As Dubai based expats very few of us have to worry about tax: we pay no income tax and no capital gains tax. We could be forgiven for thinking we don’t have to think about tax but if you are a Brit; married to one or own assets in UK, think again…
The one tax that most UK expats either forget about or never heard of is Inheritance Tax. Normally this is associated with the passing of assets to your heirs on death but it can occur at other times too. Once something that only concerned the wealthy, rising house prices and tax allowances not keeping up with inflation have seen the UK Chancellor of the Exchequer (Finance Minister) collecting billions every year from unsuspecting people.
Inheritance Tax is tax on capital transfers. It is charged at a flat rate of 40%. Brits have their worldwide assets assessed for Inheritance Tax whilst non-Brits with assets in the UK are only assessed on their assets in UK. There is a nil rate band, which has been stuck at £325,000 for several years.
Simplified example: The recently deceased Mr Smith’s estate:
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If Mr Smith was married and they were both UK domiciled (an HMRC term not necessarily where you are living when you die) then the whole of his estate could be passed to the Widow Smith with no immediate liability to Inheritance Tax. However if his wife was non-UK domiciled then apart from a small additional allowance of £55,000, the estate would be taxed in a similar way to the way it is taxed when passing assets to anyone else…
Assuming Mrs Smith’s died many years ago and Mr Smith is survived by 3 children to whom he has bequeathed his estate, apart from completing probate in each of the jurisdictions in which Mr Smith holds assets [UK, Channel Islands, Spain and Dubai] before his heirs receive a penny the UK taxman will be paid. After deducting the nil rate band of £325,000 the taxable estate is £675,000 [1,000,000 – 325,000], which is taxed at 40% making the Inheritance Tax liability £270,000 [675,000 x 40%]. The remaining £730,000 [1,000,000 – 270,000] is split between the 3 children giving them £243,000 [730,000 / 3] each. HMRC is the biggest beneficiary under Mr Smith’s estate.
Former UK Finance Ministers have described this tax as a voluntary tax paid only by those who distrust their relatives more than they dislike paying tax. There are many tax planning opportunities within this area and if you have any questions, comments or concerns please let me know.