It is a widely-held belief that when British expats move abroad, their liability under the UK tax regime comes to an end. Even when expats become tax resident elsewhere in Europe, it is rare that they will no longer be liable to pay UK Inheritance Tax (IHT). In this article, we provide an overview of why even in a post-Brexit world, UK expats living in the EU, or elsewhere, need to remain vigilant with regards to inheritance tax.
When will an estate be liable for inheritance tax?
In the UK, inheritance tax is charged on an estate valued at more than £325,000. A tax rate of 40% is normally applied to the estate upon death. However, this becomes more complicated where British people live abroad and maintain ties with the UK.
In relation to expats or those who hold property in the UK, inheritance tax is charged on:
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- Your worldwide assets where the deceased died domiciled in the UK
- Your UK assets where the deceased was not domiciled in the UK at death
What does this mean?
Firstly, this means that if you live abroad permanently and you are regarded as ‘domiciled’ abroad, you will only be liable to pay UK Inheritance Tax on your assets in the UK. This includes any property or money in bank accounts held in the UK. For this reason, if your main bank account is with a UK bank, you may wish to consider your options.
What does it mean to be ‘domiciled’?
Domicile is a complicated concept, and even if you live abroad for many years, you can still be deemed to be domiciled in the UK. At a basic level, you are domiciled in the country where you have your permanent or indefinite home. For inheritance tax purposes, an individual who loses their UK domicile will remain deemed domiciled for three calendar years after the change of domicile. Also, if you were resident in the UK for at least 15 out of the last 20 tax years, you might still hold UK domiciled status,
For inheritance tax purposes, it will be up to you (or those inheriting from your estate) to prove that you were not domiciled in the UK on the date of your death if challenged by HMRC. If you own property in your new country of domicile, you will be subject to the laws of that country. As a result, British expats will need to be familiar with both the UK inheritance laws and the laws of the country where they are domiciled.
Specialist Estate Planning Lawyers, Edinburgh
The UK’s tax regime is anything but straightforward, however with expert guidance, navigating this complex, constantly shifting set of rules presents opportunities as well as risks. Murray Beith Murray are experts in asset protection and estate planning. If this article has raised any questions or you would like to discuss your affairs, please complete our contact form or call 0131 225 1200 to speak to one of our specialist solicitors.
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