FEATURE
euroweeklynews.com
The 2022/23 tax year proved to be yet another record year for UK inheritance tax (IHT) receipts. HM Revenue & Customs received an extra £1 billion over the last tax year, generating a total of £7.1 billion. The number of people paying this tax jumped 24%, up from 33,000 the previous year to 41,000. The government expects IHT revenue to continue to increase, bringing in £38 billion over the next five years. Frozen reliefs and rising property prices The standard inheritance tax nil rate band has been frozen at £325,000 since 2009. It is scheduled to remain fixed until April 2028, by which time it would have been frozen for 19 years. In contrast, house prices have risen over this long period, pushing more estates into the IHT net. The residential nil-rate band (RNRB) was introduced in 2017 to help protect families, but has limitations. It only applies to a main residential home directly passed to children and grandchildren, and where the estate is valued under £2 million. Higher value estates are subject to a tapering system that
22 - 28 June 2023
EWN
9
More families than ever caught in UK inheritance tax net
By Brett Hanson, Senior Partner, Blevins Franks
eliminates the RNRB entirely when an estate exceeds £2.35 million. The current £175,000 allowance is also frozen until 2028. Is your estate liable for UK inheritance tax? UK IHT is charged on death and lifetime gifts. For UK domiciles it
applies to their worldwide estate, regardless of residence. Non-UK domiciles are assessed on UK situated assets. Your liability is calculated on your entire estate – property, savings and investments, insurance policies not in trust, household contents, jewellery, vehicles etc. Outstanding mortgages and loans are generally deducted from the total. If the total value of your estate is lower than the two allowances, your heirs do not have to pay this tax. If it exceeds the thresholds, your heirs pay 40% tax on the excess. Where the allowances are not used on the first death, or only partly used, the balance can be transferred to the surviving spouse/civil partner – make sure your estate is set up to take full advantage.
Expatriates and the domicile issue UK inheritance tax follows you around the world since your estate is liable for as long as you remain a UK domicile. Domicile is a complex and adhesive UK common law concept, and many British expatriates are UK domiciled their whole life. That said, you can take steps and cut ties with the UK to adopt a domicile of choice in Spain, though it can take up to four years to shed a UK domicile for inheritance tax purposes. Getting your domicile status wrong could result in an unexpected large tax bill for your family, so professional advice is essential here. UK inheritance tax planning Inheritance tax is often referred to as a voluntary tax, since there are various steps you can take to eliminate or reduce the liability for your family
and heirs. Don’t risk leaving it too late, especially if you are planning on making lifetime gifts (‘potentially exempt transfers’). Cross-border estate planning can be a minefield – more so if you are subject to inheritance taxes in more than one country as is the case with British expatriates in Spain – so take specialist advice today to get it right and take advantage of the planning opportunities available. The tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; individuals should seek personalised advice. Keep up to date on the financial issues that may affect you on the Blevins Franks news page at www.blevinsfranks.com.
