Advanced Taxation (UK) · Income tax: the scope of income tax, residence and overseas aspects

Overseas Aspects of CGT and Inheritance Tax for ATX-UK

Updated 11 October 2026 · Fact-checked

Overseas CGT and IHT depend on residence and domicile. A UK resident is taxed on worldwide gains. A non-resident is taxed on UK residential property and some other UK-linked gains. IHT charges UK assets for everyone, and worldwide assets for UK domiciled or deemed domiciled people. Overseas assets of others are excluded property.

Understand Overseas Aspects of CGT and Inheritance Tax

Start with two different tests. CGT looks at residence. IHT looks at domicile and where the asset is. Keep them apart in every answer.

A UK resident individual pays CGT on gains from worldwide assets. A non-resident is generally outside UK CGT. The main exception is UK land and property, and the rules are strongest for UK residential property. You need to say what the question tells you: the person's residence in the year of disposal, and the asset type. Residence is decided by the statutory residence test. Domicile is covered in its own topic.

Temporary non-residence stops people leaving the UK for a short time to sell assets tax-free. If you were UK resident for at least four of the seven tax years before departure, and the period of non-residence is five years or less, certain gains are taxed in the tax year of return. These are gains on assets you owned when you left (acquired before departure) and disposed of during the period of absence. The rule is for individuals, and it targets the gain, not the whole period abroad. The 4-of-7 test and the five-year limit are not confirmed by the tax tables supplied, so verify them against the ATX-UK article on international aspects of personal taxation before relying on them.

Inheritance tax is charged on transfers of value, on lifetime gifts that are chargeable and on death. The extent of the charge depends on domicile. A person who is UK domiciled or deemed domiciled is charged on worldwide assets. Someone who is neither is charged only on UK assets. Overseas assets owned by a person who is neither are excluded property and are outside IHT.

Where IHT is due, the rates in the tax tables apply. The nil rate band is £325,000. The residence nil rate band is £175,000 and relates to a home passing to direct descendants. The lifetime rate is 20% and the death rate is 40%, both on the excess over the nil rate band. Taper relief reduces tax on gifts made more than three years before death. Overseas assets can also suffer foreign tax, so mention double tax relief where the question gives foreign tax.

Key rules to remember

UK resident CGT scope: UK resident individual: CGT on gains from worldwide assets; Residence in the year of disposal is the test. Remittance basis points are outside this page.
Non-resident CGT scope: Non-resident: generally no UK CGT, except UK land and property and certain other UK-linked disposals; Always state the asset type. UK residential property is the usual exam asset.
CGT rates: Lower rate 18%, higher rate 24%, annual exempt amount £3,000; Rates apply to gains after the annual exempt amount. The lower rate applies only where basic rate band remains after taxable income.
Business asset disposal relief: Rate 14%, lifetime limit £1,000,000; Investors' relief has the same limit and rate. Check the qualifying conditions in the question.
Temporary non-residence: UK resident for at least 4 of the 7 tax years before departure + period of non-residence of 5 years or less = gains on assets owned at departure and disposed of during the absence are taxed in the year of return; The asset must have been acquired before departure. These tests are not confirmed by the tax tables supplied, so verify them against the ATX-UK article on international aspects of personal taxation.
IHT domicile scope: UK domiciled or deemed domiciled: worldwide assets. Neither: UK assets only; Overseas assets of a person who is neither are excluded property.
IHT nil rate bands and rates: NRB £325,000; RNRB £175,000; lifetime rate 20%; death rate 40%; Tax is on the excess over the nil rate band. Take the figures from the tax tables.
Taper relief: 3-4 years 20%; 4-5 years 40%; 5-6 years 60%; 6-7 years 80% reduction; The reduction is applied to the tax, not the value of the gift. It only helps if tax is due on the gift.

How to solve Overseas Aspects of CGT and Inheritance Tax questions

Use the same five questions for every overseas CGT or IHT question. Write the answer to each one, and the marks follow.

1Identify the tax asked for: CGT, IHT or both. Keep separate workings.
2For CGT, state the taxpayer's residence in the year of disposal. Use the statutory residence test facts in the question.
3State the asset and its location. Decide whether it is UK property, UK land, or an overseas asset.
4If the person left the UK and has returned, test temporary non-residence: UK resident for at least four of the seven tax years before departure, and non-resident for five years or less. Check the asset was owned at departure and disposed of during the absence. Identify the year of return, which is when the gain is taxed.
5For IHT, state domicile or deemed domicile. Decide which assets are within the charge and which are excluded property.
6Compute using the tax table figures: annual exempt amount, CGT rates, nil rate band and IHT rate, taper relief and RNRB where relevant.
7Mention foreign tax and double tax relief if the question gives overseas tax paid.
8Finish with a clear conclusion and any advice, for example on timing of the sale or on gifts.

Quickest way: Two-question scope check

When to use it: Use it at the start of any question mixing residence, domicile and overseas assets, when time is short.

