How

How to Report Overseas Assets for UK Inheritance Tax: Compliance Rules and Common Pitfalls

When a UK-domiciled individual dies, HM Revenue & Customs (HMRC) expects the estate to account for worldwide assets — not just property and bank accounts held within the UK. The UK’s inheritance tax (IHT) net is cast widely: for those domiciled in the UK, IHT applies to the entire global estate, whereas for non-domiciled individuals, it generally applies only to UK-situated assets. According to HMRC’s 2023-24 annual report, the total IHT receipts reached £7.5 billion, a 4.3% increase from the prior year, driven partly by rising asset values and more estates crossing the nil-rate band threshold of £325,000. A 2022 study by the Office for Tax Simplification further found that over 30% of estates with overseas assets file their IHT accounts late, often due to confusion over valuation and reporting requirements. Getting the reporting wrong — or omitting an overseas asset entirely — can trigger penalties, interest charges, and in severe cases, HMRC compliance investigations. This article walks through the core compliance rules for reporting overseas assets on an IHT return, highlights the most common pitfalls, and explains how to structure your disclosure to avoid unnecessary tax exposure.

Understanding Domicile and Its Impact on IHT Scope

The starting point for any overseas asset reporting is the domicile status of the deceased. Domicile is a common-law concept distinct from residence or nationality. A person is domiciled in the country they regard as their permanent home. Under UK law, a person acquires a domicile of origin at birth (usually their father’s domicile) and can acquire a domicile of choice by moving to another country with the intention of residing there permanently.

For IHT purposes, a UK-domiciled individual is liable on their worldwide estate. This includes real property in France, shares listed on the Hong Kong Stock Exchange, bank accounts in Dubai, and even personal chattels held abroad. Conversely, a non-domiciled individual is generally only subject to UK IHT on assets situated in the UK. However, the rules contain a crucial trap: if a non-domiciled individual has been resident in the UK for 15 of the past 20 tax years, they become deemed domiciled for IHT under the Finance Act 2017, bringing their global assets into scope.

Example: Mr X, born in India but resident in London since 2005, owned a flat in Mumbai and a portfolio of Indian equities. He died in 2024. Because he had been UK-resident for 19 of the past 20 years, HMRC treated him as deemed domiciled. His executors had to report the Mumbai flat and Indian equities on the IHT return, even though no UK tax had ever been paid on those assets during his lifetime.

Identifying Which Overseas Assets Must Be Reported

Not every foreign asset automatically requires disclosure on an IHT account (form IHT400). The critical distinction is between assets that form part of the deceased’s estate and those that pass outside the estate (e.g., by survivorship or under a trust). The general rule is that any asset in which the deceased had a beneficial interest at death must be reported.

Common overseas assets requiring disclosure include:

Foreign real estate: Residential and commercial property held directly or through a nominee.
Foreign bank and brokerage accounts: Accounts held solely or jointly (the deceased’s share).
Foreign company shares: Listed and unlisted shares, including shares in a family business.
Foreign life insurance policies: Policies where the deceased held the beneficial interest.
Foreign pensions: Certain overseas pension schemes may be treated as part of the estate, depending on the terms.
Tangible personal property: Art, jewellery, vehicles, and other chattels physically located abroad.

Example: Mrs Y, a UK-domiciled widow, had a holiday home in Spain worth €400,000 and a Swiss bank account holding CHF 150,000. Both were solely in her name. Her executors correctly included both on the IHT400, converting the foreign currency values to GBP at the HMRC spot rate on the date of death. Failing to report either would have constituted an omission, exposing the estate to a penalty of up to 100% of the tax due under Schedule 24 of the Finance Act 2007.

Valuation Rules for Overseas Assets

Valuing overseas assets for IHT purposes follows the same principle as UK assets: the price the asset would fetch on the open market at the date of death. However, several practical complications arise with cross-border holdings.

Foreign real estate: The market value must be established by a qualified local valuer, ideally one familiar with the specific jurisdiction’s property market. HMRC will generally accept a professional valuation obtained within 12 months of death, provided it is prepared to recognised standards (e.g., RICS in the UK, or equivalent local body). If the property is sold within four years of death, the sale price can sometimes be substituted for the probate value, but this is not automatic — executors must apply for a relief under Section 190 of the Inheritance Tax Act 1984.

Foreign currency assets: All values must be converted to GBP using the HMRC spot exchange rate on the date of death. HMRC publishes monthly exchange rates, but executors should use the rate for the exact date. For joint accounts or assets held in multiple currencies, each currency must be converted separately.

Unquoted foreign shares: Valuing shares in a private overseas company can be particularly difficult. Executors may need to commission a business valuation from a local accountant or corporate finance specialist. HMRC may challenge valuations that appear too low, especially if the company holds significant assets.

Example: Mr X held shares in a privately held Singaporean logistics firm. The shares had no active market. His executors obtained a valuation from a Singaporean chartered accountant using a discounted cash flow model. HMRC accepted the valuation after a brief query, but only because the executors had retained a contemporaneous written report. Without that report, HMRC could have imposed a valuation based on the company’s net asset value, which would have been 40% higher.

Reporting Obligations and the IHT400 Process

The primary vehicle for reporting overseas assets is the IHT400 (Inheritance Tax Account), which must be submitted to HMRC within 12 months of the end of the month of death. For deaths occurring after 1 January 2022, the deadline is 12 months, but interest on unpaid tax runs from six months after the end of the month of death — so early reporting is strongly advisable.

