Understanding Inheritance Tax for Expats: A Comprehensive Guide

The payment of inheritance tax largely depends on your domicile status. If you are UK domiciled, which typically means you were born in the UK, you are liable to pay inheritance tax on your worldwide assets upon your death, regardless of where you live at the time.

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Today, I aim to address a common question: Will I have to pay inheritance tax if I live abroad?

Inheritance Tax and UK Domicile

The payment of inheritance tax largely depends on your domicile status. If you are UK domiciled, which typically means you were born in the UK, you are liable to pay inheritance tax on your worldwide assets upon your death, regardless of where you live at the time. This is a crucial point to understand: your global assets are subject to UK inheritance tax if you maintain a UK domicile.

Allowances for Inheritance Tax

Even if you are living abroad, you still qualify for the usual inheritance tax allowances. These include:

  • The £325,000 nil-rate band**:This is the threshold below which inheritance tax is not payable.
  • The £175,000 residence nil-rate band**: This additional allowance applies if you pass on your home to direct descendants.

Confirmation of Domicile Status

It is important to note that HMRC will not confirm whether your domicile status has been successfully changed during your lifetime. They will only determine this after your death, which can complicate matters if they conclude that your UK domicile was never severed. This could result in unexpected tax liabilities for your estate.

UK Assets and Inheritance Tax

Whether you are domiciled in the UK or not, all assets held within the UK are subject to UK inheritance tax. This applies to both residents and non-residents. Typically, these assets include property, but any UK-based assets will be taxed.

Non-UK Domiciled Individuals

If you are not domiciled in the UK and do not live in the UK but own UK assets, those assets will still be liable for UK inheritance tax. This rule stands irrespective of your domicile and tax status elsewhere.

Navigating Complex Scenarios

Inheritance tax can be a complex area to navigate, especially with the additional layer of living abroad. It is essential to seek experienced advice to ensure your estate planning is optimized and compliant with all relevant regulations. At Blue Bung Tax Planning, we are here to help you with your inheritance tax planning needs.

If you found this information helpful, please reach out for more information and help with solving your IHT problems.

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