In the United Kingdom, Inheritance Tax as we now know it was introduced in the Inheritance Tax Act 1984 and is still mostly governed by the legislation today.
UK Inheritance Tax is a tax on UK Domiciled Individuals on their worldwide estate (their property, money and possessions) when they pass.
Inheritance tax is not applicable if your estate is below the £325,000 threshold or you leave everything to your UK Domiciled spouse or civil partner, a charity or a community amateur sports club.
Any estate that is above this £325,000 threshold will be taxed at 40%. So if you had an estate of £600,000 you would face a tax bill of £110,000!
UK Domicile or Not UK Domicile…that is the question?
The most common mistake that expats make, is that many are unaware of the difference between ‘non UK domiciled’ and ‘non UK resident’, wrongly believing they won’t be taxed on assets outside of the UK or they are not liable for IHT as they do not live in the UK.
Inheritance tax covers all of your worldwide assets if you are UK-Domicile. Domicile is a complex UK common law concept. The basic rule is that a person is domiciled in the country in which they have their home permanently or indefinitely – the country you regard as your ‘homeland’. You can live abroad for many years and still remain domiciled in the UK.
While changing your domicile is not impossible, it depends on your circumstances and intentions and needs to be a carefully considered and planned process. We are more than equipped to help you understand whether you are domicile or non-domicile and also the implications of this on your inheritance tax position.
Try our inheritance tax calculator here!