Understanding inheritance tax obligations for British ex-pats

As someone who may no longer be resident in the UK, but is still classed as having UK domicile status, you will still be subject to UK inheritance tax (IHT).

While you may be classed as being non-resident in the UK for Income Tax purposes, due to the fact your domicile status is unlikely to have changed, you will still be liable for UK IHT obligations.

As a general rule, you will have to pay IHT on all of your assets in the UK which are not excluded (exclusions include foreign currency accounts, overseas pensions, and so on).

If you are a UK domicile – usually defined by where you were born, where your father was born and where your assets are located – and your estate is valued at over £325,000, it will be subject to IHT. This can rise to £650,000 for married couples and civil partners, if, on the death of one partner, their unused IHT threshold is transferred to the other.

If you have non-domicile status in the UK then only your UK based assets will be liable to IHT in the UK.

In both instances, you should ensure you have careful estate planning in place, to help you remain as tax efficient as possible. Taking specialist advice is essential when dealing with such a complicated area.

With regard to IHT payable in the UK, there are a number of means to minimise their obligations, such as the personal £3,000 annual exemption for gifts from income. Trusts are an effective tool in estate planning and can help limit tax, and by leaving a charity 10% or more of your estate will cut the IHT rate from 40% to 36%.

Furthermore, people living overseas must be mindful of the rules which apply in the place they currently reside, and how they will impact on assets. For example, in the Middle East, ex-pat estates are distributed according to Islamic law, with the exception of Dubai, where ex-pats can opt to make a will under British inheritance rules. Many European countries popular with Brits, including Spain and France, also have different inheritance rules to the UK.

To fully understand your obligations and liabilities, and how they could potentially be limited, we would always advise seeking advice from a specialist advisor in this area.

Sophie Robinson is a private client practitioner at law firm Sintons, based in Newcastle. To speak to her about this or any other matter, contact Sophie on 0191 226 7812 or sophie.robinson@sintons.co.uk.