreign bank accounts should maintain accurate and up-to-date records for several reasons:

• Simplified reporting: Where a full IHT account is required, executors may need to report foreign bank accounts to HMRC using Form IHT417, including their location and value in foreign currency and sterling. For deaths from 6 April 2025, this schedule generally applies where the deceased was an LTR and owned overseas assets.
• Easier management of exchange rate differences: Foreign bank accounts must be valued in sterling using an appropriate date-of-death exchange rate. A prolonged probate process may result in exchange rate differences between the estate valuation and the eventual transfer or distribution of funds. Detailed records help executors account for these differences.
• Avoidance of penalties: IHT on a death estate is generally due by the end of the sixth month after the month of death. HMRC charges interest on unpaid tax after the deadline. Where Form IHT400 is required, it must generally be submitted within twelve months of death, and late filing may result in penalties.
• Utilisation of double-tax reliefs: Your foreign bank accounts may be exposed to inheritance or estate tax in the UK and another jurisdiction. Detailed records can help executors establish whether relief is available under an applicable double taxation treaty or the UK’s unilateral relief provisions.

How Does the UK Inheritance Tax Framework Interact With Foreign Inheritance or Estate Tax Systems?

Since the UK generally taxes its long-term residents on worldwide assets, your foreign bank accounts may be taxed by the UK and your country of residence or the jurisdiction where the accounts are located.

The UK addresses potential double taxation through double taxation treaties and unilateral relief. Where both the UK and another country impose inheritance or estate taxes on the same assets, relief may be available, although it is not automatic.

The UK has ten bilateral arrangements covering inheritance or estate taxes:

1. France
2. India
3. Italy
4. Netherlands
5. Pakistan
6. Republic of Ireland
7. South Africa
8. The US
9. Sweden
10. Switzerland

These arrangements do not all operate in the same way. Four are older Estate Duty agreements with France, India, Italy and Pakistan, while the other six are later estate or inheritance tax conventions.

While double taxation conventions have their own terms and conditions, they generally address:

1. Which country has the right to tax particular assets or the wider estate
2. How fiscal domicile, residence and the location or classification of assets affect taxing rights
3. Which country may provide credit or other relief where the same property is taxed in both jurisdictions

Since the UK moved from the domicile to the long-term residence framework for IHT purposes, LTR status can also affect how an individual is treated under certain inheritance tax treaties. However, the outcome depends on the terms of the particular convention, including its fiscal domicile and tie-breaker provisions.

If your estate is taxed twice, the applicable convention may determine which country provides credit for tax paid in the other. The extent of relief depends on the relevant agreement and the assets concerned.

The availability of relief should be assessed against the relevant treaty, domestic legislation and asset classification. Financial advisers at Titan Wealth International can help you navigate complex treaties and understand the relief that could apply to your estate.

Is Relief Available When There Is No Double Taxation Convention?

If your estate is liable for inheritance tax in the UK and another country that does not maintain an applicable inheritance or estate tax agreement with the UK, you may be able to seek relief under unilateral relief provisions.

HMRC may provide credit against UK IHT for qualifying foreign tax charged on the same property. Relief may also be available in certain circumstances where:

• The underlying assets are situated in a third country
• Both the UK and the other country claim domestic situs over the same asset

The availability and amount of relief depend on the statutory conditions, the nature of the foreign tax and the property concerned. Full relief from double taxation is not guaranteed.

What Should UK Expats Consider When Planning for Inheritance Tax?

UK expatriates with accounts in several jurisdictions should review three areas of potential IHT exposure:

1. Reviewing cash balances: Review where your cash is held, particularly if you maintain accounts with international banking groups or have recently ceased to be an LTR.
2. Understanding your LTR position: Account for the residence tail and any applicable transitional provisions before developing your IHT strategy.
3. Considering wider estate planning strategies: Strategies such as gifting or placing assets into a trust may help reduce your taxable estate, depending on your residence status and circumstances. These arrangements have their own tax conditions and should be assessed before transferring funds.

Should You Close Your UK Bank Account Before Relocating?

Closing a UK bank account before relocating may be worth considering if you expect to cease being a long-term UK resident.

If you transfer the balance to an account legally maintained outside the UK, the funds may become foreign-situs assets. Once you are no longer an LTR, personally held overseas accounts will generally fall outside the scope of UK IHT. Moving money between accounts you own is different from gifting it or transferring it into trust, which may have separate IHT consequences.

However, closing a UK account does not automatically remove the funds from UK IHT exposure. If you remain an LTR, your worldwide assets will generally continue to fall within the UK IHT framework.

Before closing or transferring an account, consider where the replacement account is legally maintained, any foreign exchange costs and the tax treatment of the funds in your new country of residence.

Can Gifting Money From a UK Bank Account Reduce IHT?

Gifting money from a UK bank account may reduce the value of your estate for inheritance tax purposes.

Where a gift is within the scope of UK IHT, an outright gift to an individual is generally treated as a potentially exempt transfer unless a specific exemption applies. If you survive for seven years after making a potentially exempt transfer, it will normally become exempt from UK IHT.

If you die within seven years, the gift may still affect the IHT calculation. Gifts where you continue to benefit from the money may also remain within your estate under the gift-with-reservation rules.

For UK expats, the donor’s LTR status, the situs of the funds and any gift or inheritance taxes in the recipient’s jurisdiction should be considered before making substantial transfers.

Can You Place UK Bank Accounts Into a Trust?

Holding cash through a trust may be another option for expats considering how to manage their estate and pass wealth to beneficiaries.

However, transferring a UK bank account into a trust does not automatically remove it from the scope of UK IHT. The outcome depends on the type of trust, the settlor’s residence status and the treatment of the underlying assets.

Depending on the arrangement, transfers into trust may trigger an immediate IHT charge. Certain trusts can also face periodic ten-year charges and exit charges when assets are distributed.

The residence-based IHT regime introduced in April 2025 also affects the treatment of overseas assets held in trusts, making the settlor’s LTR status and any applicable transitional rules important considerations.

Trust arrangements should therefore be assessed alongside gifting and account relocation rather than treated as an automatic IHT saving.