Am I Liable For UK Inheritance Tax?

Feb 21, 2021

In my previous article I went over the question of having an up to date will in place to help with your estate distribution.
This leads us nicely into the last question folks should be asking themselves in 2021.

Am I liable for inheritance tax?

A recent article in The International Advisor about Inheritance tax (IHT) planning revealed only 27% of British people over 45 and over the Inheritance Tax threshold have sought advice. Very few understood their liability – fewer understood how to mitigate it – but even fewer expats understand they even have a liability…

Inheritance planning is about ensuring you leave the legacy you want to.
Thinking about inheritance well in advance could help ensure that you pass on everything you want to those who matter most to you.
UK IHT depends on your domicile – and for expats that’s generally not the same thing as residence

What is Inheritance Tax?

Inheritance tax is the tax paid on assets (after inheritance tax allowances are deducted) left when someone dies. When you die, the Government assesses how much your estate is worth, then deducts your debts from this to give the value of your estate. Your assets include:

– Cash in the bank
– Investments
– Any property or business you own
– Vehicles
– Pay-outs from life insurance policies

Inheritance Tax is based on your domicile NOT your tax residence

The concept of domicile has its roots in UK common law. Domicile means something different from and is separate from, other factors such as nationality or residence. While there is no single legal definition of your country of domicile, it will often be established according to three factors: where you were born, if you have assets in that location and where your father was born.
While domicile is a significant factor, you may have a liability to inheritance tax in any of the countries where you have assets or connections, depending on local laws.

If someone was born in the UK, had a UK passport and lived their whole life there but had recently moved away and lived the past 5 years in Spain they would still be classed as having UK domicile.
This would mean they would be liable for UK inheritance tax on their death and also any Spanish IHT that would apply as there is no double taxation agreement between the UK and Spain when it comes to this area of taxation.


Your estate could be taxed twice!

As the UK has very few double taxation treaties signed in regards to inheritance tax you may find your estate and/or beneficiaries being taxed twice with each jurisdiction making a claim on your estate.

Remember if you do nothing to mitigate your potential inheritance tax bill, your beneficiaries could be faced with a 40% tax bill from HMRC and one from your current jurisdiction meaning the tax authorities could become the largest beneficiary of your estate….

Succession planning can be complicated at the best of times, therefore I have prepared a simple form which will help you calculate your net worth and help figure out your potential UK IHT liability.
You can download it instantly by clicking here.

If you are worried about your current estate planning during this time you can take advantage of my free 60-minute consultation by clicking  Contact Me Today for an initial informal chat.

I would be happy to review your current plan, offer some tips for creating one or answer any questions you might have pertaining to your own estate distribution.

Until next time happy saving and investing!

About the author 

Colin MacGregor is an independent financial advisor working across Europe for Professional Investment Consultants S.A. (Europe)

He has over 10 years experience in the advisory sector and currently resides in Prague, Czech Republic.


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