For CGT ask: resident in the year of sale? If yes, worldwide gains. If no, is it UK property? If no, no UK CGT.
If they have left the UK, ask: non-resident for five years or less, and UK resident in at least four of the seven tax years before departure? If yes, and the asset was owned at departure, flag the year of return.
For IHT ask: UK domiciled or deemed domiciled? If yes, worldwide. If no, UK assets only.
Then apply the tax table rates and bands and write one sentence of conclusion.

Common mistakes in Overseas Aspects of CGT and Inheritance Tax

Using domicile to decide CGT scope for a disposal.
Students mix the IHT and CGT tests because both involve overseas assets.
Fix: Write 'CGT: residence' and 'IHT: domicile' at the top of your answer. Use only the matching test.
Treating all gains of a non-resident as outside UK CGT.
Students remember that non-residents are not taxed on worldwide gains and stop there.
Fix: Check the asset. UK land and property are the exception, so state the asset type before you conclude.
Applying temporary non-residence without checking all the conditions.
Students remember the five years but forget the earlier residence test, or forget that the asset must have been owned at departure.
Fix: Check four of the seven years of UK residence before leaving, then that the absence was five years or less, then that the asset was owned at departure and sold during the absence. Name the year of return as the year the gain is taxed.
Taxing overseas assets of a non-UK domiciled person to IHT.
Students look at where the donor lives and ignore domicile and deemed domicile.
Fix: State domicile first. If the person is neither domiciled nor deemed domiciled, label the overseas assets excluded property.
Applying taper relief to the gift value or to a gift within the nil rate band.
Taper relief sounds like it reduces the gift.
Fix: Compute the tax first, then reduce the tax by the taper percentage. If no tax arises on the gift, taper gives nothing.
Forgetting the annual exempt amount or using the wrong CGT rate.
Students rush the arithmetic after a long scope discussion.
Fix: Deduct the £3,000 annual exempt amount if it is available. Use 18% or 24% according to unused basic rate band, or 14% for BADR.

Worked examples

Example 1

Priya, who has always been UK resident, sold shares in a US company in the tax year and made a gain of £53,000. She has no other gains and taxable income of £70,000 after her personal allowance. Compute her CGT. Use the tax table rates.

Show the solution

Priya is UK resident, so she is taxed on gains from worldwide assets. The US location does not matter.
Gain £53,000 less annual exempt amount £3,000 gives taxable gain £50,000.
Her taxable income of £70,000 is above the £37,700 basic rate band, so none of the band remains.
All of the gain is taxed at the higher rate of 24%.
CGT = £50,000 × 24% = £12,000.

Answer: CGT payable is £12,000. The gain on the US shares is within UK CGT because Priya is UK resident.

Example 2

Mark is not UK domiciled and has never been deemed domiciled in the UK. He owns a UK house worth £600,000 and overseas investments worth £400,000. He dies, leaving everything to a friend. He made no lifetime gifts. Ignore RNRB. Compute the IHT.

Show the solution

Mark is neither UK domiciled nor deemed domiciled, so only UK assets are chargeable.
The overseas investments of £400,000 are excluded property and are outside the charge.
The chargeable estate is the UK house at £600,000.
The nil rate band of £325,000 is available. The question tells you to ignore the RNRB, so you do not use it. It would not be available anyway, because the home is not left to direct descendants.
Taxable amount = £600,000 − £325,000 = £275,000.
IHT at the death rate of 40% = £275,000 × 40% = £110,000.

Answer: IHT payable is £110,000. The overseas investments are excluded property and are not charged.

Exam tips

Begin every answer with the test you are using: residence for CGT, domicile for IHT. Examiners award marks for stating the correct test.
Show temporary non-residence conditions as a short list, then apply the question dates. Name the tax year in which the gain falls.
Label excluded property clearly when you leave out overseas assets. A blank omission can lose marks.
Take every rate, band and taper percentage from the tax tables provided. Do not rely on memory for figures.
Add a brief comment on foreign tax and double tax relief, and on timing advice, to earn professional skills marks.

Practice questions from Income tax: the scope of income tax, residence and overseas aspects

Overseas Aspects of CGT and Inheritance Tax: frequently asked questions

Do non-residents pay CGT on UK property?

Yes, UK land and property gains are the main exception to the rule that non-residents are outside UK CGT. In the exam, state the asset type and the person's residence status. Then compute using the normal rates and annual exempt amount from the tax tables.

How does temporary non-residence work for CGT?

It applies to someone who was UK resident for at least four of the seven tax years before leaving and is non-resident for five years or less. Gains on assets owned at departure and disposed of during the absence are taxed in the year of return. It stops people avoiding CGT by a short period abroad. These tests are not in the tax tables, so confirm them against the ATX-UK article on international aspects of personal taxation.

What is excluded property for IHT?

For a person who is neither UK domiciled nor deemed domiciled, overseas assets are excluded property. They fall outside the IHT charge. UK assets of that person remain chargeable.

What are the CGT rates and annual exempt amount in the ATX-UK tables?

The tables for the exams in the period covered give a lower rate of 18% and a higher rate of 24%. The annual exempt amount is £3,000. Business asset disposal relief and investors' relief are taxed at 14% up to a £1,000,000 lifetime limit.