UK Inheritance Tax & Estate Planning

UK Inheritance Tax & Estate Planning

Carefully planning the financial affairs of your estate is essential to ensure that you can pass on the maximum benefit to your beneficiaries. Inheritance tax is voluntary because a person can make efforts to minimise such tax liabilities. We can help you through the maze of IHT, outlining who needs to be concerned, explaining how IHT works and introducing some of the allowances that can help to mitigate its effects on your estate. 

Estate planning remains essential for UK expats living abroad. Many believe that moving to Portugal will exempt them from UK Inheritance tax, as Inheritance tax in Portugal was abolished in 2004. However, being UK domiciled exposes your estate to UK Inheritance tax and the onerous IHT tax rates. One must be aware that IHT applies to your worldwide assets including physical property owned or shares of a property in an offshore company, not just to your assets in the UK.

Inheritance tax (IHT) has a threshold of £325,000 (£650,000 for married couples and civil partners) that will remain frozen until 2021, and a tax rate of 40% will apply to asset values over this threshold allowance. As the tax rate for all assets over the nil-rate band is 40%, it is possible to build up a large bill quickly. In addition, inheritance tax becomes payable relatively soon, as it is due six months after the end of the month of death.

Portuguese laws can also present other problems for expats. UK tax law is based upon common law whereas the Portuguese adopt "Law of Succession" under Civil Law, and both law regimes are different and contradictory. "Law of Succession" will distribute your estate assets based upon "forced heir-ship" and to persons that you do not want to inherit value from your estate. Therefore, one must plan carefully to ensure that your estate is minimised for tax and inherited in line with your expression of wishes. In addition to this further layer of complexity, the estate could still be subject to a Stamp Duty tax of 10% if the estate is inherited by someone other than direct next of kin.

With advice and careful planning, these complexities can be offset, and liabilities can be mitigated.