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UK Inheritance Tax and Expats

UK inheritance tax is a special tax around the world. It applies to all assets of those who are UK-domiciled and anyone in the world with a UK asset.

A domicile is different from a residence. A British-domiciled person living as an overseas resident for several years could still be subject to UK inheritance tax. This will be on worldwide assets, including property in other countries. Domicile for UK inheritance comes from three tests: 1) where your father was born; was it the UK? 2) where you were born; was it the UK? and 3) if you want to be deemed UK-domiciled.

UK inheritance tax is a 40% tax applied to estates that are worth over £325,000. (This includes your savings, possessions, and your property.) . The first £325,000 of the estate is tax-free (nil-rate), and the 40% tax only applies to the rest of the estate. There is an extra £175,000 allowance  for your home. There are some exemptions to inheritance tax. For example, if you leave all your estate to your UK husband, wife, or civil partner, then no inheritance tax will be payable, but it must be the entire estate left to them. When a spouse or civil partner dies, any unused part of their £325,000 nil-rate band can be passed on to their surviving partner.

Anything you leave to a charity will be exempt from inheritance tax. Also, if you leave 10% of your estate or more to charity, then a reduced rate of 36% may apply to what is left over. You may want to gift money and property to your relatives or friends before you die. Be aware that gifts made even while you are alive could be liable for inheritance tax, depending on how much they were and when they were given. However, gifts of up to £3,000 in each tax year are exempted, as are small gifts to individuals and some wedding or civil partnership gifts.

If you are thinking of giving away money or property before you die, make sure you know the rules beforehand, to avoid any unexpected inheritance tax bills.

The full exemptions and rules of inheritance tax are complicated. You should seek advice regarding this and as part of an overall estate plan.