Inheritance Tax is applicable on every acquired property in different parts of the world but there are certain exceptions. The UK tax system is acceptable worldwide so it does not matter whether income is generated within or outside the country. It also does not matter whether the property is located within UK or somewhere else. This is applicable for all sorts of taxes from income tax, capital tax or inheritance tax. However, when an overseas property is owned by non-UK domiciled individual the capital gains inheritance tax is not applicable. Such properties are generally referred to as excluded property. In matters related to inheritance tax, the UK’s common law rules check whether the property is located in UK or outside UK.
There are certain relevant issues to be taken into consideration to calculate the tax amount when an individual dies owning a property located overseas. These include– liabilities or other expenses, double taxation, sterling, structure and forced–heirship.
Liabilities or other expenses: If the overseas property is in the form of real estate then it might be subject to mortgage. There are two consequences related to it. Firstly, the inherited tax liability assigned to property on death is reduced and secondly the non–UK domiciled individuals cannot reduce their UK property by liabilities incurred overseas.
The expenses related to administering overseas property or realising overseas property is deducted while calculating the value of the property.
Double Taxation: Many people residing in UK and possessing overseas property have to bear equivalent tax amount imposed by the country in which the property is located. Such charges can be avoided through double taxation. The form of relief is almost same under either option and allows an offset against any sort of UK tax payment in overseas country.
Sterling: Inherited Tax is computed in sterling. Changes in the foreign currency and sterling should be taken into account. If there is a depreciation of sterling there will be a rise in the tax amount.
Forced Heirship: Certain countries have this concept but it is not present in English law. The will of a UK domiciled individual might leave a French home to his or her spouse. This is a case of inter-spouse transfer without the imposition of any UK inheritance tax.
Structure: Double tax relief in theory removes the double tax charges on the same property for inherited tax purpose. At times it is preferable to own overseas property with the help of intermediate vehicle. This will remove not only overseas inherited tax charge but circumnavigate any form of forced heirship law. Application of trusts will help in structuring overseas property ownership.
Resolve the problems related to foreign currency and successions to avoid inheritance tax amount on overseas property.
May 31st, 2011 
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