3 simple yet effective solutions that expats can use to mitigate the negative implications of inheritance tax

It is expected that by 2021, the UK taxman will collect GBP5.7 billion from inheritance tax (IHT) per annum.

You shouldn’t think that, because you are an expat, this doesn’t concern you.

Domicility is not the same as residency

If you, or your father, were born or raised in the UK, then you are likely to be deemed domiciled in the UK and this means that your worldwide assets are of interest to HMRC when it comes to IHT.

UK inheritance tax for expats explained:

UK inheritance tax for expats is chargeable on their worldwide assets, at a rate of 40% of the amount by which the total value of their worldwide estate exceeds the nil rate band, which is GBP325,000 in the current tax year for individuals or GBP650,000 per married couple.

There is also a residence nil rate band which can be applied to property. Currently this is GBP125,000 per person, rising to GBP175,000 per person in tax year 2020/2021.


3 ways to mitigate inheritance tax

1. Give assets away while you are still alive

You can gift assets to anyone and as long as you survive for 7 years afterwards, your gift will be free of inheritance tax.

If you do not survive 7 years, then, depending on whether your nil rate band has been used up, there could be inheritance tax due on the gift.

2. Use your pension

A pension fund is considered to be outside of your estate for inheritance tax purposes.

Therefore, if you are in a position where you can live of other assets, you can pass your pension on, free of UK inheritance tax.

3. Life insurance policy in trust

You could set up a whole of life insurance policy with a sum assured equivalent to the expected IHT on your estate.

If you put the policy in trust with your executors as beneficiaries, then the payment on death will not be subject to IHT.

In addition, as the payout does not form part of your estate, it will not have to go through probate, meaning that it can be used to pay the IHT due without delay.

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