10 Legal Tips For Avoiding UK Inheritance Tax

19.04.11

Please note that this article is over six months old. While Blevins Franks takes care to make sure that information is accurate on the date of publication, some content may change over time. You should not rely on the accuracy of legislation and tax information in this article; take professional advice for your circumstances.

1) Change your domicile – Unlike any other tax, UK Inheritance Tax (IHT) follows you around the world, regardless of where you may reside. That?s because it is based on your domicile,

1) Change your domicile

Unlike any other tax, UK Inheritance Tax (IHT) follows you around the world, regardless of where you may reside. That?s because it is based on your domicile, not residence. So you need to change your domicile in order to shrug off IHT.

If you really have made a permanent move to a new country, and intend to stay there for the foreseeable future without ever intending to return to live in the UK, then there is a very good chance that you have changed your domicile. Most accountants and lawyers suck their teeth and tell you that it is very difficult to change your domicile; I don?t entirely agree.

Whilst it can be difficult, it is certainly not impossible. We use a Domicile Determination Questionnaire which we have developed over the years to document all of the relevant facts about one?s domicile. From that we develop a thorough affidavit documenting the intentions, facts, reasoning and so on to support the new domicile of choice claim. This document arms your heirs with important evidence to resist any IHT claims. Your estate will remain liable to IHT on UK assets in your estate, but you can avoid that by wrapping those UK assets into a suitable offshore structure (once you have changed your domicile).

2) Business property relief

If you own shares for more than two years in a trading company or group which has not accumulated excess cash or investments, then the value is 100% exempt from UK IHT. A similar exemption exists for agricultural property (called Agriculture Property Relief). The detailed conditions which apply to BPR and APR need to be explored to ensure that the investment qualifies.

3) Charities

Leave your assets to charity: no UK IHT. Note that all EU registered charities can qualify (it used to be limited to UK ones).

4) Marry your partner

Get married ? as long as your spouse is a UK domicile for UK IHT purposes, there will be no UK IHT on assets transferred to her/him on your death. If you are a same-sex couple, enter into a civil agreement. If your spouse/civil partner is a non-UK domicile, whilst you are a UK domicile, consider changing her/his domicile to UK.

5) Gift

Gift an asset to your children or grandchildren; as long as you survive seven years there is no UK IHT. If your spouse is much younger than you, arrange for her/him to make the gift (but watch out that this is not caught in some form of contractual arrangement). You can also make gifts which restrict access to the funds (without using a Trust) so that the beneficiary cannot overspend.

6) Disabled children

Transfers into a trust for disabled children are free from UK IHT. The disability must meet certain conditions. You can be the Trustee so that you are in control of the funds with provisions to appoint others following your death.

7) QNUPS

Transfers into a Qualifying Non-UK Pension Scheme are exempt from UK IHT, and the fund can pass IHT free on your death. Take careful advice on how to set this up. The QNUPS can give the settler an income ? no need to be an excluded beneficiary. So you can have access to the funds, yet it is outside of your estate for UK IHT. There is no seven year wait period either. However, there is some anti-avoidance legislation which needs to be reviewed to ensure that you don?t fall foul.

8) Move to France

The UK has very few Double Tax Treaties relating to inheritance taxes. It has one for France (and India, among others). If you have arranged your French tax affairs to avoid French succession tax, then voil? there are no UK or French inheritance taxes payable.

9) Move your UK registered pension fund to QROPS

A Qualifying Recognised Overseas Pension Scheme is exempt from UK IHT (subject to certain anti-avoidance laws).

10) Give away your annual income to charity

Why pay UK income tax when you intend to leave your estate to charity? Give the income away each year under Gift Aid (no income tax) and live off your capital instead. This provides more money for the charity and less to HMRC.

By David Franks, Chief Executive, Blevins Franks

3rd November 2010

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.

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