March 27, 2025 — Inheritance and estate taxation occupies a position in cross-border tax planning that is structurally different from income tax. Where income tax operates on annual flows that can be anticipated and planned, inheritance and estate tax operates on events — death, certain lifetime transfers, succession — that are harder to anticipate in their timing and that produce one-off consequences of potentially substantial magnitude. Cross-border families are particularly exposed because the relevant rules vary across jurisdictions and produce overlapping or contradictory outcomes that can be substantial.

This article reads the inheritance and estate tax regimes of the principal jurisdictions in which cross-border families typically have connections, identifies the categories of issue that most frequently produce unexpected outcomes, and describes the structuring options that practitioners now consider.

The variation in approach

The major jurisdictions vary widely in their approach to inheritance and estate taxation. The United States imposes federal estate tax on estates above a threshold (currently approximately 13 million dollars per individual, with the threshold scheduled to revert to a lower amount in 2026 absent further legislative action). The threshold applies to US citizens and residents on worldwide assets, and to non-resident aliens on US-situs assets. The framework includes both estate tax and a separate gift tax operating on certain lifetime transfers.

The United Kingdom imposes inheritance tax on the worldwide estate of UK domiciliaries and on UK-situs assets of non-domiciliaries. The standard rate is 40 percent on the portion of the estate above the nil-rate band (currently 325,000 pounds), with various exemptions and reliefs available for specific categories. The UK domiciled concept has been particularly significant, with the post-2024 reforms changing the position of certain UK-resident-but-non-domiciled individuals.

France imposes inheritance tax on the worldwide assets of French residents and on French-situs assets of non-residents, with rates that depend on the relationship between the deceased and the beneficiary. Direct descendants benefit from progressive rates from 5 to 45 percent above an exemption that is currently 100,000 euros per child. More distant relatives and unrelated beneficiaries face significantly higher rates.

Germany imposes inheritance tax with rates that depend on the relationship between the deceased and the beneficiary and on the size of the inheritance. Direct descendants face progressive rates from 7 to 30 percent on inheritances above thresholds that vary by relationship.

Italy imposes inheritance tax with rates that are relatively low compared with other European jurisdictions. Direct descendants face a 4 percent rate on the portion of the inheritance above an exemption of 1 million euros per beneficiary.

Spain imposes inheritance tax with rates that vary significantly by autonomous region, with some regions having effectively eliminated the tax for direct descendants and others retaining significant rates.

The variation across jurisdictions produces complications for cross-border families that have connections to multiple jurisdictions.

The cross-border issues

The principal cross-border issues that produce unexpected outcomes are described below.

The first issue is the determination of the deceased's domicile or residence for inheritance tax purposes. The relevant determination varies across jurisdictions and may differ from the determination for income tax purposes. The UK domicile concept, in particular, has been a source of complexity for individuals who have lived in the UK for extended periods without acquiring UK domicile.

The second issue is the situs of assets. Each jurisdiction's inheritance tax framework typically captures domestic-situs assets of non-residents, with the situs determination varying by asset category. Real estate is generally situs-based on physical location. Securities and other financial assets have varying situs rules. The variation can produce double taxation or unexpected exposure for cross-border families.

The third issue is the interaction with bilateral tax treaties. Several jurisdictions have bilateral inheritance tax treaties that allocate taxing rights and provide relief from double taxation, but the network of inheritance tax treaties is much sparser than the network of income tax treaties. The US has inheritance tax treaties with approximately 15 jurisdictions; the UK has comparable treaties with a similar number. France, Germany, and Italy have treaties with various counterparties. Many bilateral relationships have no inheritance tax treaty, with the consequence that the relevant relief depends on unilateral relief provisions in domestic law.

The fourth issue is the treatment of trusts and other entity structures. Trusts are treated differently for inheritance tax purposes by different jurisdictions, with the consequence that the same trust may produce different inheritance tax outcomes depending on which jurisdictions are involved.

The fifth issue is the timing of valuation. Inheritance tax is typically calculated based on the value of assets at the date of death, but the date of death can fall in different tax years for different jurisdictions, and the valuation methodology may vary.

The European succession regulation

The European Union's Succession Regulation, in force from August 2015, addresses the conflict of laws aspects of cross-border succession but does not harmonise the substantive inheritance tax law. The regulation provides that the law of the state in which the deceased had their habitual residence at the time of death applies to the succession, with the option for individuals to elect the law of their nationality.

The regulation has been particularly relevant for individuals from civil-law jurisdictions, which traditionally apply forced heirship rules that protect specified portions of the estate for specified beneficiaries. The election of a non-civil-law nationality (such as English law for an English national) can avoid forced heirship rules and allow more flexible testamentary disposition.

The regulation does not affect inheritance tax. The applicable inheritance tax law continues to be determined by each jurisdiction's domestic rules, with the bilateral treaty framework where applicable.

The structuring options

The structuring options for cross-border families seeking to manage inheritance tax exposure include several distinct approaches.

The first is the careful management of domicile and residence for inheritance tax purposes. The UK domicile concept, in particular, has been the subject of substantial planning, with families often taking specific steps to establish or maintain non-UK domicile during the relevant period.

The second is the use of lifetime gifting strategies. Several jurisdictions provide lower rates or higher exemptions for lifetime gifts than for transfers at death, with the consequence that planned lifetime gifting can reduce overall inheritance tax exposure. The strategies must be executed within the relevant timing windows and must comply with anti-avoidance provisions that capture late lifetime gifts as part of the death estate in some jurisdictions.

The third is the use of trusts and similar structures. Trusts can provide protection against inheritance tax in some jurisdictions, but the post-CRS reporting framework has reduced the opacity of trusts and has caused some jurisdictions to apply specific anti-avoidance provisions to trust structures.

The fourth is the strategic location of assets to capture favourable situs treatment. Assets located in jurisdictions with no or low inheritance tax may produce more favourable outcomes for non-resident decedents than assets located in higher-tax jurisdictions.

The fifth is the use of life insurance and similar instruments that provide for the orderly transfer of wealth at death with potentially favourable tax treatment in some jurisdictions.

The trajectory

The trajectory of inheritance and estate taxation through the second half of the 2020s is one of continued variation across jurisdictions and continued complexity for cross-border families. The political pressure on inheritance taxation has, in some jurisdictions, produced reforms that have moderated the historical regime. In other jurisdictions, the political pressure has gone in the opposite direction, with calls for tighter inheritance tax frameworks.

For cross-border families, the practical implication is that inheritance tax planning must be jurisdiction-specific and must be reviewed regularly as circumstances change. The variation across jurisdictions creates both opportunities and risks, with careful planning capable of producing materially different outcomes depending on the specific circumstances. The advisory function on inheritance tax for cross-border families requires deep familiarity with each relevant jurisdiction's framework and with the interactions among them.