diff --git a/docs/changelog.rst b/docs/changelog.rst
index 5961a1192..905f234bb 100644
--- a/docs/changelog.rst
+++ b/docs/changelog.rst
@@ -69,6 +69,9 @@ Detailed list of changes
 
 - hints kitten: Allow copying matches to named buffers (:disc:`6073`)
 
+- Fix overlay windows not inheriting the per-window padding and margin settings
+  of their parents (:iss:`6063`)
+
 
 0.27.1 [2023-02-07]
 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
diff --git a/kitty/layout/base.py b/kitty/layout/base.py
index 39ba3922d..bc2ddc72b 100644
--- a/kitty/layout/base.py
+++ b/kitty/layout/base.py
@@ -282,9 +282,12 @@ class Layout:
         self, all_windows: WindowList, window: WindowType, location: Optional[str] = None,
         overlay_for: Optional[int] = None, put_overlay_behind: bool = False
     ) -> None:
-        if overlay_for is not None and overlay_for in all_windows:
-            all_windows.add_window(window, group_of=overlay_for, head_of_group=put_overlay_behind)
-            return
+        if overlay_for is not None:
+            underlay = all_windows.id_map.get(overlay_for)
+            if underlay is not None:
+                window.margin, window.padding = underlay.margin.copy(), underlay.padding.copy()
+                all_windows.add_window(window, group_of=overlay_for, head_of_group=put_overlay_behind)
+                return
         if location == 'neighbor':
             location = 'after'
         self.add_non_overlay_window(all_windows, window, location)
diff --git a/kitty/window.py b/kitty/window.py
index 0fd85a42e..a3040fccf 100644
--- a/kitty/window.py
+++ b/kitty/window.py
@@ -508,6 +508,9 @@ class EdgeWidths:
     def serialize(self) -> Dict[str, Optional[float]]:
         return {'left': self.left, 'right': self.right, 'top': self.top, 'bottom': self.bottom}
 
+    def copy(self) -> 'EdgeWidths':
+        return EdgeWidths(self.serialize())
+
 
 class GlobalWatchers: