Of course, the above tax escape scenarios depend on your expatriate status and every individual's status is different so do check your tax liabilities before you just turn you back on the British taxman – but is there ever a scenario where expatriates escape inheritance tax just by living abroad?
Many people have been sold homes overseas for retirement or relocation purposes on the back of claims by developers and agents that a property in a given nation is not subject to inheritance tax in that nation. This can lead people into the false sense of security that if they just up sticks and go and live in that property, they escape their IHT liability full stop. However, as we will now show, when it comes to IHT or estate tax, it is NOT that simple.
Every single country in the world has its own laws on taxation – and nowhere is this more true than in the case of inheritance, estate or death tax. This is the tax that is potentially levied against the value of our estate when we die. Every nation has different laws governing succession – i.e., who you are permitted to will things to and how your estate can be divided after your death – what's more, double taxation agreements don't really help when it comes to IHT.
So, say you move abroad and leave the UK behind permanently. Other than a week here or a few days there you never visit the UK and so you are 100% considered non-resident for tax purposes in the UK. Great. However, just because you have lost your residency status in the UK, that's not to say you have lost your status of domicile…and it is the latter that is important when it comes to inheritance tax for Britons.
If you were born in the UK, if your father was born in the UK, if you maintain a British passport and have significant ties with the UK such as a property in the nation or just friends, family or a burial plot in the UK then you maintain your nation of domicile as Great Britain. Most people never give this a second thought because for 99.9% of us, it is 100% irrelevant for all of our lives. It is only when we die that the nation in which we're domiciled becomes of importance.
This is because in many, many cases – especially if you're British – your nation of domicile ‘owns' you and taxable access to your estate when you die. So, say you move abroad, retire to Spain, sell up in the UK and buy a Spanish hacienda…when you die, the British taxman pops his head up to see how much your estate in Spain is worth and what the sum total of your worldwide assets is. If it is above the IHT threshold in the UK, your heirs will get a bill from the British taxman. This is also true even if you are living in a country abroad where IHT is not levied locally. So all those who bought a big fat property abroad in a nation because they were told by a developer or an agent that said nation has no IHT may still no escape the taxman's net.
The trouble increases, because – according to the above example – say you were resident in Spain and the owner of a Spanish property when you died, the Spanish tax authorities will want their slice of the pie as well – and they may have very different ideas about how you are allowed to divide up your estate upon your death. For example – you may want to disinherit your children because they are ungrateful little minxes – but in Spain that may be against the law!
You have to know 2 facts when it comes to IHT: 1) Britain will do all it can to prove it owns a right to tax your estate upon your death if it is worth more than the IHT threshold, 2) the nation you are living in abroad may have legitimate claim to a percentage of your estate as well.
Now, you may not care about any of this – after all, it will not affect you, you'll be dead! However, what about your family, their security and the fact that your estate may be divided up against your will and your wishes? You, as an expat, cannot escape inheritance tax just by moving abroad. You have to understand the rules of succession in your new nation, you have to understand your IHT liabilities in your new nation, and you have to secure yourself, your estate and your beneficiaries through the correct compilation of a will at home and abroad. To this end you have to seek qualified legal advice from someone in your new nation to understand how best to manage your affairs. You may also consider taking financial advice to see if there is any way you can legitimately arrange your assets through a trust or company offshore or onshore so that the management of your estate upon your death is far more straightforward.
Think about it sooner rather than later – get your affairs in order so you can forget about them and go on living and loving your new life abroad.
Many people have been sold homes overseas for retirement or relocation purposes on the back of claims by developers and agents that a property in a given nation is not subject to inheritance tax in that nation. This can lead people into the false sense of security that if they just up sticks and go and live in that property, they escape their IHT liability full stop. However, as we will now show, when it comes to IHT or estate tax, it is NOT that simple.
Every single country in the world has its own laws on taxation – and nowhere is this more true than in the case of inheritance, estate or death tax. This is the tax that is potentially levied against the value of our estate when we die. Every nation has different laws governing succession – i.e., who you are permitted to will things to and how your estate can be divided after your death – what's more, double taxation agreements don't really help when it comes to IHT.
So, say you move abroad and leave the UK behind permanently. Other than a week here or a few days there you never visit the UK and so you are 100% considered non-resident for tax purposes in the UK. Great. However, just because you have lost your residency status in the UK, that's not to say you have lost your status of domicile…and it is the latter that is important when it comes to inheritance tax for Britons.
If you were born in the UK, if your father was born in the UK, if you maintain a British passport and have significant ties with the UK such as a property in the nation or just friends, family or a burial plot in the UK then you maintain your nation of domicile as Great Britain. Most people never give this a second thought because for 99.9% of us, it is 100% irrelevant for all of our lives. It is only when we die that the nation in which we're domiciled becomes of importance.
This is because in many, many cases – especially if you're British – your nation of domicile ‘owns' you and taxable access to your estate when you die. So, say you move abroad, retire to Spain, sell up in the UK and buy a Spanish hacienda…when you die, the British taxman pops his head up to see how much your estate in Spain is worth and what the sum total of your worldwide assets is. If it is above the IHT threshold in the UK, your heirs will get a bill from the British taxman. This is also true even if you are living in a country abroad where IHT is not levied locally. So all those who bought a big fat property abroad in a nation because they were told by a developer or an agent that said nation has no IHT may still no escape the taxman's net.
The trouble increases, because – according to the above example – say you were resident in Spain and the owner of a Spanish property when you died, the Spanish tax authorities will want their slice of the pie as well – and they may have very different ideas about how you are allowed to divide up your estate upon your death. For example – you may want to disinherit your children because they are ungrateful little minxes – but in Spain that may be against the law!
You have to know 2 facts when it comes to IHT: 1) Britain will do all it can to prove it owns a right to tax your estate upon your death if it is worth more than the IHT threshold, 2) the nation you are living in abroad may have legitimate claim to a percentage of your estate as well.
Now, you may not care about any of this – after all, it will not affect you, you'll be dead! However, what about your family, their security and the fact that your estate may be divided up against your will and your wishes? You, as an expat, cannot escape inheritance tax just by moving abroad. You have to understand the rules of succession in your new nation, you have to understand your IHT liabilities in your new nation, and you have to secure yourself, your estate and your beneficiaries through the correct compilation of a will at home and abroad. To this end you have to seek qualified legal advice from someone in your new nation to understand how best to manage your affairs. You may also consider taking financial advice to see if there is any way you can legitimately arrange your assets through a trust or company offshore or onshore so that the management of your estate upon your death is far more straightforward.
Think about it sooner rather than later – get your affairs in order so you can forget about them and go on living and loving your new life abroad.
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