How UK Inheritance Tax could affect your estate even if you’re in Australia
Death and taxes may be the two great certainties of life, but what about UK Inheritance Tax? Will this apply to your estate on death? Can it be avoided or the risk mitigated?
Living in Australia has many benefits – the climate, the culture, the opportunities – but one advantage you don’t often hear people talk about is the absence of inheritance or ‘death’ tax.
In the UK, Inheritance Tax affects most estates and is payable at the rate of 40% where the estate exceeds 325,000 GBP (subject to certain qualifications).
Australia is a multicultural nation and it is common for Australians to have overseas ties and assets, particularly within the UK. What many people don’t realise however is that these connections can expose their estate to the UK Inheritance Tax system, even if they have been living in Australia for many years.
Inheritance Tax in the UK encompasses the concept of domicile, which is much broader than ‘residence’.
So whilst you might be exempt from UK income tax and capital gains tax by virtue of being a non-resident, this does not necessarily mean you are ‘non-domiciled’ and outside of the scope of Inheritance Tax. Being born in the UK for example, could be enough to keep your estate within HM Revenue & Custom’s reach.
Your domicile has a huge impact on your estate’s exposure to Inheritance Tax. If you die with a domicile of the UK, your worldwide estate is subject to inheritance tax. It is therefore very important that you understand your domicile position and make sure that your Executors have access the information necessary to evidence your domicile after your death.
Failure to take adequate steps could be costly for your estate (and ultimately your family and beneficiaries). Even if you have managed to ‘lose’ your UK domicile, if your Executors cannot demonstrate this to the satisfaction of the UK taxing authorities, your estate may be in for a costly fight (one which they may lose).
We can advise you and work with you to take steps to mitigate your exposure to UK Inheritance Tax and document your domicile position to your estate and your family’s advantage. Contact us for assistance in this area and to take measures to reduce your exposure.
This article was written by Clare Hesbrook, Senior Associate – Private Clients.