How do I take the value of a foreign property out of my estate for IHT purposes

If a person is born in the UK – they have a UK domicile of origin. If they have been living in the UK for 15 out of the last 20 years, they are classified as deemed UK domicile and so their worldwide assets are liable for UK inheritance tax.

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This article is specifically for people who hold offshore properties but are potentially liable for UK inheritance tax.

If a person is born in the UK – they have a UK domicile of origin.  If they have been living in the UK for 15 out of the last 20 years, they are classified as deemed UK domicile and so their worldwide assets are liable for UK inheritance tax.

Sometimes, when there are offshore assets held, there will be double taxation agreements where part of the inheritance tax in the country where the assets are held. This offshore tax will then reduce the amount of tax payable to the UK.

Generally, inheritance tax in the UK is higher than anywhere else in the world so there will be additional tax to pay of 40% to the government.

You could put property into a trust during your lifetime but there are a few issues you need to be aware of.

If there is rental income coming from the property, the income tax issues in the country where the property is held can become complicated if the property is owned by a trust. There are also many countries like France, Spain, Italy, which simply don’t recognise trusts and therefore this type of planning will not work at all.

It is possible to put all foreign property into a UK company or even better – a UK Family Investment Company.

All countries in the world recognise companies. You still need to be aware of the taxation issues arising in the country where the property is held and how this may impact your UK company. We are able to help you with the UK company but we can’t be experts on tax in every single country in the world.

The shares of your Family Investment Company in the UK can be given away directly to your children or to an Employee Benefit Trust if there are large Capital Gains Tax issues on the gifts of any of those shares. The gifts of the shares will reduce the value of your estate and the inheritance tax payable and because the company owns the property, it’s going to reduce the overall tax by disallowing the value of the property in the company because the shares of the company have been given away.

If you don’t want to go down the route of Family Investment Companies, you could take a mortgage out against your foreign property. You can take the mortgage money that you have extracted and you can gift that money into a trust in the UK or gift it to a company/ Family Investment Company or directly to your children.

Last case scenario, you could sell the property and use the money to gift into trust or company or directly to your children.

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