You may still be liable for UK IHT even if you have lived overseas for years.
“If you die, as a UK Domicile person, your global estate (everything you own anywhere in the world) is subject to a death duty called Inheritance Tax”.
You are provided an allowance, which is currently GBP325,000 (called a Nil Rate Band) which means that everything valued over this amount is taxed at 40% when you die.
If you have a UK Domicile spouse, your estate can pass onto them without any duty applied BUT when your spouse also dies (both parents) your children then receive a bill of 40% over GBP650,000 on your (joint) global estate.
Misconception 1: WHEN you left the UK, you removed your residence and domicile.
There are certain (long) steps to take to do this and by simply living overseas, although you can remove your residence after 4 years, DOES NOT remove your Domicile and in turn your death duty liabilities on your global estate.
Misconception 2: IF your spouse is a foreign national (non-UK Domicile) they would still receive your estate tax-free.
Whilst this is true of a UK Domicile spouse, certain steps would have to be taken for a non-UK Domicile spouse (and may have a detrimental effect on their own death duty liabilities, depending on the country they are from.)
Misconception 3: HOW WILL THEY KNOW? Many people believe that it is not possible for HMRC to find out that you have assets overseas or equally, how would they know that you have passed away, whilst residing outside of the UK?
The simple process is that you are reported to your relevant consulate when you die, the tax office is (directly) linked to the consulate as well as the immigration office.
Misconception 4: ONLY UK ASSETS will be taxed.
This is not the case if you are UK Domicile – the tax is levied on EVERYTHING you own, not just in UK.
Misconception 5: IF YOU ARE NOT UK Domicile and hold assets in UK, it is not taxable.
This is NOT the case as any value over the Nil Rate Band is taxed at 40% on assets held in UK.
Misconception 6: IHT is only payable when you die!
This is not the case as IHT on some gifts must be paid whilst you are still alive. There are gifts that are ‘chargeable’ or taxable.
This is a tax than can be planned to be avoided if you know how your own status would be considered.