Higher taxes for UAE expats with UK homes

While homeowners should be happy about the rising prices of their residential real estate, for those with homes in the UK, it comes with a liability – inheritance tax.

While earlier only the super-rich would have come under the 40 per cent inheritance tax-net, the recent surge in average UK house prices, especially in London and the south east of England, means that even average homeowners now need to worry about that tax burden.

A new survey suggests that reducing inheritance tax liabilities has now become the number one long-term financial priority of nearly half of those with UK homes.

Financial advisor deVere Group surveyed more than 880 of its expat clients in the UAE, US, UK, Hong Kong, South Africa, India, Thailand and Indonesia, and found that 48 per cent of those with property in Britain prioritised inheritance tax planning over retirement and education planning.

The poll was conducted in the first quarter of 2014. “The UK’s rising house prices have been headline news for several months and this, combined with a growing financial literacy, means that people are becoming more aware that if they own a UK property, they are increasingly likely to be dragged into the inheritance tax net,” said Nigel Green, founder and CEO, deVere.

“Of course, soaring house prices have been good news for many homeowners, but the flipside of this is that many more will be liable for inheritance tax. It is now inaccurate to assume that inheritance tax is, as was originally intended, only paid by the super-rich,” he said.

“As over time millions more will be pulled into the IHT trap, it is to be expected that an increasing number of people with homes in Britain - and particularly owners of homes in London and the south east of England where prices are rising fastest - are prioritising mitigating the inheritance tax burden.”

He continues: “As the law currently stands, the threshold at which inheritance is subject to 40 per cent tax is £325,000 [Dh2 million] and £650,000 [Dh4.05m] for married couples.

“But with average London house prices expected to hit that threshold this year, and with Nationwide reporting that annual house price growth in the UK has hit double digits for the first time in four years, more and more families are waking up to the fact that action is required on this important issue in order to leave as much of their legacy to their loved ones as possible – something that’s hardwired into almost all of us.

“The fact of the matter is that IHT is one of the most hated taxes. Why? Because it is, in effect, a double form of taxation.

“It’s our experience that most people resent the idea of giving 40 per cent, over and above the threshold, of all they have acquired to the taxman after they die. After all, they’ve paid taxes on their income, savings, investments and pensions all their lives. Not unreasonably, they want their assets to go to their heirs, not the government.”

deVere Group’s chief executive adds that like most aspects of financial planning, “the sooner you start with inheritance planning, the more options there are for you and your family.”

Amongst the options available to mitigate IHT liabilities are gifting, establishing trusts, opting for investments that qualify for relief, and holding properties as ‘tenants in common’ with a spouse.

(Home page image courtesy Shutterstock)

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