How Inheritance Tax Rules Affect Non-Resident Property Owners Abroad

How Inheritance Tax Rules Affect Non-Resident Property Owners Abroad

Reading time: 9 minutes

Picture this: you bought a charming villa on the Costa del Sol back in 2015, rented it out occasionally, and always intended to leave it to your children. Fast forward to 2026, and you suddenly realize you have no idea whether Spanish inheritance tax, UK inheritance tax, or both will apply when you pass it on. If that scenario makes your stomach drop a little, you’re exactly who this article is for.

Owning property abroad as a non-resident is increasingly common—cross-border real estate holdings have grown by an estimated 18% among British, German, and North American buyers since 2021—but the inheritance tax implications remain one of the most misunderstood corners of international estate planning.

Table of Contents

• The Basics: Why Cross-Border Inheritance Tax Gets Complicated
• How Different Countries Treat Non-Resident Owners
• Double Taxation: The Silent Wealth Killer
• Comparing Inheritance Tax Exposure Across Popular Destinations
• Practical Strategies to Protect Your Estate
• Common Challenges and How to Overcome Them
• Frequently Asked Questions
• Your Roadmap Forward

The Basics: Why Cross-Border Inheritance Tax Gets Complicated

Here’s the straight talk: inheritance tax isn’t governed by one universal rulebook. Each country decides independently whether to tax based on the location of the asset (situs-based taxation), the residency or domicile of the deceased, or the residency of the heir. When you own property abroad, you’re often caught in the overlap of two or three of these systems simultaneously.

Take a German retiree who owns an apartment in Lisbon. Portugal doesn’t levy a traditional inheritance tax on non-relatives beyond a stamp duty, but Germany still considers the worldwide estate of its tax residents subject to German inheritance tax (Erbschaftsteuer), with rates ranging from 7% to 50% depending on the relationship to the heir and the value transferred. The property doesn’t escape taxation just because it sits outside German borders.

Situs Rules: Where the Property “Lives” Matters

Most jurisdictions apply the “situs rule,” meaning real estate is taxed where it physically sits, regardless of where the owner lives. The UK, for instance, applies inheritance tax at 40% on UK-situated assets even for non-domiciled owners, once the estate exceeds the £325,000 nil-rate band (frozen through at least April 2028 according to HM Treasury’s 2025 Autumn Statement confirmation).

Domicile vs. Residency: A Distinction That Costs Money

Domicile and tax residency are not the same thing, and confusing them is one of the most expensive mistakes non-resident owners make. You can live in Dubai for a decade, be considered non-resident for income tax purposes everywhere else, and still be deemed UK-domiciled for inheritance tax if you haven’t formally severed those ties. As of the UK’s April 2025 reform, the old “domicile” concept was replaced with a residence-based test—if you’ve been UK tax resident for 10 out of the last 20 years, your worldwide estate, including that overseas property, may fall within the UK inheritance tax net for up to 10 years after you leave.

How Different Countries Treat Non-Resident Owners

Let’s dive deep into how five popular property destinations actually treat foreign owners when it comes to death and inheritance.

• Spain: Inheritance tax (Impuesto de Sucesiones) is decentralized—each autonomous community sets its own rates and allowances. Andalusia, for example, offers a 99% reduction for direct descendants, while other regions are far less generous. Non-residents are taxed under the region where the property is located.
• France: French succession law applies “forced heirship” rules, meaning children are entitled to a fixed share of the estate regardless of what the will says. Non-resident property owners are often shocked to discover they cannot simply leave a French property to a spouse if children exist.
• Portugal: No inheritance tax for spouses, descendants, or ascendants, but a 10% stamp duty applies to other beneficiaries.
• United States: Non-resident aliens face a shockingly low exemption—just $60,000 on US-situated assets (as of 2026), compared to $13.99 million for US citizens, with rates up to 40%.
• United Arab Emirates: No inheritance tax at all, though Sharia-based succession defaults can apply unless a DIFC will is registered.

Double Taxation: The Silent Wealth Killer

Dr. Elena Vasquez, an international tax advisor based in Geneva, put it bluntly in a 2025 industry roundtable: “Most families don’t lose money to inheritance tax rates—they lose it to the gap between two tax systems that both claim jurisdiction and neither one talks to the other.”

