Of all the UK taxes a Gulf family meets when it owns a London home, inheritance tax is the one most often discovered too late. There is no inheritance tax in the Gulf; there is in the UK, at 40%, and it applies to a London property whoever owns it and wherever they live. A company no longer helps, and the two decisions that matter have to be taken while the owner is alive.
Tax
UK inheritance tax on a London home: what Gulf families need to decide now
What is charged
A Gulf family that owns a London home faces UK inheritance tax at 40% on the property’s value above the allowances on the owner’s death, wherever the owner lives. The nil-rate band is £325,000, frozen until 2030, and the spouse exemption is capped at £325,000 where the survivor is not a long-term UK resident. On a £2,000,000 Knightsbridge house left to children by one owner the bill is £600,000, payable before the children can sell. An offshore company has sheltered nothing since April 2017.
On death, UK inheritance tax is charged at 40% on the value of the estate above the allowances. For a person who is not a long-term UK resident, the estate for this purpose is their UK assets only: UK property, UK bank accounts, UK shares. A Gulf national living in Jeddah with a £2,000,000 house in Knightsbridge and no other UK assets has a UK estate of £2,000,000.
Residence has replaced domicile
Since April 2025 the test is residence rather than domicile: a person who has been UK resident for ten of the last twenty tax years is charged on their worldwide estate, and remains so for up to ten years after leaving. Families whose children study and then work in London should keep count.
The allowances
The allowances that reduce the taxable estate:
- Nil-rate band: the first £325,000 of the estate is charged at 0%. It has been frozen at this level since 2009 and is fixed until 2030.
- Residence nil-rate band: a further £175,000 where a home passes to children or grandchildren, reduced by £1 for every £2 of estate above £2,000,000, so it is lost on an estate of £2,350,000 or more.
- Spouse exemption: what passes to a husband or wife is exempt. Where the surviving spouse is not themselves a long-term UK resident, the exemption is capped at £325,000 unless they elect to be treated as one. A couple who each own half of a London home can each use their own nil-rate band, and an unused band passes to the survivor.
On the £2,000,000 Knightsbridge house owned by one person and left to children, the tax is 40% of £1,500,000, £600,000, and it is payable before the children can sell or take the house. Owned equally by husband and wife, the first death is exempt (within the cap) and the second death uses two nil-rate bands, £650,000, leaving tax of £540,000. The residence band is lost on an estate of this size.
Why a company does not help
Until 2017 a London home held through an offshore company was outside the UK estate of a non-resident, because the shares were a foreign asset. Since April 2017 shares in a company, wherever incorporated, are UK assets to the extent the company’s value comes from UK residential property. The company shelters nothing and adds the annual charge on enveloped dwellings and the 17% stamp duty rate. Old structures set up before 2017 should be reviewed, not assumed.
What does help
The four measures the firm sees work for a single London property:
- Ownership across the family from the start. A property bought by parents and adult children as tenants in common puts part of the value in the children’s hands at purchase, with no UK inheritance tax on that part on the parents’ deaths. Gifts of shares later are possible but a gift of a UK property from a non-resident is itself a disposal for capital gains tax and takes seven years to leave the donor’s estate.
- Debt secured on the property. A mortgage or Islamic purchase plan secured on the London home is deducted from its value, provided the money was not borrowed from a connected person or used to buy exempt assets. A £2,000,000 house with £1,000,000 of finance is a £1,000,000 estate.
- Life insurance written in trust to pay the tax, so the house does not have to be sold to settle the bill. Cheap for a family in its forties, and the simplest answer for a single property.
- An English will for the UK assets. Without one, English intestacy rules decide who inherits the London home, which may not match Sharia distribution or the family’s wishes, and the probate takes longer. A UK will limited to UK assets sits alongside the home-country will.
What happens on a death
The executors apply for an English grant of probate, which requires the inheritance tax account to be delivered and the tax paid, or an instalment election made, before the grant issues. Tax on a property can be paid in ten annual instalments with interest, and the whole balance falls due if the property is sold. The deadline is six months from the end of the month of death, after which interest runs.
The house is frozen until the grant
The property cannot be sold or transferred to the heirs until the grant issues, which in practice means nine to eighteen months. A family that has not planned finds the house frozen and the tax due in the same year.
The two decisions to take now
First, who owns the London property, decided before exchange, because changing it later is a sale with stamp duty and capital gains tax. Second, how the tax will be paid, decided while the owner is alive, which usually means insurance or finance. Both are taken with a UK private-client solicitor and a tax adviser; we bring them in on every purchase above the nil-rate band, and the cost is a few thousand pounds against a bill that can run to hundreds of thousands.
Related guides: An English will for a London property, Gifting a London property to your children and Own name, joint names or a company.
Sources: Inheritance Tax (GOV.UK) · Inheritance Tax: gifts (GOV.UK) · Annual Tax on Enveloped Dwellings: the basics (GOV.UK). Checked against GOV.UK on 13 October 2026. Inheritance tax rules changed in April 2025 and allowances are fixed to 2030; later Budgets may change them. General information, not legal or tax advice; a family’s position is for their adviser to confirm. Figures verified 13 October 2026.
Frequently Asked
Questions about inheritance tax on a London home
No; the flat passes under English law and the tax is charged regardless of where the will was made. Our guide on an English will for a Gulf family explains why one is needed.
In full only where the surviving spouse is UK-domiciled or elects to be treated as such; otherwise it is capped at the nil-rate band, £325,000.
If you survive seven years and stop using the flat, yes; if you keep using it, no, and you will have paid capital gains tax on the gift. Our gifting guide sets out both.
Owned by one person and left to children, the tax is 40% of the £1,500,000 above the £325,000 nil-rate band: £600,000, payable before the children can sell or take the house. Owned equally by husband and wife, the first death is exempt within the cap and the second death uses two nil-rate bands, £650,000, leaving tax of £540,000. The residence nil-rate band is lost on an estate of this size.
Not since April 2017. Shares in a company, wherever incorporated, are UK assets to the extent the company’s value comes from UK residential property, so the company shelters nothing and adds the annual charge on enveloped dwellings and the 17% stamp duty rate. Structures set up before 2017 should be reviewed, not assumed.
Yes. A mortgage or Islamic purchase plan secured on the London home is deducted from its value, provided the money was not borrowed from a connected person or used to buy exempt assets. A £2,000,000 house with £1,000,000 of finance is a £1,000,000 estate.
Since April 2025 the test is residence rather than domicile. A person who has been UK resident for ten of the last twenty tax years is charged on their worldwide estate, and remains so for up to ten years after leaving. Families whose children study and then work in London should keep count.
Tax on a property can be paid in ten annual instalments with interest, but the whole balance falls due if the property is sold. The deadline is six months from the end of the month of death, after which interest runs, and the inheritance tax account must be delivered and the tax paid, or an instalment election made, before the grant of probate issues.
The property cannot be sold or transferred to the heirs until the English grant of probate issues, which in practice means nine to eighteen months. A family that has not planned finds the house frozen and the tax due in the same year, which is why the firm recommends life insurance written in trust or finance to pay the bill.
It is a further £175,000 where a home passes to children or grandchildren, reduced by £1 for every £2 of estate above £2,000,000, so it is lost entirely on an estate of £2,350,000 or more. On a prime London home it is usually lost.
