Inheritance Tax Planning When Owning Property Abroad

Bureaucracy Without Pain

Owning a beach condo in Cascais, a ski chalet in Niseko or a pied-à-terre in Berlin feels glorious—until someone mentions the words “succession” and “tax.” Suddenly, paradise looks like paperwork.

I’m an international tax advisor who spends most of his week turning cross-border cobwebs into clear action plans. Below is the playbook I hand to clients who want their heirs to inherit memories, not red tape.

Why Inheritance Tax on Foreign Property Deserves Your Attention

“Death and taxes may be inevitable, but double taxation on the same house shouldn’t be.” – My mentor, circa 2003

Most countries levy some form of estate, inheritance or death duty. Add a second jurisdiction, sprinkle conflicting definitions of domicile and situs, and you’re cooking up a global tax buffet—often with two revenue authorities holding out plates.

Ignoring the issue can:

• Trigger double taxation (think U.K. and Spain both taxing your Costa del Sol villa).
• Freeze the property while courts figure out which law applies, leaving heirs paying maintenance, mortgage and lawyers for months—or years.
• Force a “fire sale” when beneficiaries can’t afford the tax bill.

A morning spent planning now can save your family a six-figure headache later.

Step-by-Step Process: De-Jargonised

1. Map Your Exposure

1. Confirm ownership structure
   Personal title, joint tenancy, company wrapper, trust? The structure dictates which law bites first.

2. Identify taxing rights
   • Country of situs (where the property physically sits)
   • Your domicile (not always the passport country)
   • Your residence (where you hang your hat most of the year)

3. Read the treaty—twice
   About 40 nations have double-tax treaties covering estate taxes, but the clauses are often an afterthought. Highlight the tie-breaker rules and any tax-credit mechanism. If no treaty exists, assume the worst-case scenario: both countries taxing at full rate.

Pro tip: Keep treaty extracts with the property’s deed. When life throws curveballs, you won’t be hunting PDFs at 3 a.m.

2. Decide on a Holding Vehicle

Below is the decision tree I sketch on a whiteboard. Costs are annualised estimates for a property worth €1 m.

Before you morph into a corporate structure, weigh:

• Mortgage terms—banks charge higher rates to companies.
• Ongoing compliance—statutory filing, audits, nominee directors.

3. Draft a Multijurisdictional Will

One Will per jurisdiction keeps each probate court laser-focused. Each document must:

• Cross-reference other Wills to avoid accidental revocation.
• Specify governing law (EU owners: consider the Brussels IV regulation).
• Name executors who actually speak the local language.

Digital signatures are acceptable in more places than you’d expect. Our deep dive on their cross-border validity shows when e-Wills pass muster—see “Digital Signatures: Validity Across Borders”.

4. Compute the Liability—Now, Not Later

Fire up a spreadsheet:

1. Start with property’s fair market value (FMV).
2. Subtract allowable debts (mortgage, local taxes outstanding).
3. Apply local tax bands and exemptions.
4. Repeat for domicile country.
5. Model currency-fluctuation risk; a 10 % swing can alter liability by thousands.

Run scenarios annually. I lost count of clients saved from surprise taxes simply by catching appreciation early and gifting shares while values were lower.

5. Fund the Tax Bill

No liquidity = forced sale. Options:

• Dedicated life insurance policy pegged to forecast liability.
• Setting aside cash in a high-yield multi-currency account.
• Structured notes maturing on expected date—fancy but efficient.

Remember, beneficiaries often need to pay tax before title transfers.

6. Stash the Paperwork Where Humans Can Find It

A binder (physical or digital) labelled “When I’m Gone” should include:

• Property deeds & land-registry extracts
• Latest valuation
• Relevant treaty excerpt
• Copies of all Wills
• Insurance policy schedule
• Contact list (lawyer, executor, BorderPilot plan link)

I’ve watched heirs spend €25 000 on legal time just to locate a missing notarised page. Don’t be that story.

Costs and Timelines: What to Budget

Because readers love numbers, let’s pull back the curtain on typical cash-outlays:

• International Will drafting – €800–€2 500 per jurisdiction
• Notarisation & apostille – €100–€300 per document
• Company setup (EU Ltd.) – €3 000 upfront; €1 500 annual filing
• Trust establishment (Guernsey) – €10 000 upfront; €3 000–€6 000 yearly
• Valuation report – €300–€600; mandatory in France, Japan, parts of Canada
• Life insurance premiums – ~€1.20 per €1 000 of coverage for a healthy 40-year-old

Timing wise:

1. Will drafting: 2–4 weeks
2. Company incorporation: 4–6 weeks (plus bank-account KYC)
3. Trust: 6–12 weeks
4. Transferring property into vehicle: can take 3–9 months, primarily due to land-registry backlogs

Factor in pandemic-era delays. Several land registries now accept PDF deeds with qualified e-seals, a small bureaucratic miracle.

