Advice in relation to UK inheritance tax (UK IHT) is not an area for either "do it yourself research" or even gifted amateurs - professional advice is an absolute requirement. A very brief summary is provided below just to provide some background regarding what is a complex topic - amounts quoted are current as at 2016-2017.
What is Inheritance Tax and who is liable?
UK IHT is a tax on both lifetime transfers of value in the seven years before death and on the estate held at the time of death.
UK domiciles or ‘deemed domiciles’ are liable to UK IHT on their worldwide assets!
Non-UK domiciles are liable only on their UK ‘situs’ assets (broadly those located in the UK.)
Non-UK individuals who have been resident in the UK for 17 out of the preceding 20 years will be ‘deemed domiciled’ in the UK for IHT purposes … this changes to 15 out of the preceding 20 years after 6 April 2017.
UK individuals permanently leaving the UK will (even if they break their UK-domicile) continue to be ‘deemed domiciled’ for UK IHT purposes for 3 tax years from the date they left.
UK individuals leaving the UK may not break their UK domicile at all if they continue to hold significant assets in the UK … a property that is not rented out, for example.
Rates of Tax:
Each individual is entitled to a nil rate band of (currently) £325,000 so that the first £325k of transfers are free of tax, after that 40% tax is levied on the estate (subject to exemptions and reliefs) an ALL assets globally!
Lifetime transfers can be taxed when made (chargeable lifetime transfers) or exempt unless the transferee dies within 7 years of the transfer (potentially exempt transfers.)
Lifetime tax rates are ¼ of the rate on death.
Exemptions and Reliefs:
Certain types of assets are exempt or partially-exempt … Certain Trusts, over a time period and all qualified pensions for example (it is important to know the differences.)
There is an annual allowance for non-taxable lifetime transfers.
There are exemptions for gifts to particular recipients eg certain marriage gifts, small gifts, gifts to charities or political parties.
Transfers between husband and wife are normally exempt – however if one spouse is UK domiciled and the other is not UK domiciled the spousal exemption is limited to £325,000.
Note also that the spousal exemption applies to husband and wife or formal civil partners (not to de facto relationships - UK do not recognise “live in partners.")
Any un-used nil rate band when the first spouse dies may be transferred to the surviving spouse to use on their death.
There is a tapering relief for assets more than 3 years before death but less than 7 years from death.
Planning is the key as Inheritance Tax is a voluntary tax … your estate can be protected via various structures if you plan properly. A hefty tax bill to your loved ones when you pass away could have a catastrophic financial effect on what you are all trying to achieve... and leave your loved ones in a worse position.
Tax Rules are constantly changing, and the importance is that you know how the changes affect you.
Please feel free to contact me to discuss and resolve your own estate. All advice is bespoke to your individual needs.
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