Inheritance Tax: Are overseas Brit’s exempt?

The Inheritance Tax implications of living overseas

If you are of British domicile, your estate will be tested against UK Inheritance Tax rules when you pass away. Depending on the size of your estate, it may cost your loved ones thousands when you die. Fortunately, with good financial planning, it is possible to legally avoid Inheritance Tax, either in part or in full.

In the 2018/19 tax year, IHT receipts reached new record levels of £5.4 billion.

This blog covers:

  • What is Inheritance Tax?
  • What is meant by ‘estate’
  • What is the difference between residency and domicile?
  • Do I have to pay IHT if I live and die outside of the UK?
  • How can IHT be legally avoided?

What is Inheritance Tax?

Inheritance Tax is a tax on the estate of someone who’s passed away.

The value of the deceased’s estate dictates how much tax is due.

What is an ‘estate’?

An estate is everything comprising the net worth of an individual, including all land and real estate, possessions, financial securities, cash, and other assets that the individual owns or has a controlling interest in.

How much tax is due?

There is normally no tax to pay if either:

  • The value of the deceased’s estate is below the £325,000 threshold
  • You leave everything over the £325,000 threshold to your spouse, civil partner a charity or a community amateur sports club.

Your estate will, however, owe tax at 40% on anything above the £325,000 threshold when you die (or 36% if you leave at least 10% of the net value to a charity in your will) – excluding the ‘main residence’ allowance (see below).

Residency & Domicile

The difference between residency and domicile is key to understanding your potential Inheritance Tax liability. Whether or not you have to pay Inheritance Tax depends on your deemed domicile, not your residency.

Therefore, if you are of UK domicile is important to note, that simply living outside of the UK does not automatically absolve you from an Inheritance Tax liability.

Domicile explained

Your country of domicile is the country in which you have a permanent home or a substantial connection. Upon birth you are automatically assigned the domicile of your father, this is known as your domicile of origin.

You will retain your domicile forever unless you obtain a new domicile. Simply moving overseas is often not enough to change your domicile. In most cases, you will need to take direct action to change your domicile.

If you are unsure about your domicile status click here to be put in touch with an expert.

Do I have to pay IHT if I live and die outside of the UK?

If you are of UK domicile, no matter where you live in the world, your estate will be tested against Inheritance tax upon your death.

Unfortunately, many families are unaware of this law. There is a common misconception among the expatriate community, that by simply moving abroad and becoming a tax-resident overseas any Inheritance Tax liability is removed. This is not the case.

How can Inheritance Tax be legally avoided?

Inheritance Tax is often described as a ‘voluntary’ tax, simply because so many people end up paying it due to sheer inertia.

Thankfully, there are a collection of ways in which people can avoid Inheritance Tax legally.

deVere specialise in helping our clients minimise their eventual Inheritance Tax liability. This advice is given on a case-by-case basis. If you would like to learn more about any of the issues raised within this blog click on the link below to request a complimentary consultation with an expert.

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deVere Insights is a proud component of the deVere Group. Our company has always prided itself on leading the way in the sphere of wealth management. This website is in place to share information and expertise.