Inheritance Tax Planning for Expats

In this guide, we’ll discuss IHT and highlight the importance of IHT planning for expats. We’ll explore different strategies that can help expats reduce their IHT exposure and discuss some of the most common challenges they may encounter.

What Is Inheritance Tax?

Inheritance tax is a levy imposed on the beneficiaries who receive assets from the estate of a deceased person. Unlike the estate tax, which is imposed on the estate before its distribution to beneficiaries, the inheritance tax is typically levied on the beneficiary or beneficiaries on the amount they inherit from the decedent.

The definition, scope, and regulations regarding inheritance tax vary across jurisdictions. For instance, in the UK, there is no estate tax, and inheritance tax is levied on the decedent’s finances, property, investments, certain life insurance policies, and personal possessions such as art or jewellery, and not on the beneficiaries directly.

Understanding inheritance tax is crucial for:

• Preserving your wealth
• Minimising tax liabilities
• Maximising your estate’s value
• Reducing the risk of administrative complications during wealth transfer

How Does Inheritance Tax Work?

IHT regulations defining applicable rates, thresholds, and exemptions differ between countries, with the following factors determining the final sum:

What Challenges Do Expats Face When Planning Their Inheritance?

Considering their ties to multiple countries, expats often face unique inheritance tax challenges, including:

1. Different tax laws in their home and host countries
2. Changing regulations
3. Double taxation
4. The complexity of determining residency and domicile status

Different Tax Laws in Their Home and Host Countries

The primary difference in inheritance taxation laws across territories originates from varying tax frameworks, exemption rules, and applicable tax rates. For instance, Canada doesn’t impose tax on inheritance. Some countries, such as Portugal, have abolished the inheritance tax but have instead introduced Stamp Duty (Imposto do Selo). It is set at a flat rate of 10% and applies only to eligible beneficiaries (immediate family members are exempt).

Several European countries, like Spain and France, have progressive inheritance tax rates. The amount a beneficiary is liable for depends on the value of the inheritance and their relationship to the decedent.

In most countries, the IHT is only payable if the value of the estate exceeds a certain threshold.

Due to their ties with multiple jurisdictions, expats may find navigating cross-border inheritance tax regulations challenging.

Without a clear understanding of the relevant tax regime and applicable rules, you risk overlooking valuable tax reliefs and exemptions, which could result in less wealth being passed on to your beneficiaries.

For this reason, it’s advisable to seek assistance from knowledgeable tax consultants at Titan Wealth International. They can help you plan your estate to minimise the inheritance tax burden, reduce administrative complications, and ensure cross-border compliance.

Changing Regulations

Tax laws are subject to frequent revisions that can affect different aspects of inheritance tax, such as rates, thresholds, eligibility, allowances, or reliefs.

Monitoring these revisions is crucial as the changes can directly impact the value of the estate you plan to leave to your beneficiaries.

Some revisions may allow you to utilise exemptions and relief programs that were previously unavailable, while others may reduce the relief options you intended to use.

However, understanding the nuances of these updates and their impact on your specific financial situation can be challenging if you aren’t familiar with relevant terminology.

Working with an experienced tax consultant is strongly recommended. A professional expat tax consultant is up-to-date and knowledgeable of all recent inheritance tax law changes and can help you structure your estate in a tax-efficient manner that complies with all relevant laws.

Double Taxation

Due to differing taxation systems and principles across jurisdictions, owning assets in multiple countries can expose your beneficiaries to double taxation.

This can happen if two countries have the right to tax the same property, which could result in a significantly reduced estate value.

Many countries have signed double taxation agreements (DTAs) to prevent double taxation and clarify which jurisdiction has the right to tax in cross-border situations. These economic treaties offer detailed overviews of taxing rights between countries for various types of taxes, including inheritance tax.

Each country maintains a unique DTA network, and every agreement is composed of distinctive provisions governing the allocation of taxing rights.

A significant component of efficient inheritance tax planning should involve reviewing applicable DTAs and their terms to ensure your estate’s value doesn’t diminish through high taxes after your death. Failure to do so could result in unnecessary charges and missed opportunities to protect your wealth.

