Expat owners of UK property warned over inheritance taxes

Published:  10 May at 6 PM
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As property prices in the UK continue to soar, expat Brit who own homes or buy-to-let investments back home are being warned about liability for inheritance taxes.

During the last financial year, rising house prices have meant thousands more taxpayers have been dragged in the inheritance tax net, even although a good number had no idea they’d become liable. As a result, the British taxman was richer by a record haul of some £5.2 billion, and this amount is set to go on rising as property becomes ever more expensive. Last month, HMRC’s take on inheritance tax saw a horrendous 44.4 per cent rise in the amount of heritage tax collected, a true increase of £200 million over last year’s April figures. According to forecasters, the taxman is preparing for a never-before-seen windfall in death tax receipts, as they’re expected to double to around £10 billion over the next decade.

Leaving aside the moral implications of chasing grieving home-owning, middle class families for vast sums whilst they’re sorting out the financial mess normally seen when someone dies, HMRC is rubbing its hands in glee at the thought of house price rise effects on its financial bottom line. At the same time, financial advisors are taking full advantage of the opportunity presented by the present situation. Whether they’re working in overseas expat hubs crammed with British expat professionals who invested in UK buy-to-let property a while ago or hitting on British pensioners in the home country whose homes are now worth several hundred times more than in the long distant past when they bought them, it’s a gold mine in the making.

Oddly enough, the situation gives the perfect opportunity for IFAs to reclaim the sector’s damaged reputation, as everyone wants to stop HRMC from getting a penny more than is necessary. Trusts have their uses, enabling clients to pass on their hard-gotten gains to their chosen beneficiaries when they themselves pass on. Pensions, ISAs and other legitimate savings can also be used should expats still be domiciled and tax-resident in the UK. According to reputable IFAs specialising in minimising death duties, advance planning can actually save some 40 per cent in inheritance tax bills.

Inheritance tax was originally introduced in order to claw monies from the rich, but a freeze on its original tax allowances plus the storming rise in property prices, especially in London, has meant literally hundreds of thousands of everyday middle class Brits as well as UK expats living and working overseas have been caught in the net. There are now 50 per cent more properties over the exemption limit of £325,000 than there were in 2014.

The government calculates deceased individuals’ net worth by adding up all their assets, including cash in bank accounts, businesses and/or properties owned, vehicles, payouts from life insurance policies and vehicles. Death duties at a rate of 40 per cent are then charged on the amount left after all debs are paid. Nowadays, it doesn’t take much to render beneficiaries liable, nor are a good number of those who’re left to pay anywhere near the criteria of being rich.

At present, ways around the HMRC grab include gifting money or assets, buying shares on the Alternative Investment Market and trusts, but the rules can be confusing and it’s not difficult to make mistakes. Whether you’re living overseas as an expat or are still in the UK, using a qualified, experienced adviser is probably the only way to be certain your assets are going to those who deserve them rather than to HMRC!
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