‘There’s no such thing as inheritance tax in Cyprus,’ ‘the Caribbean’s new hotspot of Isla Margarita is inheritance tax free,’ ‘there’s 0% IHT in Morocco for family members’ – these and many more such bold and misleading statements are being touted by overseas property companies and agents desperate to flog off their wares. They hope that you as a buyer will be lured to their specific destination by the thought of saving taxes and that you won’t actually look any deeper at these bold statements and find out if they do really apply to you.
In this special report from Degtev, we’ll reveal the great inheritance tax lies being touted by overseas property companies and help you understand your true IHT liabilities – no matter where in the world you choose to live, retire or own property and other valuable assets. Whilst at first glance this may seem like a dull topic to cover, the facts are very simple, the solutions to any IHT issues are also quite straightforward, and yet if you ignore the issue of IHT and choose to believe the false information you’re likely to read from many agents and developers who just want to sell you a house, then your spouse, family and heirs could end up in financial difficulties upon your death.
The fact of the matter is, if you’re a British citizen, you have been born and bred in the UK and/or your father is a British citizen, no matter where in the world you are a resident, you are likely to be regarded as being domiciled in Great Britain by the taxman, which means that upon your death, your entire estate could become liable to British inheritance tax rates of up to 40%. The fundamental basis upon which your estate will be judged for IHT purposes will relate to your country of domicile. To determine your country of domicile if you are not sure, the following is an extract from the IR20 document from HM Revenue and Customs which isavailable online by clicking here: –
“Domicile of origin
You normally acquire a domicile of origin from your father when you are born. It need not be the country in which you are born. For example, if you are born in France while your father is working there, but his permanent home is in the UK, your domicile of origin is in the UK.
Domicile of dependency
Until you have the legal capacity to change it your domicile will follow that of the person on whom you are legally dependent. If the domicile of that person changes, you automatically acquire the same domicile (a domicile of dependency), in place of your domicile of origin.
Domicile of choice
You have the legal capacity to acquire a new domicile (a domicile of choice) when you reach age 16. To do so, you must broadly leave your current country of domicile and settle in another country. You need to provide strong evidence that you intend to live there permanently or indefinitely. Living in another country for a long time, although an important factor, is not enough in itself to prove you have acquired a new domicile.”
The most important statement above is “living in another country for a long time, although an important factor, is not enough in itself to prove you have acquired a new domicile.” I.e., even though you may have bought a house in Cyprus for example, and now moved lock, stock and barrel to live in your house, that is not sufficient to change your domicile and acquire Cyprus as your domicile of choice. Therefore, all those agents who tell you confidently that there is no such thing as inheritance tax in Cyprus are misleading you at best, and attempting to lie to you at worst, because upon your death your entire estate – including your assets in Cyprus – will be judged by the British taxman for IHT purposes.
In other countries such as Spain and France, which continue to be two of the most popular countries with us Brits when it comes to buying a new home overseas and retiring to live abroad, there are very complex inheritance tax rules that your local assets could be subject to upon your death. Whilst with many nations Britain has a double tax treaty in place to prevent people being taxed twice, some of these treaties do not include rules for inheritance tax which could mean your heirs end up being taxed twice at best and that at worst, your estate is passed on completely against your wishes because the laws of the land stipulate specific rules for succession.
With other nations Britain doesn’t even have a double tax treaty which can cause all sorts of complications – and even if you write a will in your new nation of residence stating that, as a British domiciled individual you want your estate to be governed by British law, this may not be admissible in law. Therefore, the bottom line is incredibly simple and clear cut – you have to take personalised and individual advice about your personal status and circumstances today. You have to take professional advice and structure your will and your finances correctly so that not only will your estate be passed on according to your wishes, but your heirs and beneficiaries will be as protected as legally possible from any taxation liability upon your death.