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22 February 2024

Update your will to accommodate new investment

By Gavin Smith

This week's situation comes from Peter Umbridge, a Dubai-based bank manager from the UK. Umbridge, 55, earns a monthly salary of Dh80,000 and his outgoings total Dh30,000. His only dependent is his wife.

Savings and assets owned include two houses in the UK, valued at a combined Dh10 million; a villa in Dubai with current market value of Dh5m, currently tenanted at Dh350,000 per year; Dh200,000 in cash in a UAE bank; extensive stocks and fund portfolio and a UK-based pension scheme. Umbridge's goal is to re-write his will, which was last updated in the year 2000 and he would like some impartial inheritance tax advice.

You clearly have plenty of assets and a good disposable income and you are right to revisit your will to ensure it is updated to take into account things such as family changes and new investments in different jurisdictions. If you don't have an up-to-date will, then any assets held in various countries may fall under the probate of each jurisdiction and it could be very time consuming and expensive to obtain such probate in each jurisdiction.

You are also correct to be concerned about inheritance tax (IHT) planning as you are liable for this as a UK national regardless of where you reside and subject to UK inheritance tax on worldwide assets at 40 per cent, less a tax free allowance of £325,000. There are several exemptions from UK IHT, including passing assets to your spouse if they are UK domiciled and creating gifts out of normal income and an annual tax fee allowance of £3,000. You can create gifts out of your capital as long as you live for seven years after the gift and do not benefit or have enjoyment from the gift. Your UK pension should not be caught by IHT if it is paid within two years of death and also assuming you don't die after the age of 75, having opted for income drawdown.

The UK Chancellor announced recently that each spouse will continue to enjoy a tax free allowance of £325,000 on death – known as nil rate band. The good news is that a claim can be made to transfer any unused IHT nil-rate band on a person's death to the estate of their surviving spouse. When the surviving spouse dies, the unused amount may be added to their own nil-rate band. So, if the nil rate band is not used on the first death the estate can currently use £650,000 as an allowance on the survivor's death. You will still have a severe IHT liability of many hundreds of thousands of pounds and should consider trust planning if you are not prepared to gift assets outright. Overall, trust planning for UK inheritance tax is a complicated area and this process should be conducted with the help of a qualified financial advisor.

Independent Financial Advisor Gavin Smith analyses readers' portfolio for Emirates Business. He is Area Manager for consultants PIC, a member of the deVere Group of companies. Write to him at money@business24-7.ae


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