How to plan for inheritance tax as a UK expat?
By Antler Wealth Management
March 2024
We speak to many expats who are unaware they are still liable to UK inheritance tax despite living overseas.
If your parents were/are UK nationals you are likely considered UK domiciled, regardless of where you live and are therefore subject to inheritance tax (IHT) on your worldwide assets.
You have an IHT free limit of £325,000 plus a potential additional limit if you own property (a maximum of £500,000 in total). However any assets in excess of this figure are subject to inheritance tax at 40%.
So, what can you do protect against inheritance tax as a non-UK resident? I will outline some thoughts below ranging from strategies where you can retain your assets to outright gifting.
Retaining ownership of your assets
1.Life insurance
Many people decide that rather than looking at potentially complex investment solutions to go down the life insurance route. This would involve calculating your IHT liability and deciding upon how long you want your inheritance tax liability covered for. This could be indefinitely (called a whole of life policy) or over a set number of year or term. For example, we often recommend our clients cover their IHT liability into their early 70s and then look at more traditional IHT planning routes such as Trusts or outright gifts.
2. Investments which qualify for Business Relief
There are certain types of investments which receive tax relief from HMRC in the UK. Once you hold these investments for 2 years, they are potentially free from inheritance tax. However, you should seek advice as there are lots of caveats and the investments can be subject to liquidity constraints.
Invest in Gilts/UK government debt.
Unlike for UK residents, gilt ownership for non-residents is IHT free. However, gilts are unlikely to provide the most suitable risk/reward characteristics for most investors but nevertheless a lower risk, high liquidity option for some IHT planning.
3. Pension contributions
Money within a UK pension is immediately free from IHT however as non-UK resident you are unable to make contributions to a UK regulated pension scheme. However you are allowed to contribute to a Qualifying Non-UK Pension Scheme (QNUPS). A QNUPS does not provide tax relief on your contribution (unlike a UK scheme), and you do not benefit from the 25% tax free lump (again, unlike a UK scheme) but the contribution is outside of your estate for inheritance tax purposes. However, you must take advice on this as the contribution must be for bona fide retirement purposes and reflect the retirement income requirement. This option is more likely to be suitable for longer term or permanent expats who are unlikely to make another UK regulated pension contribution.
The middle ground
There are many different investment and trust structures where you can start some light inheritance tax planning whilst retaining some control/right to the capital or income of your investment. These types of arrangements are particularly useful to those who want to reduce their IHT liability but are conscious of having money available for care, old age or simply living longer.
Gifting assets
1. Provide an outright gift.
You can gift as much as you like to a loved one and this will be free from inheritance tax if you survive 7 years. This is called a ‘Potentially Exempt transfer.’ Once the gift is made you have no control, and the beneficiary of the gift may spend this gift as they see fit.
2.Set up a Trust.
If you are uncomfortable gifting outright you may decide to gift to a trust where you can control how the trust asset is dispersed. You can only gift up to £325,000 to a trust without incurring a tax charge so advice should be sought on the best way of planning for this. The additional benefit of a Trust is that the trust assets are protected from potential divorce and bankruptcy which can provide additional comfort to parents gifting to the next generation.
Summary
There are so many options open to non-UK residents when it comes to IHT planning. First, they need to be aware of what the liability is and how it is calculated and secondly to discuss their planning options with a specialist. It’s a complex area of planning and the solution is different for everyone.
Please feel free to contact us at antler@sjpp.co.uk if you require a free video consultation to discuss your circumstances and options.
Antler Wealth Management
A division of St James’s Place (Singapore) Private Ltd
The value of an investment with St. James's Place will be directly linked to the performance of the funds selected and the value may fall as well as rise. You may get back less than the amount invested.
The levels and bases of taxation, and reliefs from taxation, can change at any time and are generally dependent on individual circumstances.
Antler Wealth Management Limited is an Appointed Representative of and represents only St. James's Place Wealth Management plc (which is authorised and regulated by the Financial Conduct Authority).
