Five things expatriates need to know about UK inheritance tax

INHERITANCE-TAX revenue continues to soar for the UK Treasury, reaching a record high of £5.4 billion in 2018/19. Make sure you understand your position, and how you can minimise exposure for your heirs.

  1. You could still be UK-domiciled

Even after years of living abroad, you could still be considered UK-domiciled, bringing your worldwide estate into lability for 40% UK inheritance tax.

While it is possible to adopt a domicile of choice, overseas, by severing all ties with the UK, domicile law is extremely complex. Also, new rules mean that returning to the UK, for a relatively-short period, could reignite inheritance-tax liability. For the best outcome, seek specialist, personalised guidance.

  1. It affects UK assets, regardless of domicile

Even if you are domiciled outside the UK, any British assets will attract UK inheritance tax. Note that before 5 April 2017, property owned through a corporate structure (“enveloped”) was generally exempt, but now all UK residential property is liable, however it is owned. If you hold UK residential property in this way, explore your options, for the most tax-efficient way forward.

  1. A new relief was recently introduced…

Between 2009 and 2017, the only inheritance tax relief was a £325,000 nil-rate band (£650,000 for couples). Now, the “residential nil-rate band” provides extra relief, when passing a main home (including overseas homes) to direct descendants. Currently at £150,000, the threshold increases to £175,000 in April 2020, before tracking inflation. As with the standard allowance, you can transfer any unused balance to your spouse/civil partner, making a total threshold of £1 million for a couple, by 2020/21.

  1. …but it has limitations

To be eligible for the allowance, the property must be recognised as your main home. As you must have lived in it at some point, this excludes most investment properties. It is only available on

property passed directly to children or grandchildren, so homes owned through certain trusts, for example, may not qualify.

Estates worth over £2 million have a lower threshold, and those valued over £2.25 million are not currently eligible at all. Note that your entire estate is counted here, including savings and investments, certain trusts, life-insurance policies, pension lump sums from the death of a spouse/partner, cars, furniture and personal belongings, such as jewellery.

  1. Your home could tip you over the threshold

Despite the new allowance, the government’s inheritance tax coffers continue to swell, in large part due to increasing property values. As house prices have risen, so has the number of estates that fall outside the tax-free thresholds, and the amount payable. Meanwhile, the standard relief, frozen at £325,000 since 2009, and fixed until 2021, has not kept pace with inflation, in the way that the value of property or other assets has.

However, there are ways to mitigate UK inheritance tax other than gradually transferring (or spending!) your wealth, within your lifetime. Expatriates can explore using Spanish-compliant investment structures, for example, or acquire a domicile of choice overseas.

An adviser with specialist, cross-border expertise can help establish your domicile status, and how UK inheritance tax interacts with Spanish gift and succession tax. With good estate planning, you can structure your wealth to take advantage of all reliefs available, and ensure your legacy ends up in the right hands, without leaving your heirs an unnecessary tax bill.

Tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices, which are subject to change. Tax information has been summarised; individuals should seek personalised advice.

Keep up to date on the financial issues that may affect you on the Blevins Franks news page at


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Posted by on Jan 24 2020. Filed under Business & Finance. You can follow any responses to this entry through the RSS 2.0. Both comments and pings are currently closed.

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