Complexity of Determining Residency and Domicile Status

In many jurisdictions, your residency and domicile status (and, in some cases, the situs of an asset) will determine the jurisdiction where your inheritance will be taxed after you pass away:

1. Your residency status is determined by the amount of time you spend in a particular country.
2. Your domicile status depends on what you consider your permanent home or where you maintain significant ties.

As an expat, you may find determining your status challenging, as your residency and domicile statuses may not align. This discrepancy can lead to confusion and ambiguity regarding the jurisdiction with the right to tax you.

For instance, you may live in one country for years and change your residency status without changing your domicile, especially if you plan to repatriate.

As a result, your beneficiaries may be taxed on their inheritance in both your home country and host country, depending on the DTAs in place. In some jurisdictions, such as Germany, the beneficiary’s tax residency affects exposure to inheritance tax—German tax residents will be liable for tax on all inherited assets.

IHT Laws Worldwide

Understanding the differences in IHT laws in various countries worldwide is crucial for navigating cross-border tax planning more efficiently and minimising liability.

United Kingdom

The UK doesn’t impose inheritance tax if either:

1. Your estate’s value is below the nil-rate band (NRB) of £325,000 (or £500,000 if you leave your home to your children or grandchildren)
2. You leave everything above the threshold to your spouse or civil partner, or donate it to charity

If your estate’s value exceeds the NRB, there’s a fixed 40% tax charge.

Historically, the UK used the decedent’s domicile status to determine IHT exposure. While this no longer determines UK IHT directly, domicile may still influence the application of double tax treaties (DTAs).

Some treaties reference domicile when resolving taxing rights on cross-border estates, making it a key consideration in international estate planning.

For instance, if you’re a UK expat who established residency in Dubai but remained UK domiciled, you would be liable for IHT on your worldwide assets. Non-UK domiciled individuals would only pay IHT on their UK assets.

On 6 April 2025, the UK replaced its domicile-based inheritance tax system with a residence-based framework. Individuals are now subject to UK IHT on their worldwide estate if they meet the long-term residence condition – defined as being UK tax resident for at least 10 of the 20 tax years preceding death or a chargeable lifetime transfer.

Additionally, a tail provision applies: individuals ceasing UK residence may remain within scope for 3 to 10 years, depending on how long they previously resided in the UK.

Additional rules for IHT planning that are relevant to UK expats include:

• Inheritance tax is paid by the executor (the person managing the estate).
• Married couples and civil partners can transfer the unused NRB. When one spouse dies, the unused NRB can be transferred to the surviving spouse, potentially increasing the surviving spouse’s tax exemption limit to up to £650,000.
• Gifts made within seven years before your death may be subject to inheritance tax. The amount of IHT due depends on their worth, the date they were made, and the recipient’s connection to you.
• Certain reliefs (such as the Business Relief) can help you reduce or avoid inheritance tax.

United States

Inheritance tax isn’t a federal tax in the United States—state governments regulate it. At the moment, five states impose an inheritance tax on their residents:

If you’re considered a resident of any of the above-mentioned states at the time of your death, your beneficiaries may be liable for inheritance tax.

Australia

Australia has no inheritance tax—all states abolished it in 1979. While beneficiaries aren’t taxed on the inheritance itself, there are certain tax considerations dependent on the type of inherited assets, such as:

1. Capital gains tax: It may apply when a beneficiary sells an asset they inherited.
2. Income tax: It applies if a beneficiary generates income from shares or properties they inherited.
3. Tax on superannuation death benefit: Your beneficiaries may be liable for tax if they inherit your super’s death benefits.

UAE

Since the UAE doesn’t impose direct inheritance tax, your beneficiaries won’t have to pay any tax on your UAE-based assets or foreign assets owned within the UAE.

Despite the lack of inheritance tax in the UAE, your beneficiaries may be liable for inheritance tax in a different jurisdiction. For example, if you’re a UK expat and you’ve lived in the UAE for less than 10 out of the last 20 years at the time of your death, the UK imposes an inheritance tax on all your assets, including those in the UAE.

The UK and UAE have signed a DTA, but the agreement doesn’t include an IHT provision. This means that you won’t be exempt from UK IHT if you’re considered a UAE resident and a long-term UK resident.

