Inheritance Tax in the UK and Abroad: Start Planning Now



How Does UK Inheritance Tax Work for Expats?

There are a number of common misconceptions when it comes to Inheritance Tax (IHT) which can have major implications for estate planning both for those planning to retire in the UK or abroad. 

Using the UK as an example, surveys show that there is a lack of understanding on how assets are passed to beneficiaries.  Whilst this article will focus on those who may have ties to the UK, there are a number of fallacies surrounding inheritance tax in jurisdictions globally which individuals should be aware of and seek advice on.

Additionally, as the end of the EU transition period approached, many people across Europe will have made a decision on whether to settle in another jurisdiction and the impact of inheritance tax may not have been something they have considered.  Individuals moving between countries will not only need to consider their tax residency status and the investment products available to them, but vitally, where they hold an active domicile.

It is important that you have a clear understanding of the potential tax treatment on the assets within your estate and start taking the necessary planning steps before it becomes too late to make a meaningful difference. In this article, I hope to shed some light on understanding your domicile, a key aspect to factor into your inheritance tax planning, and additional considerations for all expatriates.

When starting to review your estate planning, the best time to act was yesterday but the next best time for action is today. If you have questions relating to your estate or how inheritance tax might impact you, then Forth Capital can provide the planning advice that you need.

Where am I domiciled?

People all too often confuse the difference between tax residency status and domicile which can lead to planning issues down the line.  Forth Capital published an excellent article explaining the various types of domicile and I would thoroughly recommend this piece to anyone who has changed their country of residence or is considering a move abroad at any stage in their life.

For UK expats, HMRC’s perception is based on an individual’s domicile.  If your domicile has remained as the UK, your worldwide assets will be liable to UK inheritance tax, but how can you know where you are currently domiciled?

It can be incredibly difficult for UK nationals to change or lose a domicile and acquire a new ‘domicile of choice’.  All ties to the UK must be cut, this may be as basic as a bank account, golf club membership or even a library card, and a commitment made to remain a long-term permanent resident abroad. 

The hard work done to acquire a new domicile can then be undone very quickly.  For example, by moving to a third country, losing the acquired ‘domicile of choice’ will lead to your domicile status reverting to your initial ‘domicile of origin’.

Many of our clients whose ‘domicile of origin’ is not the UK, have left the UK with no intention of returning and are surprised to learn that their UK domicile has been retained.  For inheritance tax purposes, this ‘deemed domicile’ acquired by living in Britain for a period, will continue for an additional three years beyond the date at which you acquire a new domicile of choice.  During the ‘deemed domicile’ period, it can be vitally important to seek advice on any tax planning steps so as not to fall foul of any unintended UK taxes whilst still deemed UK domicile.  Finally, if you decide to be buried in the UK, this will also trigger UK inheritance tax.

Even after going through the process of gaining a new domicile, any UK-based assets will still be liable to UK inheritance tax.

What investment products should you consider?

Beyond domicile, it is also important to consider specific products as part of longer-term inheritance tax planning.  There are many products available across a range of geographies, every individual client has different circumstances and objectives meaning there is no ‘one size fits all’ solution, expert advice should therefore always be sought.

Expats will have to consider their country of residence and what is available to them in local jurisdictions but in the case of UK residents, your pension should form a vital component of your overall inheritance tax planning strategy.

The primary role of a pension is of course to provide you with income or capital in retirement, but many people have not had the additional benefits explained to them and although it may not be a primary consideration when opening a pension pot, as one’s life and career develop, the secondary benefits could become crucial. 

On death the assets within a UK registered pension scheme can be transferred to the nominated beneficiaries across multiple generations with no inheritance tax liability. 

For this reason, it can be important to manage the drawings taken from a pension pot so as not to increase an inheritance liability by exposing more of your estate to IHT.  The assets held within pensions may not be the best area to draw from in retirement with a mixture of income and capital taken from a variety of savings or investment products.  A carefully managed mixture of pensions and alternate investment pots can often provide an extremely tax-efficient form of capital in retirement.

For many people, the ongoing pandemic has meant that financial decisions have been delayed or neglected and it is easy to convince yourself to “wait until this is all over” but we would emphasise that now more than ever is the time to engage with a Financial Planner and begin taking steps to plan for you and your family’s future.  Steps taken now could ultimately save you 40% of your wealth.


What is my domicile? Everyone has a domicile of origin that is acquired at birth.  For a UK national, this is taken from your fathers’ side, but other rules do apply.  There are a variety of ways that someone can acquire a new domicile which are further detailed here.

Are my investments subject to UK Inheritance Tax? This can vary from case to case, and you should always speak to your Financial Planner to get a clearer picture of where you stand. In most cases, assets held in a pension are considered outside of your estate while bank deposits, property and ISAs are liable to IHT.

Where should I have my Will put in place?  Making a Will is an essential part of estate planning and the important question is, to which country would you consider yourself most closely connected to?  Certain countries have strict succession laws (such as forced heirship in France and Spain) and often the best course can be to maintain a Will in multiple jurisdictions.  Within the EU a Will can be written to include an election on which country’s laws of succession should apply, allowing individuals to elect between the law of their habitual residence or law of their nationality.  Great care must be taken with a solicitor to ensure that multiple Wills do not overwrite or invalidate each other.


The Author

Scott Heaney

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