Accommodation is an important issue for British expats. As long as you live in the UK, you are subject to UK inheritance tax on your worldwide assets. Although moving your home is possible, it depends on your circumstances and objectives and should be a carefully thought out and planned process.
The basic rule is that a person can live permanently or indefinitely in the country they live in – the country you consider your “home”, “where you want to die”. You can live in Portugal for years and live in the UK.
Residence and Inheritance Tax
Whether or not your estate is subject to UK Inheritance Tax (IHT) depends on your state of residence (not tax residence).
Anyone deemed to have settled in the UK is subject to inheritance tax at 40% of their worldwide assets. There is a tax-free personal allowance of £325,000, which can be transferred to your spouse/civil partner, and a ‘family allowance’ of £175,000. Transfers to spouses/civil partners are exempt from IHT if you are both resident in the UK. Otherwise, the exemption is limited to the nil installment.
If you die as a non-UK resident, you will only be liable to UK inheritance tax on assets in the UK (on the value above deductions).
House of birth – British common law assigns a domicile to every person at birth. Usually father’s house, or mother’s house if single (not necessarily your country of birth).
dependent home – It applies to women married before 1974, minors and other legal dependents.
Preferred home – As HM Revenue and Customs RDRM22010 explains, “any natural person with legal capacity may acquire preferred residence”.
Get a home of your choice
To qualify for preferred residence, you must be physically and domiciled for tax purposes in your new country and reside there permanently or indefinitely.
As HMRC are scrutinizing your intentions, you should cut as many ties as you can for any indication that you consider Britain your home and may return in the future. Choosing to apply UK succession law to local ‘compulsory succession’ rules may be a sticking point in conjunction with other relations with the UK.
Even if you take all steps to adopt preferred residence outside the UK, it can take up to four years to get rid of UK residence for inheritance tax purposes. HMRC may consider you resident in the UK if you:
- UK residents for 15 of the last 20 tax years
- Return to the UK for more than a year (if the UK is your original home and place of birth)
- Move to a third country – unless you can prove that you have chosen a new place of residence.
Residential determination is a highly specialized field; You need professional advice to make sure you get it right. If you think you’ve left your UK home and HMRC decide otherwise, your heirs could face an unexpected tax bill.
Here are examples of the types of information HMRC may request during a home investigation:
- Date of birth, place and nationality, name and marital status of parents, contact details of siblings.
- Marriages/civil partnerships, divorce, long-term cohabitation, details of children (names, dates of birth, nationality, education, current residence etc.).
- A list of all residences since birth, details of transfer of ownership, summary of residences are available to you.
- Information on the exercise of political rights in any territory; Membership in professional bodies, clubs, societies etc. ; Details of religious, cultural and social relations.
- Ability to speak, read and write relevant languages.
- Details of wills and deeds and all deeds and declarations, the location of personal documents and items of financial or sentimental value.
- Summary of professional and personal advisors.
You will need documentary evidence such as birth certificates, insurance policies, wills, personal letters, photographs, electronic records, etc. related to your background, lifestyle and your goals.
Remember that you can’t handle this on your own. Your heirs and/or possibly your executor will need to prove to HMRC that your estate will not be subject to UK inheritance tax, so leave all the paperwork for them.
Home and Estate Planning
Professional and expert advice specific to your situation and your objectives is essential here,
If you want to avoid leaving your heirs with unexpected tax bills and headaches.
Whether you have UK resident status or not, there are tax planning schemes available to reduce your inheritance and other tax liabilities. An expert in this field can help you establish your residency status, how inheritance tax relates to Portuguese stamp duty and what steps you can take to minimize unnecessary taxes for your heirs.
Tax rates, coverage and reliefs are subject to change. All statements relating to taxation are based on our understanding of current tax laws and practices subject to change. Tax information is summarized; A person should seek individual advice.
Keep up-to-date on financial issues that may affect you on the Blevins Franks news page www.blevinsfranks.com
Don Henderson is a partner Franks Blevins In Portugal. A highly experienced financial advisor, he holds a Diploma in Financial Planning and Advanced Qualifications in Retirement and Investment Planning from the Chartered Insurance Institute (CII). | www.blevinsfranks.com
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