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UK Estate Plan

David Henson DipPFS EFA

Who Should Consider A UK Estate Plan?

There are a myriad of reasons why an estate plan should be in place. For example, parents with minors wishing to appoint legal guardians and ensuring financial support through a trust. Unmarried couples may wish to protect their partners from automatic inheritance rights. Home owners with estates in excess of the current Inheritance Tax (IHT) threshold to ensure their heirs receive the maximum available. Business owners may want to protect the company, their partners, and/or their families to ensure a smooth succession of business and continuity in paying out a family that no longer wishes to play an active role managing the business—protecting the company’s value from being reduced through taxes or disputes.  

What Are the Reasons Estate Planning Is Important?

Providing for our loved ones with a carefully thought-out estate plan minimizes the impact of inheritance tax and efficiently passes assets. Effective estate planning requires a comprehensive understanding of local laws, regulations, double tax treaties, and planning tools available. This is especially important when navigating multi-jurisdictional estates.

Examples of Why UK Estate Planning Is Useful

UK residents, and families or individuals with assets in the UK may want to consider professional advice to ensure effective estate planning.  There is no one size fits all, and often a wide array of considerations need to be taken into account—often the larger and more complicated the estate, the greater the need for professional advice. 

Effective estate planning can provide answers to questions such as: How can my loved ones afford to pay the inheritance tax due, and ensure it is paid in a timely manner avoiding a late payment penalty? How can we retain the family home/business and pay estate taxes due without liquidating assets? How best can we mitigate tax payable and maximize the transfer of wealth to our children? How does gifting work and are there other options such as trusts to mitigate estate duties?  Do I have an exposure to inheritance tax even after leaving the UK? 

What Can a UK Estate Plan Consist of?

  • Gifting potentially exempt transfers (tapering relief 3–7 years) & gifting annual allowance
  • Charity 
  • Spousal / Civil Partner exemption(s)
  • Principle private residence exemption 
  • Trusts
  • Wills
  • Lasting Powers of Attorney (LPAs)
  • Beneficiary Forms 
  • Guardianship forms 

Why Is Flexibility Important in Estate Planning?

Effective estate planning will consider the relationship between you and your beneficiary and provide flexibility wherever possible to take into consideration their tax residence. Gifting and taking into account the timing of the gift and its value (tested against the nil-rate band £325,000 2026–2027) are all important considerations. Under the new residency rules, the estate plan may need revisiting as your residency status may change. (For example, spending more than 10 out of the last 20 years in the UK will class you as a long-term resident and you’ll be liable for tax on worldwide assets.) You can still be taxed on your worldwide assets even after leaving the UK. 

Why Is a Will Important in Estate Planning?

A will serves as a legally binding document declaring your intentions for the administration and distribution of your assets. It typically nominates executors to administer your estate as per your wishes upon your passing. Wills can be as complicated or simple as required. There may be an expression of wishes attached to simplify the process for the executors. An expression of wishes is not uncommon in the UK as it allows for significant flexibility in helping the executor navigate the administration of the estate. A will details beneficiaries such as individuals, organizations, charities, minors, friends, and trusts. Without a will the rules of intestacy come into effect typically slowing the process of disbursement, and the lack of clarity over intended beneficiaries can lead to conflict. 

Why Is Estate Planning Important for UK Expats?

A carefully structured estate plan helps ensure that your wealth is transferred to your beneficiaries in an efficient manner while reducing the potential impact of inheritance tax on your assets. However, estate planning can be complex, particularly without a clear understanding of the relevant tax regulations. This is especially the case for UK expatriates, who must contend with cross-border rules and differing inheritance tax regimes across multiple jurisdictions.

What Assets Can Form Part of Your Estate?

Assets that may form part of your estate include:

  • Collections 
  • Chattels (moveable personal property) such as jewellery, cars, and art
  • Investments / Savings
  • Property
  • Life insurance policies
  • Pensions

How Is an Estate Taxed in the UK?

In the UK, inheritance tax is generally charged at 40% on the value of taxable assets above the £325,000 nil-rate band. However, no inheritance tax is payable on any amount above this threshold if it is left to your spouse or civil partner. The nil-rate band can increase to £500,000 if you pass your main residence to your direct descendants, including biological, adopted, foster, and stepchildren. Additionally, the IHT rate may be reduced to 36% if at least 10% of your estate’s net value is left to charity.

You may also reduce the value of your taxable estate by making lifetime gifts. If you survive for seven years after making a gift, it will generally fall outside your estate for IHT purposes. However, if you die within seven years, inheritance tax may still apply, depending on factors such as the value of the gift and when it was made.

If you die while a resident abroad, inheritance tax generally applies only to your UK-situs assets. This means overseas pensions, foreign currency bank or Post Office accounts, and holdings in open-ended investment companies or authorized unit trusts situated outside the UK are typically excluded.

Long-Term Residence (LTR) Rules

From April 6, 2025, the UK’s inheritance tax system moved from a domicile-based framework to a residence-based regime. Under these new rules, individuals who have been a UK tax resident for at least 10 of the previous 20 tax years are classified as Long-Term Residents (LTRs). Once an individual meets this threshold, they become subject to UK inheritance tax on their worldwide assets, irrespective of their domicile status.

LTR status can continue to have consequences even after leaving the UK. A “residence tail” period lasts for between three and ten years, depending on the number of years you were previously a UK resident. As a result, if you leave the UK after qualifying as an LTR, your global estate may still be exposed to UK inheritance tax for up to a decade.

Purposes of a Will

A will, formally known as a last will and testament, sets out your instructions for how your estate should be administered and distributed after your death. This legally binding document allows you to name the individuals, organisations, or charities you wish to benefit from your estate.

