UK Inheritance Tax: Considerations for UK and Australian Expats

UK Inheritance Tax

If you are an Australian that owns UK assets, or if you have a UK domicile and move to Australia, it is important to consider the UK inheritance tax (IHT) implications.

Your domicile status (rather than your residency status) will determine if you are subject to UK IHT. The rate of IHT is currently 40% on the value of your estate which is the above the nil rate band (currently £325,000).

If you move to Australia indefinitely from the UK, authorities may consider you as having chosen an Australian domicile. Maintaining UK domicile in Australia may trigger global estate IHT. Acquiring an Australian domicile limits IHT to your UK-based estate.

In April 2017, the UK enacted significant changes to the IHT regime. Broadly speaking:

• Non-UK domiciled individuals are now no longer able to shelter UK residential property from IHT by using an offshore trust or company (including an Australian trust or company); and
• Australians residing in the UK will be considered to possess a UK domicile for Inheritance Tax (IHT) purposes, provided they maintain UK tax residency for a span of 15 out of the preceding 20 years.

Strategies to reduce IHT exposure

While we recommend that individuals with an IHT exposure seek professional tax advice, some strategies to help reduce the IHT exposure include:

• Upon making the life-changing decision to permanently move to Australia, Britons have the option to submit a domicile declaration, thereby showcasing their deliberate selection of an Australian domicile.
• IHT lifetime gifts;
• Exempt transfers to spouses;
• Securing debt against the property is essential because IHT calculates the net value of the asset; and
• Considering if any assets qualify for Business Property Relief.

Please contact us if you require assistance in relation to your UK IHT exposure. We can work with you to create a tailored approach from a UK an Australian perspective.

Disclaimer

This document is intended as an information source only. This text is not legal counsel. Relying on its comments or legislative references is unwise. Consult a professional for personalized guidance.