Do I pay inheritance tax when I live abroad?
In the same way that you pay income tax in your 'new' country, you become liable for inheritance tax (IHT) there, too. Generally, it is charged on the whole of your estate above a certain threshold.
In the UK, this is £325,000 (£650,000 if a married/civil partner's allowance is unused). IHT is charged at a flat rate of 40% on everything above this but doesn’t apply to transfers between married/civil partners.
If your estate includes a property, each person can pass on an additional £175,000 in the 2022/23 tax year, bringing the total inheritance tax allowance to £500,000 per person and £1,000,000 for married couples and civil partners.
Find out more in our guide to inheritance tax on property.
Inheritance tax in other countries
In France, transfers between spouses or civil partners are exempt from IHT.
Children have an allowance of €100,000 each. Above this, IHT is payable at different rates depending on who is inheriting and how much is involved.
For children, the rate escalates from 5% to 45%.
Brothers and sisters are taxed at the rate of 35% for sums up to €24,430, and thereafter at the rate of 45%, after an allowance of €15,932.
In Spain, IHT is determined by the number of beneficiaries and their relationship to the deceased. The taxable sum is reduced by at least €15,956 for each descendant and €7,993 for other related beneficiaries.
Partners and spouses are required to pay IHT, but 95% of the value of the family home is exempt, up to a certain limit, provided the spouse, children or parents of the deceased inherit it and continue to own it for a further 10 years.
Where IHT is levied, it is payable at between 7.65% and 34%. The rates and allowances can vary significantly between the regions.
Italy had previously abolished IHT but reintroduced it in 2006. The rate is quite low, however, and varies according to the relationship of the beneficiary to the deceased.
For the surviving spouse and any children, there is a nil-rate band of €1m each. Above this, tax is levied at 4%. For siblings and other close relatives the rate is 6%, and each sibling is given a €100,000 allowance.
United States of America and Canada
In the US, IHT is charged at rates ranging from 18% to 40%. Due to the sweeping tax reforms that were introduced in 2017, an individual can pass on $11.2m, and a married couple can pass on $22.4m free of federal estate taxes.
In Canada, assets are not taxed if they are passed to a surviving spouse or partner, but they're treated as additional income or capital gains if left to anyone else.
Australia and New Zealand don't charge IHT.
Retiring abroad and inheritance rules
The rules about who you can leave your estate to are different in France, Spain and Italy to those that apply in the UK. Here, you can signify your preferred beneficiaries in a will.
In France, your children have an indisputable claim, and you can't simply leave everything to a surviving spouse.
This is particularly problematic if you have remarried and have children from a previous union. It is also a problem if you are not married to your current partner.
The combination of local laws and complex IHT rates means that is it essential to take legal and tax advice before you relocate.
Some destinations, such as Italy, may be beneficial to your heirs, while others, such as Spain, could prove expensive unless you take steps to protect your estate.
A final concern is that simply living abroad (and paying taxes there) does not mean that your estate is safe from HMRC. If you are still legally deemed domiciled in the UK at the date of death, the UK government will have a claim on your estate as well.