Active in the UK or are you from the UK? Advice on inheritance tax and estate planning

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James Whiley


Many Brits have moved to Australia, myself included, and often retain assets originally in the UK, but often feel that they no longer need to worry about UK tax issues.

Conversely, many Australians often acquire assets in or live in the UK, and similar issues may apply. We take into account inheritance tax and estate planning in the UK.

First, what is inheritance tax and when does it apply?

The UK imposes inheritance tax depending on where you live.

You were born with a domicile of origin, which follows that of your father, if your parents were married at the time of your birth, but you can acquire what is called a domicile of choice.

For example, if you move to Australia and acquire the intention to reside here permanently indefinitely, noting that it is state based.

For inheritance tax purposes, this is very important because if you are still considered to be domiciled in the UK, the UK tax authorities will impose inheritance tax on your worldwide estate. Whereas if you are accepted to be domiciled in, say, New South Wales, you will only be subject to inheritance tax on your UK assets.

The difference is significant as inheritance tax is charged at 40% above a zero rate band of £325,000. There are some exemptions for transfers between spouses and a small zero-rated block exemption also for your accommodation.

If you are subject to inheritance tax, what can you do? There are some strategies to reduce the estate subject to inheritance tax, for example, making outright gifts to family members or gifts for life.

If we consider that you have acquired a clear domicile of choice in New South Wales, we may also recommend that you prepare what is known as a statutory declaration of domicile, which is used as formal evidence if HMRC [Her Majesty’s Revenue and Customs] should ever challenge your domicile status after your death.

What to do with estate planning in the UK?

So fortunately the UK and Australia will recognize wills prepared in each country.

It is therefore possible to have a will covering both countries. But it is often advisable, especially when you have significant assets in both countries, to have separate wills, as this means you can get a grant of probate obtained in both countries at the same time, rather than having to get one in one country and then have it resealed in the other, which can take more time and money.

While you can get by with an Australian or UK Global Will, it is also important to prepare local incapacity documents as these will only be recognized in each country.

How can Hall & Wilcox help you?

We regularly deal with clients who are from the UK or have assets in the UK.

So, although we cannot provide UK tax advice, we are very aware of the issues and work with UK advisers where necessary, to ensure that your estate planning is properly structured from a Australian and UK tax and estate planning.

Many people think that moving to Australia means they no longer have to worry about UK tax, but often they are not fully aware of the tax and in particular the inheritance tax implications . Similar issues can arise for Australians with UK assets. Owning assets in both countries can also complicate your estate planning. In this next installment of our international series on succession planning, we examine these questions.

What is inheritance tax and when does it apply?

An individual’s domicile status will determine their liability to inheritance tax (IHT), as the UK imposes IHT at 40% on the value of their estate above their available zero rate band (currently £325,000, but with the option of transferring it to a spouse, if is not used, to have a combined £650,000 and possibly an additional £175,000 each (for 2022), for a zero-slice primary residence), depending on domicile rather than residence.

There is no single definition of ‘domicile’ and it is generally based on your place of birth and follows that of your father at the time of your birth, assuming your parents were married. However, if a person is British, but considers Australia their permanent or indefinite residence, they may have acquired an Australian domicile of choice, although this depends on the facts.

The difference is that if the individual still has an original domicile in the UK, they will potentially be liable for IHT on their worldwide estate (and anything they transfer into a trust can also be taken with costs 20% IHT entry fee and a 10-year anniversary). and exit fees of up to 6%). However, if they have acquired a choice Australian domicile or have an Australian origin domicile, they will only be liable for IHT on their UK estate and anything they transfer into a UK trust.

Transfers between spouses are also exempt, provided they have the same domicile status. However, transfers to a non-UK domiciled spouse (e.g. an Australian spouse), from a UK domiciled spouse are only exempt up to £325,000, unless the non-domiciled spouse chooses to be treated as domiciled in the United Kingdom.

What to do with IHT planning

Some common strategies for people exposed to IHT include:

  • prepare a statutory declaration of domicile as proof of Australian domicile of choice for Britons living in Australia who regard Australia as their permanent or indefinite residence and who have lived here for at least three UK tax years (the UK is not therefore not deemed domiciled under the three year rule), although Her Majesty’s Revenue and Customs (HMRC) will nevertheless examine the facts, the domicile being a complex area of ​​law;
  • IHT Effective Lifetime Giving – each individual is capable of:
    • £3,000 in gifts per year plus £250 to any number of people;
    • regular income donations (which vary according to circumstances);
    • potentially exempt transfers (i.e. outright gifts), which are exempt if the individual survives for seven years (with declining rates applying in between);
  • encumbering the assets liable to the IHT with debts, because the IHT is due on the net value of an estate, but complex rules now apply;
  • make donations to UK charities in a will (which are exempt from IHT); and determining if any properties are eligible for commercial property relief or agricultural property relief.

What about estate planning?

If you have assets in the UK and Australia, it is important to consider whether you wish to have wills and the equivalent of enduring powers of attorney in the UK and Australia, or in one country only.

Although an Australian will is recognized in the UK and it is possible to have an Australian grant of probate reseal in the UK, this makes the administration of an estate more complicated and time-consuming, as the grant Australian type approval must first be obtained. Having separate wills means you can obtain probate simultaneously to save time.

For this reason and to ensure that both Wills work better from a local tax planning perspective, it is best to have Wills in the UK and Australia (which should be carefully drafted to ensure that one does not accidentally revoke the other), especially when an individual has significant assets in both countries.

Even if a person decides to have only one worldwide Will, it is also important to have the equivalent of a UK Enduring Power of Attorney (known as an Enduring Power of Attorney), as an Australian Enduring Power of Attorney will not be recognized. United Kingdom.

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