Part 4 of 4

This is the Finance Act 2025 version of this article. It is relevant for candidates sitting the ATX-UK exam in the period 1 June 2026 to 30 June 2027. Candidates sitting STA-UK after 30 June 2027 should refer to the Finance Act 2026 versions of the articles (to be published on the ACCA website in 2027).

So far we have looked at the income tax (IT) and capital gains tax (CGT) aspects of overseas income and gains in some detail. In this final part of the article we are going to look at inheritance tax (IHT).

Liability to UK IHT on overseas assets

Long-term UK residence status is the key factor in determining an individual’s liability to UK IHT on overseas assets. Overseas assets are only subject to UK IHT if the individual is long-term UK resident when the transfer of the assets is made.

Definition of a long-term UK resident 

An individual is a long-term UK resident in the current tax year if the individual was UK tax resident for at least 10 of the 20 tax years preceding the current tax year. 

Moving to the UK

An individual who has previously always been non-UK tax resident but moves to the UK, will become a long-term UK resident after 10 tax years of UK tax residence.

Leaving the UK

There are also rules which apply when a long-term UK resident leaves the UK becoming non-resident – ie that the individual will remain a long-term UK resident (and therefore overseas assets remain liable to UK IHT) for a number of tax years after becoming non-UK tax resident. 

The number of years depends on the length of time the individual has been UK tax resident. In the ATX UK exam you only need to be aware that an individual who has always been UK tax resident will only lose their long-term UK residence status after ten years of non-UK tax residence.  

Therefore, if an individual has moved between countries in the past, you may need to:

• Determine whether the individual is long-term UK resident. To do this, determine their residence status in earlier years, using the residence rules considered in Part 1 of this article. 
• Consider whether the assets transferred are in the UK or overseas.

Double tax relief and treaties

An individual who is liable to UK IT on worldwide income may find that income arising in respect of overseas assets is taxable in two countries – the UK, and the country in which the income arises. A similar situation may arise in respect of CGT or IHT. Relief may be available via either a double tax treaty or double tax relief.

A double tax treaty, between the UK and the country in which the income arises, will set out how double taxation is to be avoided or minimised. The treaty could state that the income will only be taxed in one of the countries concerned (for example, the country in which the income arises). Alternatively, it could impose a maximum rate of tax in one of the countries.

UK double tax relief is available where there is no treaty or where an element of double taxation occurs, despite the existence of a treaty. It is available in respect of all sources of overseas income including employment income. It is also available in respect of CGT and IHT. Overseas tax suffered, up to a maximum of the UK tax on the overseas income (or transaction, subject to CGT or IHT), is deducted from the UK tax liability.

Conclusion

International travellers add an extra dimension to exam questions because their liability to UK taxes changes as they move to, or from, the UK. When answering a question that includes an international traveller:

• Be specific and precise in your terminology.
• Be careful to address only those issues asked for in the requirement.
• Ensure that you are always clear as to which tax you are writing about.

Written by a member of the ATX-UK examining team

The comments in this article do not amount to advice on a particular matter and should not be taken as such. No reliance should be placed on the content of this article as the basis of any decision. The authors and the ACCA expressly disclaim all liability to any person in respect of any indirect, incidental, consequential or other damages relating to the use of this article.