UK Inheritance Tax on Israeli Assets: A 2026 Guide

A widow in Manchester dies owning a modest flat in Herzliya that her late husband bought in the 1990s, along with the terraced house she lived in and some UK savings. Her son, the executor, does the sensible thing and checks whether Israel will tax the flat when it passes to him. It will not: Israel has no inheritance tax. He closes that mental file and moves on. Six months later HMRC opens it again, because for UK inheritance tax the Herzliya flat is part of his mother's worldwide estate, taxed at 40% on its full value, and he has already missed the window for paying without interest.

This is the piece that surprises British families with Israeli assets. The country where the property sits charges nothing on death, so people assume there is nothing to pay. The tax lives in the other jurisdiction. Since 6 April 2025 the rules that decide whether a UK connection pulls foreign assets into charge have changed fundamentally, and the change caught out estates that were previously safe. If you are administering an estate from the UK, read this alongside the practical guide for a UK executor administering an Israeli estate, which covers the mechanics on the Israeli side.

Israel Takes Nothing, and That Is the Trap

Israel repealed its Estate Duty Law in 1981. Since then no tax has been due on the transfer of Israeli assets by inheritance, whether the heirs are Israeli or foreign, and whether the estate is a single flat or a portfolio. There is no filing, no rate, no threshold. The Inheritance Registrar (Rasham HaYerushot) issues a succession order (tzav yerusha) that names the heirs, and the assets pass. No revenue authority stands at that gate.

The problem is that British families read "no inheritance tax in Israel" and stop looking. The tax exposure on an Israeli asset does not disappear. It sits in two other places: in the UK, at death, under inheritance tax; and in Israel, later, when the asset is sold, under betterment tax. Missing either one is expensive, and the two are not connected by any treaty that would let one soften the other.

The 2025 Shift From Domicile to Long-Term Residence

For decades, whether the UK taxed a person's foreign assets on death turned on domicile. A non-domiciled individual was exposed only on UK-sited assets; their Israeli flat sat outside the net. That framework ended.

From 6 April 2025, domicile is replaced by a residence-based test. An individual is a long-term resident, and therefore within the scope of UK inheritance tax on their worldwide assets, once they have been UK-resident in at least 10 of the previous 20 tax years. For most British-born people who have lived in the UK their whole lives, that condition is met many times over, so their Israeli property and Israeli bank accounts are squarely in charge. Someone who leaves the UK does not shed the exposure immediately either. A tail keeps worldwide assets in scope for between 3 and 10 further years, depending on how long they were resident.

The practical effect for an Anglo-Israeli family is blunt. A parent who lived in London for most of their life and kept a flat in Netanya cannot assume the flat escapes UK inheritance tax merely because it is abroad and Israel charges nothing. It is taxed as part of the estate.

In Practice: Under the Inheritance Tax Act 1984, as amended by the Finance Act 2025 that replaced domicile with the long-term residence test, UK inheritance tax is charged at 40% on a long-term resident's worldwide estate above the nil-rate band of £325,000 (frozen to April 2030). HMRC requires the account on form IHT400, with foreign assets detailed on form IHT417, within 12 months of death, and the tax itself is due by the end of the sixth month after death or interest runs. A Herzliya flat worth £600,000 (roughly NIS 2.8 million) held in a fully exposed estate can carry £240,000 of UK inheritance tax, none of which Israel shares or relieves.

Valuing and Reporting the Israeli Asset

An Israeli asset cannot be entered on IHT400 as a guess. HMRC expects a supportable open-market valuation at the date of death, and for real estate that means a written appraisal from an Israeli valuer (shamai mekarkein), converted to sterling at the date-of-death exchange rate. Bank and brokerage balances need statements as at the date of death; Israeli company shares need a valuation of the holding.

Gathering this from the UK takes longer than families expect. Israeli banks will not release a deceased customer's balance, or often even confirm it, without a succession order, and obtaining that order is itself a multi-week process. Executors routinely find that the valuation they need for the UK filing depends on Israeli cooperation that is gated behind the Israeli succession procedure, so the two tracks have to run together rather than in sequence.

The Step-Up Trap on a Later Sale

Here is the mismatch that costs the most, and that almost no one prices in at the point of death.

When the heirs eventually sell the Israeli property, Israel charges betterment tax (mas shevach) on the gain. For UK capital gains tax, the heir's base cost is the probate value, the value at the date of death, so only the growth after death is a UK gain. Israel does not follow that logic. Section 26 of the Real Estate Taxation Law 1963 sets the heir's acquisition value and date as those of the deceased, so inheritance gives no uplift in cost. The heir steps into the deceased's shoes and inherits their original purchase price and acquisition date. A flat bought in 1994 for the shekel equivalent of £40,000 and worth £600,000 at death is taxed by Israel, on sale, on essentially the whole climb from £40,000, not from the £600,000 the UK already taxed for inheritance purposes.

