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Why UK Expats Should Beware Inheritance Tax

Date Posted: Thu, 20 Jan, 2022

Why UK Expats Should Beware Inheritance Tax



By BBG Dubai member Jason Porter

 

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.

UK Chancellor Rishi Sunak’s decision to freeze allowances on tax payable until 2026, despite rising inflation, will likely see more families being caught in the IHT net, as least for the next five years.

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.

Please refer to www.retiringtoeurope.com and www.blevinsfranks.com for the latest on how Brexit affects Britons moving to Europe.
Jason Porter is a Director of specialist expat financial advisers Blevins Franks and head of the company’s European Emigration Advisory Service.