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Inheritance Tax in the United Kingdom

By Hed Amitai and Rich Risino, Memery Crystal LLP

The charge to UK inheritance tax (IHT) is at a rate of 40% on any value over GBP 325,000 in an individual’s estate at the date of their death. There are various exemptions and reliefs, beyond the scope of this article, which either increase the GBP 325,000 threshold or take assets outside of the scope to tax completely.

In contrast to many other jurisdictions, particularly civil law countries, the UK subjects the estate to IHT and not the beneficiaries (other than in very limited circumstances). The estate of an individual comprises the value of the assets owned at the date of their death, less any liabilities.

Whether the estate is subject to IHT is determined by the domicile of the individual and the situs of the assets.

Domicile

Unlike residence, this is largely determined by the intention of the individual.

  1. An individual born and living outside the UK is unlikely to be domiciled in the UK.
  2. An individual who relocates to the UK with an intention to remain in the UK permanently is likely to acquire a UK domicile.
  3. An individual will be deemed UK domicile once he is resident in the UK for fifteen out of twenty tax years.

The closer an individual’s ties to the UK become, the greater the likelihood the individual is considered to be domiciled in the UK.

Situs of Assets

UK-sited assets are those located in the UK. Real estate is easy to identify. Moveable assets such as valuable chattels are sited in the UK if physically in the UK. Shares and investment assets are broadly sited in the UK if they are registered and/or “booked” in the UK (although the rules are complex).

UK-domiciled individuals are subject to IHT at 40% on their worldwide estate. Individuals not domiciled in the UK are only taxable on UK-sited assets and are within the scope of charge at 40%.

The key issues for non-UK residents to be aware of are:

  1. UK-sited assets, regardless of the residence and domicile of the individual concerned.
  2. An extended pattern of residence in the UK may bring the individual worldwide estate within the scope of charge to IHT.

When advice is taken, the UK remains a tax-effcient jurisdiction in which to reside and do business. However, the tax code is complex, and the inadvertent acquisition of UK-sited assets can have many unintended consequences for IHT purposes and beyond.


Hed Amitai

Hed Amitai

GGI member firm
Memery Crystal LLP
Law Firm Services
London, UK
T: +44 20 7242 59 05
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Memery Crystal LLP is recognised as one of the UK’s top law firms in their specialist areas including real estate and tax, and regularly cited in Chambers and The Legal 500.

Hed Amitai is a partner in wealth structuring. He specialises in asset structuring and capital tax planning. Hed advises trustees, foundations, financial institutions, and asset managers, as well as international businesses on tax, corporate structuring, and legal reporting and compliance obligations.
Rich Risino

Rich Risino

GGI member firm
Memery Crystal LLP
Law Firm Services
London, UK
T: +44 20 7242 59 05
E: This email address is being protected from spambots. You need JavaScript enabled to view it.
W: www.memerycrystal.com

Rich Risino is a senior associate in wealth structuring. He focuses on advising HNIs, entrepreneurs and their families on asset and investment structuring, income, and capital taxation. Rich project manages instructions on behalf of clients, and often co-ordinates tax advice across several jurisdictions.


Published: Trust & Estate Planning Newsletter, No. 04, Autumn 2019 l Photo: HildaWeges - stock.adobe.com

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