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U turn on inheritance tax may affect British expats
| Published: | 22 Feb at 6 PM |
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With the UK inheritance tax level now frozen and £325,000 until 2019 in order to fund social care reform, expats believing they are exempt need to check the small print.
In spite of a pre-election pledge by the Conservative Party that inheritance tax levels would be raised to £1 million, the limit after which the tax will become due is now frozen at £325,000. If an expat is classed as domiciled, the beneficiaries will be charged 40 per cent on the difference between the limit and the value of the deceased expat’s worldwide estate.
The limit is raised to £650,000 for a married couple, and a tax exemption applies for transfers between spouses, but this applies only if both are either domiciled or non-domiciled. The tax bites when the surviving spouse dies.
Even the assets of those who have lived abroad for many years and no longer own UK property or investments may fall under the IHT trap. Clauses in international tax treaties give foreign government officials the power to collect IHT under certain conditions as well as reporting expat deaths back to the UK.
Expats with assets still in the UK should check their domicile status, remembering that UK citizens are only allowed either their domicile of origin or their domicile of choice. If there is any intent to return to the UK, Brits remain UK domiciled, even if they have been overseas for many years, with the legal test one of intent.
A permanent home abroad establishes a domicile of choice, with HRMC taking into account a house purchase, the length of residency, the disposing of the UK home, making a will in the new country, severance of all ties with the UK and relinquishing the right to vote. At this point, UK IHT liability disappears.
In spite of a pre-election pledge by the Conservative Party that inheritance tax levels would be raised to £1 million, the limit after which the tax will become due is now frozen at £325,000. If an expat is classed as domiciled, the beneficiaries will be charged 40 per cent on the difference between the limit and the value of the deceased expat’s worldwide estate.
The limit is raised to £650,000 for a married couple, and a tax exemption applies for transfers between spouses, but this applies only if both are either domiciled or non-domiciled. The tax bites when the surviving spouse dies.
Even the assets of those who have lived abroad for many years and no longer own UK property or investments may fall under the IHT trap. Clauses in international tax treaties give foreign government officials the power to collect IHT under certain conditions as well as reporting expat deaths back to the UK.
Expats with assets still in the UK should check their domicile status, remembering that UK citizens are only allowed either their domicile of origin or their domicile of choice. If there is any intent to return to the UK, Brits remain UK domiciled, even if they have been overseas for many years, with the legal test one of intent.
A permanent home abroad establishes a domicile of choice, with HRMC taking into account a house purchase, the length of residency, the disposing of the UK home, making a will in the new country, severance of all ties with the UK and relinquishing the right to vote. At this point, UK IHT liability disappears.
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