What is Expat Estate Planning?

Organising your estate to shield your family from unnecessary Inheritance Tax (IHT)

Most Expats are aware that in the event of your death, your estate will be transferred to your legal heirs and beneficiaries. However, few realise that despite living beyond the UK for some years, your estate can still be liable to UK Inheritance Tax at a rate of 40% (Gov.Uk). As such, it is essential to carry out appropriate estate planning in advance to avoid inheritance tax. Furthermore, in the event of your death, this prevents your beneficiaries from a bureaucratic debate with HMRC over a relatively complicated area of tax.

When should I start Inheritance Tax Planning?

If you have connections to the UK - Expat Estate Planning should be tackled early

The earlier you focus on estate planning, the longer you have to organise your affairs in a tax-efficient way. For example, any gifts are given IHT planning within the seven years before your death can be subject to IHT. As such, you would have ideally have made your IHT plans long before this period. Estate planning is not a high priority if your total estate is worth less than £325,000 (or £650,000 as a married couple) and you do not see your estate increases in value. If your estate is approaching or already over £325,000, then you need to make time to consider your options.

Inheritance Tax Gifts

There is the 7-year rule on gifts given away before your death

Any gifts over £325,000 given away in the 7-years leading up to your death will be subject to Inheritance Tax on a scale known as “taper relief”. Any gift given seven years before your death is not applicable to inheritance tax payable if it is below £325,000.

That is why it is advisable to think about IHT planning in advance of your old-age. Many Expats only contact us when they are already in their old age and possibly within the final 7-years of their life.

Client Example:

Martin gave three gifts before his death:

  • £300,000 to his sister 6.5 years before his death
  • £50,000 to his mother 4.5 years before his death
  • £150,000 to his daughter 3.5 years before his death

Martin passed away on 1st September 2019. He was not married and did not have a civil partner. He had no other lifetime gifts allowances of exemptions from inheritance tax.

The first gift to his sister used up £300,000 of his IHT allowance. Her gift is IHT tax-free. The gift of £50,000 to his mother used up the remaining £25,000 from his IHT allowance. So an IHT tax of 24% applies on the remaining £25,000 that exceeded his IHT allowance. The £150,000 gift given to his daughter is then taxed at 32%. The remainder of his entire estate would be taxed at 40%

What is involved in Inheritance Tax Planning Advice?

It will be dependent on your situation but it will generally include:

Forming a Will​

It is surprising how few people have a will. This document is the foundation of what you wish to happen to your estate. Do you have a will in place?.

Creating a Financial Structure

This is typically to minimise your IHT tax and may include trust accounts in the name of your beneficiaries to minimise tax.

Guardianship

Ensuring you have precise arrangements for what would happen for your living dependants. Meaning, with who and how they will be financially supported.

Nominating Executor

Your Executor is the individual responsible for managing your estate in the event of your death. This is an important role. It includes selling your assets, transferring assets, ensuring any liabilities are paid and distributing your estate in line with the wishes set out within your will.

Creating or Updating Beneficiaries

Ensuring the correct beneficiaries are named on all of your financial policies. At Cameron James, all clients complete their beneficiary form prior to the account being open. This ensures there is no uncertainty in the event of your death.

Funeral Costs

If you do not have funeral insurance, it is advisable to allocate the required amount to cover your funeral preparations. That again helps make an emotionally challenging event less stressful for your loved ones

Creating a Power of Attorney

That permits another individual, typically someone you trust implicitly, to direct certain decisions over the estate. This is particularly useful if you were to suffer ill-health or mental illness and be unable to function cognitively.

Estate Planning Process

Simple and Straightforward
  • Contact Us
  • Situation Analysis
  • Solution Appointment
  • Complete Application
  • Ongoing Reviews

Estate Planning Trusts?

Trusts are the most important instrument in Inheritance Tax Planning

Numerous types of trusts can provide various benefits, including minimising taxes and ensuring effective asset management. Discretionary trusts are an example of this. IHT planning can significantly reduce your exposure to undue inheritance taxes. Despite the potential tax savings for your family being significant, expats and foreign nationals commonly overlook IHT planning. This oversight may result in your family facing higher taxes after you die. In some instances, you might need to sell your assets or home to pay the IHT bill.

A sufficient Inheritance Tax trust can require a significant amount of planning depending upon the assets within your estate. That is why we recommend you start your estate planning as soon as possible irrelevant of your age. Our Advisers are experienced in helping our clients asses their Inheritance Tax obligations. They will also help you formulate a strategy that is effective in both their current country of residence and the UK.

IHT implications for UK residency and domicile?

Inheritance Tax (IHT) is based on domicile; it is not connected with your residency

Therefore the amount of time you may have been living in another country does not necessarily matter to HMRC. Even if you are not liable to pay UK income or capital gains tax, you may still have to pay UK inheritance tax (IHT). Determining one’s domicile can be a complex area of financial planning. Moreover, after being non-domicile, you may inadvertently restore your UK domicile later without realising. For example, by purchasing an asset for your siblings to occupy.

Estate Planning Tips

Do not wait until it is too late

Our Financial Advisers are trained to guide you through the various obstacles of IHT planning. Our advice will typically involve a professional tax adviser who is familiar with the regulations of your resident country. The tax adviser will also know your resident country’s financial protocols and internal procedures.

We are here to support and guide you, but our number one IHT planning tip is to start the process early. Do not wait until your old age to start thinking about it. Talk to an Adviser today for them to advise the most tax-efficient Inheritance Tax plan for your family and loved ones.

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Top 150 Questions - Asked By Expats!

Our FAQ section includes the questions asked by our existing Expat clients. If you don't see your question - Ask us and we'll answer it.

The average time for a pension transfer is 3-4 weeks. Depending upon the type of pension with DB transfers taking longer and DC transfers shorter. In our experience, exemplary paperwork and streamlined communication are keys to faster transfers. Errors lead to longer transfer times. International SIPP transfers are generally quicker, while QROP transfers take longer.

Absolutely not. There are no nasty lock-in periods with CJ. If you are ever unhappy with our level of service you are free to leave without cost. This keeps us on our toes to continue delivering our high quality of service.

Nobody likes surprises. At CJ our clients know exactly how much their financial advice will cost before they proceed. We have initial advice and set-up fee of 1-3% depending on the size of your investment and an ongoing annual management charge of 1% – Our Costs.

Your policy will pass directly to your named beneficiaries which you state in your application process. So you have peace of mind that your loved ones will automatically receive your assets. No messing around.

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