Although having a will is not a legal requirement, dying without one (intestate) means your assets will be distributed according to the intestacy laws of the relevant jurisdictions in which they are held. These rules generally prioritize close family members, such as a spouse and children, and may exclude friends or other individuals you had intended to provide for.

It is also strongly recommended that you appoint an executor in your will. An executor—who may be a trusted friend, family member, or professional adviser such as a solicitor—is responsible for administering your estate. Their duties typically include gathering and valuing assets, settling liabilities, applying for a grant of probate, and distributing the estate in accordance with your wishes.

Appointing a Power of Attorney

A lasting power of attorney (LPA) is a legal document that authorizes a trusted individual—often a family member or close adviser—to act on your behalf if you become physically or mentally incapable of managing your own affairs. Putting an LPA in place ensures that your financial matters and personal welfare can be handled according to your wishes in the event of illness or unforeseen circumstances. LPAs are established through the office of Public Guardian. 

International Estate Laws

Immovable property (such as real estate) located overseas is generally governed by the succession laws of the country in which the property is situated. This means local rules may override the intentions set out in your UK will. To help ensure efficiency and clarity, it is often advisable for expatriates to have separate wills in place, one covering UK assets and another tailored to the jurisdiction where foreign assets are held.

Although a UK will is recognized in many jurisdictions, expatriates must consider how local succession laws and tax regimes may affect the distribution of overseas assets. Certain countries such as the United Arab Emirates and France apply forced heirship rules. These laws require a fixed portion of your estate to pass to specific relatives, typically a spouse and/or children, regardless of the provisions in your will.

Double Tax Treaties

Where both the UK and the country in which your overseas assets are located have the right to tax your estate, double taxation can arise. In such cases, a double taxation agreement (DTA) may provide relief. The UK has double taxation agreements with more than 100 countries, including several that impose inheritance or estate taxes on expatriates.

Which Strategies Can You Use to Streamline Estate Planning in the UK?

To reduce inheritance tax exposure and maximize the amount of wealth passed to your beneficiaries, you may consider several established estate planning strategies, including gifting, annual allowances, trusts, and pensions. 

Transferring Assets as a Gift

Making lifetime gifts is a commonly used strategy to reduce the value of your taxable estate. In general, gifts will fall outside your estate for inheritance tax purposes if you survive for more than seven years from the date the gift is made.

You can further limit your IHT exposure by making use of the annual gift exemption. This allows you to give away up to £3,000 each tax year without the amount being included in your estate for IHT calculations. The £3,000 allowance can be given to one individual or divided among several recipients.

Establishing Trusts

Setting up a trust is a widely used estate planning tool that can help mitigate inheritance tax, reduce direct state intervention in the administration of your estate, and potentially avoid the delays and costs associated with probate.

Probate

Probate in the UK is the legal process of managing a deceased person's estate, involving asset valuation, tax payments (HMRC), and distribution to beneficiaries, typically taking 6–12 months. 

Key Stages and Timelines

  • Initial Preparation (2–8 weeks): Locating the will, registering the death, and valuing all assets and liabilities.
  • Applying for Probate (2–6 weeks): Submitting forms to the probate reigistration.
  • Grant of Representation (8–16 weeks): The court reviews the application and issues the document allowing you to act.
  • HMRC Clearance (6–12 weeks): Paying any inheritance tax (if applicable) and obtaining clearance.
  • Estate Administration (3–6 months): Selling assets, paying debts, and distributing the final estate. 

Actionable Tips

  • Begin Immediately: You can start valuing the estate right away, but you cannot submit the formal application until you have the death certificate.
  • Inheritance Tax: If IHT is due, a portion must be paid before the Grant of Probate is issued.
  • Document Retention: Keep all records of debts paid, tax, and asset distributions for several years. 

Factors Affecting Timeline

  • Complexity: Property sales, numerous beneficiaries, or foreign assets can extend the process to over a year.
  • Intestacy: If there is no will, the process may take longer.
  • HMRC Delays: Complex tax, such as full IHT400, requires more time for valuation and approval. 

Pensions and IHT Reforms from April 2027

Please note from the April 6, 2027, the ability to cascade wealth tax-free via pension structures from one generation to the next will come to an end. These changes cover both defined contribution and defined benefit pension funds (above the nil rate of £325,000). Pension scheme administrators are required to report and pay IHT within 60 days of death. While transfers to spouses remain IHT‑exempt. 

Summary 

There are many reasons to take professional advice when it comes to estate planning. There is no one-size-fits-all approach and the options for achieving your aims are often numerous and not clear cut. With an efficient estate planning strategy in place, you can accurately assess the value of your estate, and ensure your assets are distributed according to your wishes, and minimize the IHT liability for your heirs.


Sources: 

https://www.gov.uk/inheritance-tax/gifts

https://www.gov.uk/applying-for-probate/before-you-apply#:~:text=If%20you%20need%20to%20report,tax%20back%20from%20the%20estate.


This material is intended for educational and informational purposes only. It is not intended to provide specific advice or recommendations for any individual. Additionally, you should consult with your Financial Advisor, Tax Advisor, or Attorney on your specific situation. The views expressed in the material are that of the author and do not necessarily reflect those of any market, regulatory body, State or Federal Agency, or Association. All efforts have been made to report or share true and accurate information. However, the information may become materially outdated or otherwise rendered incorrect due to subsequent new research or other changes, without notice. The author nor the firm are able to always verify the content from third-party sources. For additional information about the firm, please visit the MAS Website at https://www.mas.gov.sg/  and the SEC Website at www.adviserinfo.sec.gov. For a copy of the firm's ADV Part 2 Brochure, please contact us at info@avriowealth.com.