According to the latest migration statistics by the Office of National Statistics the number of people leaving the country to live overseas has risen slightly to 347,000 in 2012 from 339,000 in the previous year.
However, the British expatriate community throughout the world continues to be a great source of revenue for the UK Government. HMRC took £2.91bn from IHT in 2011/12, compared with £2.72bn in 2010/11. The number of individuals paying IHT also rose, with 20,000 paying the tax this year compared with 17,000 last year. With house prices predicted to rise and the value of the amount of assets you may have before inheritance tax is due frozen at £325,000 until April 2019, it is likely that the number of people who will fall into the inheritance tax bracket will increase in the future.
One area which is often overlooked when migrating, especially when you’re adjusting to a different climate and lifestyle, is tax planning to mitigate the impact of any UK inheritance tax liability.
Individuals who are classed as UK domicile or deemed domicile may be liable to inheritance tax during their lifetime and on death when their estate is over the inheritance tax threshold.
Domicile is a complex area but a rule of thumb is, if you were born in the UK and your parents were born in the UK then you’re likely to been considered UK domicile. There are a number of other instances which may cause an individual who was not born in the UK to become UK domicile, such as having lived in the UK for 17 out of 20 years, or the individual’s father being UK domicile.
Losing your UK domicile is not easy and requires severing complete ties with the UK, which many British expats are unable to demonstrate as they may have family in the UK and still own property. So planning for the inevitable inheritance bill is essential.
Use it or lose it – making Lifetime Gifts
One of the key IHT planning exercises is to use all your IHT exemptions where possible. Brief reminders of some of them are:
Annual Exemption
This is an amount that can be gifted free of IHT and currently the amount is £3,000 per year. Where the exemption has not been used in the previous year, the amount can be carried forward but only for the current year – giving a maximum of £6,000.
Normal expenditure out of income
A transfer made out of normal expenditure of income will be exempt providing a number of criteria are met:
1. The transfer was made as part of the person’s (the transferor) normal expenditure;
2. It was made out of natural ‘income’, for example from salary, dividend payments, or interest from investments;
3. After allowing for all transfers which are part of normal expenditure, the transferor was left with sufficient income to maintain their usual standard of living;
4. The transfer is habitual or regular.
Gifts into Trust
