What Is Inheritance Tax?
Inheritance Tax is a transfer tax on assets passing on death, with rates, exemptions and the connecting factors for liability set by national law.
Also known as: Succession Tax, Death Duty.
How Inheritance Tax works
Inheritance Tax is a levy triggered by death, charged either on the whole estate of the deceased or on each heir's share, and whether a cross-border estate falls within scope depends on connecting factors such as the deceased's domicile or residence, the heir's residence and the location of the assets. The UK, for example, charges Inheritance Tax at a standard rate of 40% on the part of an estate above a £325,000 threshold, while transfers to a spouse or civil partner are normally exempt. Other countries apply graduated rates by family relationship, and outcomes vary by jurisdiction. Where two states claim the same estate, relief depends on domestic credit rules or a specific estate tax treaty.
Inheritance Tax vs Estate Tax
Unlike Estate Tax, which is charged on the total estate before distribution, Inheritance Tax in the strict sense is assessed on what each beneficiary receives, although the UK uses the inheritance label for an estate-based charge.
Example
Illustrative example: A retired consultant who lived for decades in Country A dies while resident in Country B, leaving a flat in Country A and accounts in Country B. Country A may tax the flat as local property, Country B may tax the worldwide estate on residence grounds, and the heirs then rely on credit rules to limit double taxation.
Common misconception
Myth: Moving abroad immediately ends exposure to a former home country's inheritance tax.
Reality: Many inheritance tax systems keep taxing locally situated assets, and some may extend worldwide liability for a period after departure based on domicile or long-term residence, subject to local rules.
Frequently asked questions
Who pays inheritance tax?
Inheritance Tax is paid either by the estate before distribution or by each heir on the share received, depending on national law.
Does inheritance tax apply to foreign assets?
Inheritance Tax may reach foreign assets when the deceased or the heir is domiciled or resident in the taxing country, while non-residents are generally taxed only on assets situated there, subject to local rules and any treaty.
Related terms
- Estate Tax — Most confused alternative: taxes the estate, not heirs
- Gift Tax — Taxes lifetime transfers complementing death transfers
- Tax Residency — Key connecting factor determining territorial or worldwide scope of inheritance tax
- Double Taxation Relief — Relieves overlapping claims on cross-border estates
Related guides
- Why digital nomads are leaving the UK — UK context where inheritance tax shapes departures
- Tax treaties and international taxation — How treaties allocate taxing rights across borders
Sources
Last verified: 2026-10-08. This entry is general information, not tax or legal advice; rules vary by country and change over time.
