UK Inheritance Tax: Considerations for Expats

Are you an Australian resident who owns UK assets? Or do you have a place of residence in the UK and are considering moving to Australia? If so, it’s crucial to consider the relevant UK inheritance tax (IHT) implications.

Current UK Inheritance Tax (IHT) rules

Whether you are required to pay UK Inheritance Tax in the UK wholly depends on your residency status and your domicile status. In 2022, the UK IHT rate stands at 40% on your estate’s total value (above the nil rate band). Currently, this is anything above £325,000.

Note that if you own your home (or a share in it) it is possible to increase the above tax-free threshold to £500,000 (refer How Inheritance Tax works: thresholds, rules and allowances but only if:

• you leave it to your children (includes adopted children, foster children or stepchildren) or grandchildren; and,
• your estate is worth less than £2 million.

What happens if you move to Australia?

If you live in Australia indefinitely, you may be considered to have “acquired an Australian domicile of choice”. It’s important to remember that if you also have a domicile in the UK, you may be required to pay UK IHT on your worldwide estate.

However, if you only have an Australian domicile, you’re only required to pay UK IHT on your UK estate.

Changes to UK Inheritance Tax rules

In April 2017, the UK changed the UK IHT rules significantly. Here is a breakdown of those changes:

• Individuals who don’t have a UK domicile can’t exclude their UK property from IHT by using an offshore trust or company (including an Australian company or trust), and;
• If you’re an Australian expat who has lived in the UK for 15 of the past 20 years, you are deemed to have a UK domicile for IHT purposes.

Ways to prevent UK Inheritance Tax exposure

You may be wondering, “are there ways to avoid my exposure to UK Inheritance Tax?” Yes, there are several ways to minimise your UK IHT liability. Some useful strategies include:

• If you’re a UK citizen who’s moved to Australia permanently, you must declare a domicile;
• Declare UK Inheritance Tax lifetime gifts;
• Transferring to your spouse is exempt;
• Secure debt against your property. This is beneficial, as UK IHT is calculated on the asset’s net value, and;
• Consider if any of your assets qualify for Business Property Relief. This incentive enables you to claim UK Inheritance Tax tax relief on your business assets (including shares).

Are you searching for ways to limit your UK IHT exposure? If so, please feel free to contact our Expat Taxes team today.

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Shane Macfarlane CA

CEO & Founder at Expat Taxes

Shane's an Australian Chartered Accountant and Australian expat tax specialist who's also an expat himself (based in Asia). Shane's passionate about tax and legitimate tax minimisation, tax-planning and structuring, particularly as it relates to Australian expats who are often subject to high rates of tax back home in Australia.

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