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UK inheritance tax for expats

By David Norton - May 09, 2017

You're making a mistake.

In fairness, it is an easy mistake to make.

But it could cost your children their inheritance.

You're not the only one making it - in fact - you're in the majority.

You assume you'll have no liability to inheritance tax in the UK.

But you could be wrong...and that could be costly.

A recent article about inheritance tax (IHT) planning revealed only 27% of Brits over 45 and over the IHT threshold have sought advice.

Few understood their liability - fewer understood how to mitigate it - but even fewer expats understand they even have a liability...

UK inheritance tax for expats explained

UK inheritance tax for expats is chargeable, on worldwide assets, at a rate of 40% of the amount by which the total value of an expat's worldwide estate exceeds their nil rate band, which is £325,000 in the current tax year for individuals, or £650,000 per married couple.

Who pays inheritance tax?

Your liability for UK IHT depends on just two things:

1. If you are deemed domiciled in the UK

If you or your father were born or raised in Britain, you're likely to be deemed domiciled in Britain.

Your worldwide estate is at risk of IHT.

Domicile is not the same as residency. 

It doesn't matter where you live...if the taxman deems you're domiciled in the UK, he will come after your assets when you're gone.

2. How much your estate is worth when you die:

If your worldwide estate is worth more than the £325,000 nil rate inheritance tax band, your children will have to face up to the taxman.

How to avoid inheritance tax

There are many ways you can potentially reduce the amount of inheritance tax your family pays.

In a recent inheritance tax case study, I explained how one expat couple slashed their liability by £1M.

They used some of the tips and tricks I list below...

But they also sought personal advice...and if you want personal advice, please get in touch - but do it sooner rather than later. 

Because with IHT, the sooner you plan, the more effective your plan...

How to avoid inheritance tax on property

A new higher threshold - including a family home allowance - has begun being phased in.

This will be worth an extra £100,000 per estate in 2017-18 – rising to £175,000 by 2020.

This could help you pass your family home to your children free from inheritance tax.

But, if your estate is worth more than £2M, you start to lose this new tax relief at a rate of £1 for every £2 that you're over the limit.

So, from 2020, when the full allowance is in place, if your estate is over £2.35m (£2.7m for couples) it will lose all the new home allowance relief.

This affects those leaving everything to their spouse, which tends to be the most common arrangement among Brits.

Let me explain.

If a couple has an estate worth £1.5M each, and one partner dies, the surviving partner ends up with a £3M estate – which wipes out their home allowance benefit totally.

To avoid this situation, you can pass assets on the first death to your children or grandchildren, as your beneficiaries in estate planning.

This reduces your estate's value, and maximises your family home allowance.

How does inheritance tax work for married couples?

The nil-rate band - above which IHT becomes an issue - is currently £325,000 per person.

That is £650,000 per couple...

Did you know the nil rate bands of surviving spouses/civil partners can be increased by any unused band from their deceased partner?

Add in the new home allowance, and from 2020 married couples/civil partners will be able to pass on estates worth up to £1M to their direct descendants (typically children/ grandchildren) - IHT free!


If you sell an expensive property to downsize, or to pay for care home fees for example, you still qualify for this new threshold if most of your estate is left to your direct descendants.

Make sure you and your spouse have your wills and estate set up in the most tax efficient way though.

How much can you gift tax free?

  • You can gift assets to anyone
  • As long you survive for 7 years, your gift will be free of IHT
  • You can also take out insurance in case you don’t survive for 7 years

How to avoid inheritance tax with a trust?

1. Discretionary trust

These can be used if you want to retain control over your assets, but remove them from your estate for IHT purposes.

They are often used by parents/grandparents.

Beneficiaries and terms of discretionary trusts can be changed by the trustees.

As with gifting, the "settlor" (the person placing the assets in trust) needs to survive seven years for those assets to move entirely out of their taxable estate.

2. Absolute or bare trust

No tax is payable when assets go into such a trust.

However, they are relatively inflexible as beneficiaries cannot be altered.

3 more ways to reduce your inheritance tax bill

1. Get a valid will (or two)

Make an appointment with a lawyer to get your will(s) drafted: 

Each of your wills need to be valid for the country you live in, AND where your assets are held.

We have access to a qualified will writer if you need a recommendation.

2. Speak to a chartered financial planner

There are many options open to you to reduce, offset and mitigate inheritance tax. 

A chartered financial planner will identify your options, explain them in plain English, and implement a plan for you.

3. Plan!

As with most things in life, having a plan is a good place to start.

AES International is the only Chartered Financial Planning firm operating outside the UK that focuses on providing financial advice for expats, international people and non-doms. 

Get in touch if you'd like help. 

Get a second opinion