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Brexit: Effects on Inheritance Tax Liabilities for UK Expats

As the effects of Brexit begin to take shape the laws relating to Inheritance Tax (IHT), Estate Planning and Probate may be affected for British people owning assets and living abroad.

Although the Money Advice Service has assured that IHT liabilities will not be affected by Brexit, IHT liabilities will surely be complicated by the ongoing relationship between the UK and the EU, and it is important that British people based abroad remain vigilant as they will want to avoid getting caught out.

In the UK, so long as the total value of the deceased’s estate is under £325,000, IHT will not be payable. However, for estates valued at over £325,000, IHT becomes chargeable. Where IHT is due, it is usually charged at 40%. Additionally, British people living abroad may find IHT a difficult issue as it is charged on transfers of worldwide assets by people domiciled in the UK, and transfers of UK assets by people not domiciled in the UK.

Tracy Storer, a Senior Partner at Chorus Financial, addressed some of these issues where she explained how IHT rules tend to work in Spain, a popular retirement destination for Brits. She explained:

“Inheritance tax in the UK is based on the person’s estate and has a tax-free threshold of £325,000, plus generous allowances for your primary residence.

In Spain, this is very different and works on a beneficiary-based system, where the tax-free amounts differ depending upon the relationship between the deceased and their beneficiaries – i.e., husband and wife, parent and child.

It is much harder to mitigate against IHT in Spain, but there are ways to structure your assets to reduce the tax liabilities on death.”

When the UK was a member of the EU, it was possible to exclude foreign succession laws in your Will. Now expats will need to be aware of both UK and EU inheritance rules. The UK Government confirms that if a person’s permanent home (domicile) is abroad, IHT will only be paid on their UK assets, for example, property or bank accounts held in the UK. However, it will not be paid on certain excluded assets.

Ian Bond, a member of the Law Society’s Wills and Equity Committee, broke down how all the various tax and Estate Planning laws may impact people based around the continent. He said:

“For decisions other than tax they have to look at the differences between succession laws between different countries.

In England and Wales, we can leave what we want to whom we want and exclude anyone we wish in our Wills. This is subject to rules on capacity and some other technical considerations. But the general rule is that we can do what we want with our Wills.

This is in contrast with other countries, especially European countries that follow a civil law and civil code basis, which tend to follow a forced heirship – set people get set amounts. In France, for example, your spouse can’t be excluded, and your children also equally get set amounts, there’s only a small amount that can be given freely.

Most commonwealth countries follow England and Wales and have a version of testamentary freedom.

Look at the Bernard Matthews case, where he wanted to give his French assets all to his mistress and leave out his children. The children went to court in France and got the French law to apply to get a share of the French assets.”

Ultimately, if British people own assets/property (or plan to do so) or retire within the EU they will need to be mindful it is not like back home, and they have to observe these laws for any property they buy in those countries.

Don’t get caught out, contact us today for advice relating to your Estate Planning and IHT liabilities!

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