Don't succumb to the pitfalls of inheritance tax
Whether you're living in the UK or have decided to move abroad, if you have investments back home you need to make sure that you're not going to be badly stung when it comes to inheritance tax liability. It's not pleasant to think about mortality, but it's even worse when you consider that the state could take a sizeable portion of your assets in the event of your death. Thankfully there are several ways of limiting the amount of inheritance tax your estate will have to pay, some of which you can organise yourself and some that require the assistance of a professional.
What are the limits of inheritance tax?
If you're still living in the United Kingdom, the rules are relatively easy to follow. As of this tax year (2012-2013), you won't actually have to pay any inheritance tax if your estate is valued below the threshold of £325,000; the vast majority of estates fall under this barrier, but anything over is immediately taxed at a rate of 40%. The executors of your estate will be responsible for any payment required but, as mentioned before, you can cut your inheritance tax liability in many ways.
First of all, leaving assets to a spouse exempts them from paying anything, even if it goes over that £325,000 limit. Donations to charity also count against the limit, as do gifts to newly married couples and 'small gift exemptions', amounts up to £250 handed over to as many individuals as you like. Should you plan well in advance, the vast majority of assets become exempt from taxation if you survive for seven years after they have been passed over, no matter what their value; particularly useful with larger amounts and property.
Inheritance tax for those living overseas
For those who have set up abroad, those assets remaining in the UK could well be liable but again there are ways around having to hand over all that money. Inheritance tax concentrates on where you are deemed ‘domicile', meaning that you could still be held liable under UK law even if you're living overseas, and that includes everything you own worldwide. Purchasing property abroad, making a will under the regulations of your new homeland and selling off some UK-based assets are all ways of showing that you've changed your domicile, but it's still not guaranteed that the tax office will let it go in the event of your death.
Again, gifting is a good way of falling within that monetary limit and you should also make sure that your will is watertight, but by focusing on proving that you're no longer domiciled in the UK, you'll be making sure that only a limited amount of your assets are liable to inheritance tax. Investing abroad shows that you're focusing on a life in a new country, hopefully showing the British tax office that you're no longer under their jurisdiction. You'll want to leave as much as you can for your family, so do whatever possible to make sure it's not eaten away by inheritance tax.
What are the limits of inheritance tax?
If you're still living in the United Kingdom, the rules are relatively easy to follow. As of this tax year (2012-2013), you won't actually have to pay any inheritance tax if your estate is valued below the threshold of £325,000; the vast majority of estates fall under this barrier, but anything over is immediately taxed at a rate of 40%. The executors of your estate will be responsible for any payment required but, as mentioned before, you can cut your inheritance tax liability in many ways.
First of all, leaving assets to a spouse exempts them from paying anything, even if it goes over that £325,000 limit. Donations to charity also count against the limit, as do gifts to newly married couples and 'small gift exemptions', amounts up to £250 handed over to as many individuals as you like. Should you plan well in advance, the vast majority of assets become exempt from taxation if you survive for seven years after they have been passed over, no matter what their value; particularly useful with larger amounts and property.
Inheritance tax for those living overseas
For those who have set up abroad, those assets remaining in the UK could well be liable but again there are ways around having to hand over all that money. Inheritance tax concentrates on where you are deemed ‘domicile', meaning that you could still be held liable under UK law even if you're living overseas, and that includes everything you own worldwide. Purchasing property abroad, making a will under the regulations of your new homeland and selling off some UK-based assets are all ways of showing that you've changed your domicile, but it's still not guaranteed that the tax office will let it go in the event of your death.
Again, gifting is a good way of falling within that monetary limit and you should also make sure that your will is watertight, but by focusing on proving that you're no longer domiciled in the UK, you'll be making sure that only a limited amount of your assets are liable to inheritance tax. Investing abroad shows that you're focusing on a life in a new country, hopefully showing the British tax office that you're no longer under their jurisdiction. You'll want to leave as much as you can for your family, so do whatever possible to make sure it's not eaten away by inheritance tax.
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