How Inheritance Tax Affects Expats: Update 2020
Inheritance Tax is the next area Expats need to consider in relation to tax in 2020.
In the first of our series on tax issues affecting Expats for 2020, we looked at Negative Interest Rates in Europe. The second in our series considered new Capital Gains tax changes.
There are no expected changes for the UK regarding Inheritance Tax, but generally, UK domiciled people have a 40% liability on their worldwide assets, upon death.
Common reporting standards and tax reports
In the past, there would have been an opportunity, using discrete tax planning, for Expats not to have to declare the sale of a property in Portugal / the Bahamas / US etc. However, common reporting standards have been in place since 2016.
This means that when you die, a tax clearance across borders is required and exchange of information is made between all jurisdictions to settle the assets. In addition, if you’re an Expat Living and Working Abroad, and you’ve got shares or national savings premium bonds in the UK or you own property, you will need a probate in the UK, or the Isle of Man, the British Isles or any jurisdiction where you’ve got any real estate.
All this creates a separate tax report, a separate tax clearance.
So, as an example, there may be no Inheritance Tax charge in Cyprus that there are in other countries. Double taxation relief may apply, however, the exchange of information will be going on between the family in the UK and the Expat Living and Working Abroad. In this instance, discrete tax planning with Inheritance Tax doesn't work, which is why, for more and more people, it's the fastest growing tax band in the UK. This tax stands at 40%. If your highest valued asset is in the UK, then you will have a reporting liability for probate in the UK.
How can Expats avoid this 40% UK Inheritance Tax liability?
You can give the money/assets away during your lifetime to your family. However, there's an issue of control in this scenario. You need to consider if a reduced level of control is what you want. That, in itself, can create a chargeable event, either for Inheritance Tax or for Capital Gains Tax.
The fact is that people don't always want money. I know that sounds funny. People don't always want cash. They want the income that the asset can produce, or the security of the home to live in, but they don't necessarily want the cash in a bundle handed to them after a one or two year probate when their relative dies.
So how can you manage the administration of your affairs better to protect your family, to protect your property overseas and in the UK and to protect your business so that the Inheritance Tax is not applied to your state on death and your children are not going to be 40% less well off?
Why living abroad for years doesn’t guarantee you won’t be exposed to a UK Inheritance Tax Liability
Inheritance tax is an optional tax in many ways, but UK Expats can look at that and say, "Well, it doesn't affect me." It takes 20 years to break the tie to the UK and it takes one day to restore it; you can be an Expat working abroad for 20 years and be no longer liable to worldwide Inheritance Tax from the UK. You go back for one day of medical treatment, or you go back for a holiday and die in the UK and your domicile is your domicile of origin, i.e. the country that you're born in. In this instance, your worldwide estate could be liable to 40% Inheritance Tax.
You can protect that. You can protect your family by taking steps to protect your family's business, property and pensions.
Contact us at ProACT Partnership for more know-how. We offer a free 30 minute FREE review. We work with people around the world on FaceTime and WhatsApp. So give us a call and let's speak.
DOWNLOAD OUR FREE BREXIT CHECKLIST FOR EXPATS
To keep in touch with the changes that will come into play during the Transition Period, ProACT Partnership has created a checklist for Expats to monitor. This provides a list of the 10 things Expats should follow during the Transition Period.
