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Inheritance tax lessons on UK assets

By Tim Searle

Tim, I went to a bank seminar recently where they touched on United Kingdom domicile and inheritance tax. I learned I may be liable to UK inheritance tax, but if I die abroad after many years of living outside the UK then how will the authorities know I have died and pursue my heirs to collect the tax? Reginald

I could have been at the same seminar! Relying on the tax man not finding out is NOT good planning.

If you have any assets whatsoever in the UK then it will be impossible to get those assets transferred without obtaining probate. Part of the probate process necessitates getting a clearance from the Capital Taxes Office so they will, of necessity, be given the opportunity to assess the tax due. If you have no assets or will in the UK but have heirs who are resident there, then they may be questioned about how they came to receive the inheritance and that may trigger an investigation.

If you die in a country that has a tax treaty with the UK, that treaty will contain an exchange of information clause so the foreign tax authority may inform the UK about your death. If none of this applies then it is unlikely, but not impossible, that the UK will find out. But why take the risk? You will be potentially liable unless you obtain a ruling that you are non-UK domiciled. The cost of getting the ruling is small compared to the cost of doing nothing may be huge. This is insurance against a 40 per cent tax bill.

And if you have no assets in the UK you may still be liable to UK inheritance tax at 40 per cent on the value of your worldwide estate – I reiterate, worldwide. You do have a nil rate band of £312,000 (Dh1.67 million). However, add up the value of everything that you own wherever it is situated, i.e. your holiday home, your residence, your portfolio of investments, your furniture, art and beverage collection. Take away any outstanding loans you have and that leaves a figure of your total net worth. Deduct £312,000 and your potential tax bill is 40 per cent of the remainder – nice.

It gets worse if you have married a non-domiciled person since transfers between a husband and wife are exempt from UK inheritance tax, planning against which is designed to assist your children or other heirs. However, the exemption only applies between two domiciled persons. So, if you are domiciled but your spouse isn't, on your death the transfer to your spouse would be taxable at 40 per cent.

Obviously, if you are both non-domiciled the issue of UK inheritance tax does not arise except insofar as you have UK-situated assets. UK assets are always subject to UK inheritance tax irrespective of who owns them. So if you are an Emirati couple with a flat in Mayfair and you have not structured your affairs correctly, you could be paying Gordon Brown 40 per cent of the value of that asset.

As the saying goes, there are only two guarantees in life – death and taxes! See a Wealth Manager if you want to avoid this eventuality – the taxes that is! 

- Tim Searle is CEO of Globaleye, a leader in financial services for the Middle East with over 4,000 clients. Send your queries to: mney@business24-7.ae