Inheritance Tax Planning Advice for Minimising Liability

The primary objective of effective inheritance tax planning is to minimise your tax liability so you can preserve more wealth for your beneficiaries. Certain strategies can help you achieve that:

1. Utilising gifts
2. Establishing trusts
3. Note on relief caps from 2026
4. Structuring your inheritance plan with an expert

Utilising Gifts

While exact rules depend on the particular jurisdiction, most countries allow you to gift a certain amount of money to one or more individuals without triggering tax liability.

For instance, the UK imposes a £3,000 gift allowance per year—you can transfer assets or cash up to that amount without it being added to your estate. If you don’t utilise the entirety of the allowance, you can transfer it to the following year, but you can’t carry it forward any further.

The timing of the gift is also crucial; current UK laws state that gifts to your children or other family members are tax-free if made more than seven years before your death. If you die within that period, your gift becomes a chargeable transfer and is liable for inheritance tax.

In the US, there’s an annual gift tax exclusion—you can transfer up to $19,000 per year without having to report it to the Internal Revenue Service (IRS), and it won’t count toward your lifetime gift tax exclusion ($13.99 million).

Establishing Trusts

Trusts are legal arrangements through which you (the trustor) can transfer money, investments, or property to another person (the trustee) for the benefit of a third party (beneficiary).

Once you set up a trust, the trustee has a legal responsibility to manage and distribute your assets to your beneficiaries after your death.

Note that there are various types of trusts, such as gift trusts or discretionary trusts, and they can have different tax treatments depending on their structure.

Certain types of trusts are especially practical for inheritance planning because once you transfer assets or cash into these trusts, they no longer belong to you. When you pass away, all assets held in that trust will be excluded from your estate and, therefore, not subject to inheritance tax.

Discretionary trusts remain a key planning tool for UK expats. Under the new residence-based regime, assets transferred into offshore discretionary trusts before 30 October 2024 may benefit from transitional protection and remain outside the IHT net – provided the settlor is not a long-term UK resident when the trust was settled.

• For new trusts established after this date, if the settlor is classified as a long-term UK resident, the trust enters the relevant property regime, making it subject to 10-year and exit charges.
• Transitional protections may be lost if the settlor reacquires UK long-term resident status.

Note on Relief Caps from 2026

From April 2026, the UK Government will begin capping Agricultural Property Relief (APR) and Business Property Relief (BPR)—two key inheritance tax (IHT) reliefs commonly used to pass on farmland, trading businesses, and shares in private companies.

By 2027, relief will be restricted to a set monetary threshold per estate, rather than applying to the full qualifying value. This change may significantly increase IHT liability for high-net-worth individuals with UK-based agricultural or business assets.

For expats who still own or plan to pass on UK trading companies, farmland, or commercial property, it is essential to:

• Review asset eligibility for APR or BPR under the new capped regime.
• Consider transferring qualifying property into trust before the new rules take effect.
• Reassess the benefit of retaining UK-based business interests as part of your estate.

If you are no longer a UK resident but hold UK assets, these relief restrictions may still apply – particularly under the UK’s residence-based IHT regime. Early planning is essential to preserve tax efficiency and reduce exposure for your heirs.

Structuring Your Inheritance Plan With an Expert

Working with experienced tax advisers is a critical aspect of successful inheritance planning as knowledgeable tax experts are familiar with cross-border tax rules and can help you take advantage of them to reduce your tax liability. They can:

• Assist you in determining your residency and domicile status: Experts can accurately evaluate your residency and domicile status and explain how your home country’s tax laws impact your global wealth. They can also offer advice on whether it’s possible to change your status and minimise inheritance tax.
• Help you identify financial opportunities: Opportunities for lowering inheritance tax depend on various factors, from your residency and domicile status to your connection to the beneficiaries. Tax experts can assess your situation in detail and create a structured plan for tax efficiency.
• Provide advice on cross-border estate planning and wills: Tax experts can offer valuable advice on inheritance tax optimisation if you hold assets in multiple jurisdictions. They can also help you create or update your will to align with applicable inheritance tax laws and your personal wishes.
• Ensure law compliance: Knowledgeable tax experts will only suggest inheritance tax planning strategies that comply with all legal requirements in your home and host countries, helping you avoid common pitfalls.