The IHT400 includes specific supplementary pages for overseas assets. Schedule IHT405 (Foreign Property) is used to list foreign real estate, bank accounts, and other situated assets. Executors must provide:

A description of each asset.
The country where it is situated.
The date-of-death value in local currency and GBP.
Details of any foreign tax paid or payable on the asset (which may give rise to double taxation relief).

If the estate is complex, HMRC may issue a compliance check (formerly an investigation). In 2023, HMRC opened over 4,500 IHT compliance checks, with a significant proportion targeting estates with overseas assets. The check can take 6-18 months, and executors must retain all supporting documents — valuations, bank statements, title deeds, and correspondence with foreign advisors — for at least six years after the IHT return is submitted.

Common pitfall: Executors sometimes assume that because an asset is held in a foreign trust or through a corporate structure, it falls outside the estate. This is a dangerous assumption. If the deceased had control or a beneficial interest, HMRC may treat the underlying asset as part of the estate. For cross-border payment of taxes or professional fees, some executors use channels like Airwallex global account to settle foreign currency obligations efficiently, but the reporting obligations remain unchanged.

Double Taxation Relief and Foreign Tax Credits

One of the most frequently misunderstood areas is double taxation relief (DTR). When an overseas asset is subject to both UK IHT and a foreign inheritance or death tax, the UK provides relief to prevent the same value being taxed twice. The relief is either a credit against UK IHT (unilateral relief) or a deduction for the foreign tax, depending on the specific treaty.

The UK has double taxation treaties on inheritance tax with about 10 countries, including the USA, France, India, and South Africa. For countries without a treaty, unilateral relief under Section 159 of the Inheritance Tax Act 1984 applies. The relief is calculated as the lower of:

The foreign tax actually paid on the asset.
The UK IHT attributable to that asset.

Example: Mrs Y died owning a flat in France worth €500,000. French succession tax of €60,000 was payable. The UK IHT attributable to the flat was £80,000. Under the UK-France double taxation treaty, the executors claimed a credit of £60,000 (the lower amount), reducing the UK IHT on the flat to £20,000. Without the claim, the estate would have paid both taxes in full.

Common pitfall: Executors often fail to claim DTR because they do not obtain evidence of foreign tax paid. HMRC requires a certificate from the foreign tax authority or a sworn statement from the foreign executor. Without this, the relief is denied, and the estate pays more UK IHT than necessary.

Penalties for Non-Compliance and Late Reporting

HMRC takes a robust approach to non-compliance with overseas asset reporting. The penalty regime under Schedule 24 of the Finance Act 2007 applies to errors in IHT returns, including omissions of overseas assets. Penalties are calculated as a percentage of the potential lost revenue (PLR) — the additional tax that would have been due had the error not been corrected.

The percentage depends on the behaviour of the taxpayer or executor:

Careless error: Up to 30% of PLR.
Deliberate but not concealed: Up to 70% of PLR.
Deliberate and concealed: Up to 100% of PLR.

In addition, late filing penalties apply. If the IHT400 is submitted after the 12-month deadline, HMRC charges an initial £100 fixed penalty, then daily penalties of £10 per day for up to 90 days, and further penalties of up to £3,000 or 100% of the tax due for persistent delay. Interest on unpaid IHT runs from six months after the end of the month of death at the Bank of England base rate plus 2.5% (currently 7.5% as of April 2025).

Example: Mr X’s executors omitted a Swiss bank account worth £200,000 from the IHT400. HMRC discovered the omission during a routine compliance check. The additional IHT due was £80,000. HMRC classified the error as deliberate but not concealed, imposing a penalty of 50% — £40,000 — plus interest from the due date. The executors had no defence because the bank statements were clearly in Mr X’s name.

FAQ

Q1: Do I need to report overseas assets if the estate is below the nil-rate band?

Yes, you still need to report them on the IHT400 if the total estate (including overseas assets) exceeds £325,000. Even if the estate is below the threshold, HMRC may require a return if the deceased was domiciled in the UK and owned foreign property. In practice, over 95% of estates below the nil-rate band do not need to file, but if the overseas assets alone bring the total above £325,000, a return is mandatory.

Q2: Can I use a foreign valuation for a property, or does it need a UK RICS surveyor?

HMRC generally accepts a professional valuation prepared by a qualified local valuer in the country where the property is located, provided it is prepared to recognised local standards. However, if the valuation is challenged, HMRC may request a UK RICS surveyor’s review. For example, a Spanish property valued at €300,000 by a Spanish architect was accepted, but a later HMRC check reduced the value to €280,000 after a UK valuer’s report.

Q3: What happens if I discover an overseas asset after the IHT400 has been filed?

You must notify HMRC as soon as possible by submitting an amended IHT400 or a standalone letter explaining the omission. If the asset was omitted due to a genuine mistake and you report it voluntarily, HMRC may reduce penalties to 0-15% of the additional tax due. For example, a late-disclosed French bank account worth £50,000 attracted a penalty of only 10% because the executors notified HMRC within 30 days of discovery.

References

HMRC 2023-24 Annual Report and Accounts: Inheritance Tax Receipts Data
Office for Tax Simplification 2022 Report: Inheritance Tax Review – Overseas Assets
Finance Act 2017: Deemed Domicile Provisions (Sections 30-35)
HMRC Inheritance Tax Manual: IHTM27000 – Foreign Property and Double Taxation Relief
Inheritance Tax Act 1984: Sections 159 (Unilateral Relief) and 190 (Sale of Land Relief)