British expatriates who leave the UK behind and lose their tax residency status in Britain do not necessarily lose their UK inheritance tax status no matter how many years they live abroad and how comprehensively they attempt to cut ties with Great Britain.
This is a fact – and it’s costing us Brits just short of 2 billion pounds a year in inheritance tax payments. What makes this startling figure all the more shocking is that Britons, especially expat Brits living abroad, can actually protect their estate and their heirs’ inheritance from this most unfair tax of all.
The warning that we’re issuing today is that expatriates need to plan against UK inheritance tax. In this article we explain why you remain potentially liable for this tax even if you move abroad, and what steps you should be taking to ensure that your estate is not liable for it.
As we all know, tax evasion is 100% illegal – but paying more tax than you legitimately owe is as ridiculous and dangerous a path to follow! Yet this is the path that thousands of Britons take every single year when they fail to get their affairs in order, and they leave their estate wide open for an inheritance tax payment upon death. Inheritance taxation, or IHT, is the tax paid out on the value of an estate when someone dies – it is a tax that the dead person of course needn’t concern themselves with! Yet it is a tax that can see families torn apart when they receive a massive debt that they cannot pay without breaking up and selling off part of the estate’s assets.
IHT is currently 40% of anything over the nil rate band, which is GBP 312,000 from the 6th of April 2008.
Expatriate Britons living abroad can relatively easily and quickly legitimately shake off their British liability to income tax and even capital gains tax, but because HM Revenue and Customs makes a pretty penny from IHT annually, it is very, very difficult to lose your British domicile status, the status upon which your estate’s liability to IHT is determined. To lose your domicile status you have to become domiciled elsewhere – and to do so there are no fixed steps you have to take – it is a subjective process that HMRC judges! Basically you have to sever all ties completely and utterly with Britain, and demonstrate actively that you have done so, that you no longer consider yourself British and that you do consider yourself whatever nationality you have adopted. You will have to get rid of all assets in the UK, cut out any visits to the UK, close all bank accounts and ensure that you have not asked to be buried back in the UK when you die in your will for example.
Even if you take all of these steps, HMRC will do all they can to prove that you are still domiciled in the UK when you die, just so that they can get their hands on your estate’s IHT! So, if you want to legitimately avoid UK IHT, seek advice about losing your domicile status – OR – seek advice about sheltering your global assets from inheritance tax. You may be able to use structures such as international business companies or trusts to offset your estate’s liability, or you may consider gifting some of your assets away during your lifetime. Whatever path you choose to take, do not take the one of least resistance – i.e., the one where you do nothing! Find an adviser today who can help you find out what your options are.