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UK inheritance tax is, understandably, deeply hated by those who have worked all their lives to accumulate wealth to pass on to their spouse, children and grandchildren. With IHT payable at 40% on all assets over the value of £325,000 – less than the value of the price of a home in some parts of the country – the tax is catching more and more people ordinary people in its web rather than the super wealthy it is supposed to be aimed at.
And don’t go making the mistake of thinking that because you don’t live in the UK you won’t be liable. Inheritance tax is payable by all individuals deemed to be UK-domiciled upon death. The concept of domicile is often misunderstood by expatriates and can result in nasty surprises for their surviving spouses as a result. It is important not to mistake your country of residence for your country of domicile.
To clarify, you are UK-domiciled if you were born to British parents, retain ties with your domicile of origin and have not actively taken steps to choose an alternate domicile. In fact, it is pretty difficult to change your domicile, even if you have lived elsewhere for many years, and plenty of expats have been caught out by this. If you have maintained connections with the UK while living abroad, for example owning property or having bank accounts back home, HMRC will come to collect the dreaded death duty when your time is up.
If your spouse or civil partner shares your domicile, anything left to them is exempt from inheritance tax, however if they hail from another country, the situation becomes more complicated. Similarly, even if you and your partner are both domiciled in the UK, if you are unmarried they will not benefit from any exemption and anything bequeathed to them over the threshold of £325,000 will be liable to inheritance tax.
You can work out your liability by checking this table which shows the allowances for both married and unmarried spouses in different scenarios:
|Domicile of 1st
|Domicile of survivor||Marital status||Personal allowance (325,000)||Full spousal exemption||£325,000 spousal exemption||Amount tax-free on 1st death|
Fortunately, through estate planning there are some steps you can take to reduce the amount the taxman can plunder from your legacy but you will need the assistance of a professional to advise you as the law in this area is extremely complicated. Here at Infinity we have a dedicated international will writing service and can give expert guidance in this area. Please get in touch for further information.