UK inheritance tax (IHT) is payable on the worldwide estate of a UK-domiciled person who has passed away, as well as on gifts made by UK-domiciled people within the seven years prior to death.
If you are a long-term UK non-resident in the Gulf perhaps with plans to retire to sunny southern Europe without returning to the UK you may think you can escape IHT. But the reality is different.
The domicile issue and expats UK IHT is determined by domicile, not residence. You can live overseas for many years and still be a UK domicile, making your worldwide estate liable. If you hold assets in the UK, these will be taxable regardless of your domicile status.
Why has the collected inheritance tax breached £6bn? The increase of almost a billion pounds of inheritance tax collected by the UK taxman over a 12-month period is due to a few factors. The most unfortunate of which is death connected to the recent pandemic.
This period has also seen record highs on property prices. The surge has increased the value of estates already subject to inheritance tax, but also pushed others across the tax threshold.
What are the allowances and exemptions of UK inheritance tax? Inheritance tax is charged at a flat rate of 40%.
The main allowance, or ‘nil rate band’, before tax is payable on IHT is £325,000 per person. However, it is possible for spouses and civil partners to pass any of this unused allowance onto each other completely tax free, given proper advice.
There is also a second allowance, often referred to as a Residential Nil-Rate Band (RNRB), which currently allows an additional £175,000 per person.
Again, this could be combined with a spouse or civil partner to £350,000 – but is only applicable when bequeathing a main home directly to children or grandchildren.
A couple, therefore, could have a combined total allowance of up to £1 million.