Unlike income tax, which has a dense global network of double taxation treaties, inheritance and estate tax treaties are relatively rare. The UK has fewer than 10 dedicated estate tax treaties (including with the US, France, and India), meaning a British owner of an Italian villa, for instance, has no treaty protection and could theoretically face both UK inheritance tax and Italian succession tax on the same asset—though Italy’s relatively low rates (4% to 8% depending on relationship) and generous allowances soften the blow compared to full double taxation.

Comparing Inheritance Tax Exposure Across Popular Destinations

Visualizing the Rate Gap

The chart below illustrates top marginal inheritance/succession tax rates across these five jurisdictions, showing just how dramatically exposure can shift depending on where your property sits.

Practical Strategies to Protect Your Estate

So how do you turn this complexity into a manageable plan? A few strategic moves consistently make the biggest difference:

1. Draft a country-specific will. Many advisors now recommend a separate will for each jurisdiction where you own property, carefully worded so they don’t accidentally revoke one another.
2. Use the EU Succession Regulation (Brussels IV) if applicable. If you own property in an EU country, you may be able to elect for the law of your nationality to govern succession instead of local forced heirship rules—a powerful tool for British or American owners with property in France or Spain.
3. Consider holding structures carefully. Companies, trusts, or usufruct arrangements can shift how and where property is taxed, but they carry their own compliance costs and, in some countries like France and Spain, increased scrutiny since 2023 anti-avoidance reforms.
4. Review life insurance as a liquidity tool. A policy payable in the country where the tax bill will land can prevent heirs from being forced to sell the property just to cover the tax.
5. Revisit your plan every 3-5 years. Tax rules shift—the UK’s 2025 domicile reform is a perfect example of how quickly the ground can move beneath long-standing plans.

Common Challenges and How to Overcome Them

Challenge 1: Conflicting wills. Owners often draft a new will in their host country without realizing it can unintentionally revoke a will made elsewhere. Solution: always inform each drafting lawyer of every other will in existence and use explicit revocation clauses limited to that jurisdiction’s assets only.

Challenge 2: Currency and valuation timing. Estate values are often calculated at the date of death, and currency fluctuations between, say, sterling and euros can inflate or deflate the taxable value unexpectedly. Solution: build a currency buffer into liquidity planning.

Challenge 3: Underestimating administrative delays. Cross-border probate can take 12-24 months, during which heirs may be unable to sell or even access the property. Solution: consider joint ownership structures or usufruct arrangements that allow continued use during probate.

Frequently Asked Questions

Do I have to pay inheritance tax in two countries on the same property?

It’s possible, particularly where no estate tax treaty exists between your country of residence and the country where the property sits. Some countries offer unilateral relief or tax credits for foreign inheritance tax paid, but this isn’t guaranteed—always check both jurisdictions’ rules before assuming you’re protected.

Does making a local will override forced heirship rules?

Not automatically. In EU countries under Brussels IV, you can elect for your home country’s succession law to apply instead, but this election must be explicitly stated in your will. Without it, local forced heirship rules typically apply by default.

Will selling the property before death avoid inheritance tax entirely?

Selling can remove the property from your estate, but it may trigger capital gains tax instead, and the sale proceeds themselves become part of your estate for inheritance tax purposes—so it’s rarely a clean escape. A full comparison with a cross-border tax advisor is essential before deciding.

Your Roadmap Forward

Cross-border property ownership will only keep growing as remote work, retirement migration, and global investment portfolios expand through 2027 and beyond—which means inheritance tax planning can no longer be an afterthought reserved for the ultra-wealthy.

• Step 1: Map every property you own against its local situs tax rules and your own residency/domicile status.
• Step 2: Check whether an estate tax treaty exists between your home country and each property location.
• Step 3: Draft or update jurisdiction-specific wills with clear, non-conflicting revocation clauses.
• Step 4: Explore Brussels IV elections or equivalent mechanisms if forced heirship threatens your intended distribution.
• Step 5: Schedule a review with a cross-border estate specialist every three years, or immediately after any major legislative change.

You’ve worked hard to build a life—and a portfolio—that spans borders. Don’t let an outdated will or an assumption about “how things work back home” quietly erode what you intend to pass on. What’s the one property in your estate you haven’t reviewed in the last three years? That might be exactly where to start.