So the same appreciation can be reached by UK inheritance tax at death (on the £600,000 value) and by Israeli betterment tax on sale (on the gain from the 1994 cost), and because one is a death tax and the other is a gains tax, and there is no estate treaty between the countries, neither gives credit for the other. Only the UK capital gains tax on post-death growth can be relieved against the Israeli betterment tax under the income and gains treaty. The inheritance-tax hit and the historic-gain hit stand separately.

In Practice: Under Section 26 of the Real Estate Taxation Law 1963, an inheriting owner takes the deceased's original cost and date, with no step-up. On a later sale the Israel Tax Authority (Rashut HaMisim) charges betterment tax at 25% on the real, inflation-adjusted gain from that original cost, and the buyer's lawyer withholds funds until a clearance certificate (ishur nikui) issues, which takes 4 to 8 weeks. On the flat above, the Israeli betterment tax can run to several hundred thousand shekels on a gain the UK already counted for inheritance tax.

No Estate Treaty to Rescue You

Britain and Israel signed an updated double taxation convention in 2019, and it works well for income and capital gains, giving credit relief so that rent, dividends, and post-death property gains are not taxed twice over. It does nothing for inheritance tax, because it does not cover it. There is no UK-Israel estate or inheritance tax treaty at all.

At the moment of death this absence causes no harm, because Israel imposes no death tax, so there is no second charge to relieve. The absence bites later and indirectly, through the sale mismatch described above, where the historic Israeli gain and the UK inheritance charge overlap in economic terms but not in a way any relief mechanism recognizes. Planning, not treaty relief, is the only tool here. Deciding whether to sell soon after death or to hold, and whether the asset should have been given away or restructured during the owner's lifetime, is where the real money is saved or lost.

What a UK Executor Must Do in Israel

The grant of probate from an English court is not a key that turns an Israeli lock. Israeli banks, the Land Registry (Tabu), and company registrars act on Israeli orders, not foreign ones.

To deal with the Israeli asset the executor must obtain an Israeli succession order, or a will execution order (tzav kiyum tzava'a) if there is a will, from the Inheritance Registrar. In practice this is done through an Israeli lawyer instructed under a power of attorney that the executor signs before a notary in the UK, has apostilled by the Legalisation Office, and supports with Hebrew translations of the death certificate, the grant, and the will. Once the Israeli order issues, the lawyer can release bank funds, register the heirs at Tabu, or sell the property and remit the net proceeds abroad through the bank's compliance process. The full sequence, and how it dovetails with the UK grant, is set out in the guide to inheriting Israeli property as a UK resident.

Common Mistakes

Common Mistake: Treating "no Israeli inheritance tax" as "no tax to worry about," and leaving the Israeli flat off the early UK inheritance-tax planning. HMRC still charges 40% on the asset, the tax is due within six months of death, and interest accrues after that at the rate HMRC sets. An estate that ignores a £600,000 Israeli asset until the IHT400 is nearly due can face a £240,000 liability it has not funded, plus interest, and a scramble to raise cash from an asset that cannot be sold until the separate Israeli succession order is in hand.

A second frequent error is assuming the treaty erases the Israeli betterment tax on a later sale. It does not touch the historic gain. A third is undervaluing or over-relying on an outdated figure for the Israeli property on the UK return, which invites an HMRC enquiry and, if the number was too low, penalties on top of the tax.

Practical Checklist

• Establish early whether the deceased was a long-term UK resident, because that decides if the Israeli asset is in charge at all
• Commission a date-of-death valuation from an Israeli valuer for the UK IHT400 and IHT417
• Diarize the UK deadlines: the account within 12 months, the tax within six months of death
• Start the Israeli succession order in parallel, since the UK valuation and payment often depend on Israeli cooperation
• Record the deceased's original Israeli purchase price and date now, because a future sale will be taxed from that figure
• Do not assume the income and gains treaty relieves inheritance tax or the historic Israeli betterment gain
• Instruct an Israeli lawyer under an apostilled power of attorney rather than trying to act on the UK grant alone
• Take advice on whether to sell soon after death or hold, weighing the UK and Israeli tax outcomes together

Speak With an Israeli Attorney

Estates that span the UK and Israel fail on the assumption that one country's silence means there is nothing to pay. The tax is real, it sits on the UK side at death and the Israeli side on sale, and the two must be planned as one. An Israeli attorney working with your UK adviser can secure the succession order, hold the right cost records for the future betterment calculation, and structure the sale so the Israeli and UK positions are handled together.

Contact us for a confidential initial consultation.