UK nationals who move abroad face not only the complexities of a foreign tax system; they may also remain liable to some UK taxes, particularly Inheritance Tax (IHT).
Inheritance Tax is the tax which is paid on an estate when the owner of that estate dies. Depending on certain criteria, the tax may also be payable on gifts or trusts made during that person’s lifetime.
Your liability depends on the domicile status of the deceased at the time of death, or in the case of trusts, the settlor’s domicile status at the time an asset is gifted into trust.
Typically, IHT is paid by the executor using funds from the estate of the deceased. Trustees of a trust are usually responsible for the payment of IHT on the assets held in that trust and sometimes people may have to pay tax on gifts received. However, the payee of Inheritance Tax is dependent on a number of factors, and different factors may affect who should pay the Inheritance Tax owed.
In the past, Inheritance Tax planning used to be an activity confined to the very rich. However, growing affluence means that this is no longer the case. Even families and individuals with a relatively moderate level of wealth now need to plan ahead to ensure that their assets are passed on to their loved ones as tax efficiently as possible.
For UK legal purposes, every individual has a domicile in a particular jurisdiction. You can only have one domicile at any one point in time and your domicile will usually correspond with the country where you were born and brought up, but this is not always the case.
Domicile is an important concept as it determines your liability to UK Inheritance Tax. Domicile is more permanent than residence and is very difficult to change. Even if you have been living overseas for many years, you may still be regarded as domiciled in the UK which means that UK Inheritance Tax would be payable on your worldwide estate.
If you are a UK domicile and you are resident overseas, or looking to move overseas, we can assess your situation and advise you on any steps you will need to take to change your UK domicile status. If you become non-UK domiciled, UK Inheritance Tax is unlikely to be an issue for you, although you will need to consider the Inheritance Tax regime in your new country of residence. The amount of Inheritance Tax payable in that country may depend on where your assets are located, who the beneficiaries are and where they are resident.
Domicile and Inheritance Tax are important when carrying out estate planning. You will want to ensure that, on your death, your estate passes to your intended beneficiaries with as little tax cost as possible. Estate planning often involves looking at the rules in several jurisdictions and ensuring that the planning is effective in all jurisdictions concerned.
The Inheritance Tax planning process is a complex area and one in which mistakes can be made. For this reason, it is important to seek professional financial advice before you make a start.
Forth Capital Tax Advice
If you are concerned about potential Inheritance Tax, or would like clarification on how to mitigate UK Inheritance Tax, speak to a Forth Capital Tax Adviser.
You are guaranteed to receive impartial advice, and confidentiality is always assured. Our expert advisers will guide you through the Inheritance Tax rules, advise you of the opportunities for tax planning and highlight any potential pitfalls.
What happens next?
Click on the green speech bubble icon to the right of the screen and fill in the online form, a member of our team will then contact you to discuss your situation.