New law enforces inheritance tax on UK expat properties

Published:  28 Feb at 6 PM
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A new UK law due to be introduced on 6 April means the families of deceased UK expats will be forced to pay 40 per cent of total property and asset values in inheritance tax.

The rule will apply to non-UK domiciled investors who’ve purchased UK property via an offshore corporate structure and will overturn previous laws on the issue. Prior to the new law’s introduction, property holdings acquired in this manner by non-domiciled UK citizens were exempt from inheritance tax when the expat owner dies. The offshore corporate structure loophole has become popular with older expats looking for a secure investment to leave to their dependents.

The new law aims to bring together inheritance tax rules as applied to expats who remain UK-domiciled and the different rules applying to non-domiciled UK citizens living overseas. Domiciled expats have not been allowed to use offshore corporate structures when purchasing investment property in the UK and have always been liable to inheritance tax on their worldwide and UK assets.

British expatriates living and working in the Gulf States are expected to be widely affected by the new law, although most who’ve invested in UK property seem unaware of the upcoming changes. Over the past few years, the UK’s property market has proven to be an easy way to gain high returns at a time when more conventional investments have disappointed. Growth is still strong in London, with average house prices soaring by 65 per cent over the past five years.

Although growth in the rest of the UK hasn’t been as startlingly high as that in London, many expats have taken advantage of the recently increased availability of expat mortgages for buy-to-let properties outside the capital. Expat investors who feel they may be affected by the new law are urged to take professional advice as to which action to take. Possible solutions include ensuring liquidity on death by buying a life insurance policy in trust, the realisation of which may help dependents to cover the inheritance tax bill without being forced to dispose of properties held by the deceased.
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