The worst thing we ever see at ProACT Partnership’s Tax Planning Business are families, who are facing a death through illness or dementia, trying to make arrangements to avoid Inheritance Tax at 40% or more on their estate on death.
We are all going to die but sometimes we don’t face up to this reality and start putting our affairs in order, including inheritance tax planning, until it is too late. The impact of inheritance tax for UK expats is 40% of an estate is lost to inheritance tax payable within 6 months of a death in the family. This could mean property must be sold or mortgaged by the widow and children, or investments are cashed, with the additional cost and delay of probate administration.
At ProACT Partnership we plan ahead to protect family and business and make sure the wealth of property, business and savings is inherited by the family and not paid to the taxman.
ALLOWANCES
Every UK Estate has a £325,000 allowance against inheritance tax that is frozen until 2026.
For a married couple they are able to transfer twice this amount , being the sum of each personal allowance.
UK residents could also get additional UK main property relief, clearly not available to expats Living and Working Abroad.
Inheritance tax is charged at 40% on worldwide assets for all UK domiicled people.
That is those born in the UK of British parents or expats who have been Living and Working Abroad in the UK for over a period of 20 years.
There are additional small annual gifts that be backdated but last minute inheritance tax planning doesn’t work with big numbers , these gifts limited to £3000 a person. Better to plan ahead especially for Expats Living and Working Abroad who can use different tax residences to protect their family and business.
GIFTS
Some gifts can be free of inheritance tax after 7 years.
Outside the UK, expat family gifts may be free of any tax allowing the ‘family business’ to be formalised and the wealth protected down the generations with the same passion as the character Robert Crawley had for the family asset of Downton Abbey.
Over the long term this can protect your family from up to 40% Inheritance tax, from the cost and delay of probate administration on death across borders, and from uncontrolled medical and care costs later in life.
HOLDING ON
By creating a ‘holding company’ for the family’s assets it becomes possible to hold assets down the generations and across border with control of tax. The family property, business and investments can be held in a 0% tax free environment indefinately. Using tax allowances, incomes and distributions can be paid to minimise any tax future liability.
As a family business the family can retain control without incurring tax on assets , gifts or inhertiance.
This doesn’t mean any property rental income, or investment gains are not liable to tax when they are received. It means that the families wealth is protected from any further inheritance taxes.
TRUST
The family need to trust in themselves. One common complication is second marriages and families, another unmarried couple or business partners. Then a business failure, or divorce of parents or children can see the families assets dimished or lost.
Every individual, business and trust is its own legal entity. This can be a positive and a negative.
Everything in his name is his. Everything in her name is her’s. Except when married where the country of death or domicile can determine how assets are distributed.
Married couples may have have rights that protect blood relatives, or exclude spouse, or cut out children form a second relationship.
Expats Living and Working Abroad may be subject to forced heirship rules in many counties including France, this can have a negative impact on spouse or children.
Some countries allow an expat to settle an estate under the laws of their home country. For UK expats this confirms a UK domicile and hence leaves the worldwide estate open to 40% Inheritance Tax.
FORWARD THINKING
When we start work we are told to save some income including a pension every year. In this way over a lifetime we plan to create a pension pot for income when we stop work.
We could do the same for Inheritance Tax planning, to plan ahead during our lifetime so that your Inheritance is passed to the family and not the taxman.
ProACT use a Family Trust arrangement to protect expat family and business from the cost and delay of probate and 40% inheritance tax. The family stay in control and can hold property, business and investments assets with 0% tax.
The first step may just to make a Will that protects the family across borders.
These steps could save not just tax, but distress and expense to a family when the time comes to move on and leave your worldly assets to your family… and not the taxman.
CONTACT US
For more guidance about long term inheritance tax planning contact us for a Free Review.
Tel: 26 819 424
Web: proactpartnership.com/contact-us