Common Mistakes That Still Keep Lawyers Rich

1. Assuming “one global Will” is sufficient. Probate judges loathe ambiguity; local Wills are cleaner.
2. Ignoring forced-heirship rules. France, the UAE and parts of Latin America allocate fixed shares to children or spouses regardless of your wishes.
3. Overlooking local gift taxes. Shifting the villa to your child today may dodge estate tax tomorrow—but could trigger gift duty now.
4. Failing to update after life events. Marriage, divorce, or acquiring a second passport resets the tax chessboard.
5. Not filing foreign asset disclosures. The U.S. Form 8938, Spanish Modelo 720, or Italian “Quadro RW” penalties dwarf the tax itself.
6. Relying on verbal promises. A handwritten sticky note taped to the fridge is not binding in any known jurisdiction—yes, I’ve seen that attempted.

Country-Specific Quirks Worth Knowing

Below are three curveballs I meet repeatedly:

• Portugal’s “stamp duty” – Mislabelled as a 10 % inheritance tax, it exempts spouses and ascendants/descendants but nails everyone else, including unmarried partners.

• Australia’s lack of federal estate tax – Sounds blissful until you realise a hefty capital-gains tax gets triggered on death if the property is not the principal residence.

• Japan’s spousal deduction – Up to ¥160 m is free for a surviving spouse, yet local municipal offices insist on original koseki tohon family registers, which can take weeks to source.

A Real-World Anecdote (Names Changed)

When Luca (Italian) and Ana (Croatian) bought a €900 k seafront villa in Dalmatia, they put the deed in Ana’s name “for simplicity.” Fast-forward five years: Ana passes unexpectedly. Luca, still Italian-tax domiciled, faced:

• 4 % Croatian succession tax (manageable)
• No double-tax treaty between Croatia and Italy for estates
• Italian “imposta di successione” wanting up to 8 % on worldwide assets

With no Croatian Will, probate froze the villa for 18 months. By the time Luca inherited, the euro had strengthened, bumping the Italian tax bill by €27 k. One Croatia-specific Will and a €400 life-insurance policy would have solved everything.

When Property Is Part of a Larger Mobility Strategy

Some clients intentionally layer real-estate holdings into residency or investor visa programmes. Case in point: Singapore’s GIP demands substantial investment but exempts offshore assets from estate tax—see our breakdown of the “Singapore Global Investor Programme: Millionaire’s Path”.

The inheritance-planning angle matters because—brace yourself—many programs fast-track citizenship, which can alter domicile status and unlock (or lock you into) new tax regimes. Plan the exit before signing the entry papers.

Frequently Asked Questions

Q: Can I just gift the foreign property to my kids while alive?
Yes, but mind local gift and stamp duties, plus potential capital-gains tax on perceived disposition.

Q: Is a trust overkill for a single apartment?
Usually, yes. Trusts shine when you hold multiple assets or anticipate matrimonial disputes among heirs.

Q: My home country has no inheritance tax. Am I safe?
No. The situs country’s tax applies regardless of your domestic rules—unless a treaty overrides it.

Q: What happens if I move into the property and become a resident there?
Congrats, you’ve changed the tax chessboard again. Redo the exposure map (Step 1).

Final Checklist

Tick these boxes once, then review annually:

• [ ] Confirm ownership structure still serves your goals
• [ ] Re-calculate liability using latest FMV and FX rates
• [ ] Update Wills post-life events
• [ ] Verify insurance coverage matches revised figures
• [ ] Store documents in an easily accessible (encrypted) folder
• [ ] Share executor instructions with a trusted person

Call-out block
“Estate planning is not about avoiding tax; it’s about controlling where your money goes when you can’t speak for it.”

Wrapping Up

Inheritance tax on foreign property isn’t a doom-scroll topic once you break the tasks into mapping, structuring, drafting, funding, and updating. The earlier you start, the cheaper—and calmer—the process.

If you’d like a personalised roadmap that folds in valuations, treaty specifics and filing calendars, BorderPilot’s free relocation plan does the number-crunching in minutes. Your future beneficiaries will thank you—probably from a sunlounger, not a courthouse.