Inheritance tax - DUAL CITIZENSHIPS

ggloria007

Hi there, 

I have two citizenships and two properties (in two different countries). The UK inheritance tax is much higher than in other country and I would like to draw a will which will include the other country's rules on inheritance taxes. My sister lives in the property and I do not wish her to pay a UK tax on the property we were born and spent majority of our lives. From what I have researched I cannot have one property following one country's rule and another property following the local inheritance rules. It looks like I have to make my mind...

Also I have a property with my partner in the UK and when we purchased the house it was drawn under "tenants in common". I believe the solicitor asked me which domicile I will follow (assuming for this house) and I said UK. Well, 25 years ago I certainly didnt think about wills and inheritance let alone had knowledge of the inheritance taxes in different countries. So, a few questions here:
1. Can I reverse the original decision made when purchasing the house in the UK to change the domicile? 
2. What is the impact of this on my status in the UK? I am a British citizen... 
3. Do I need to write a will in the UK for this purpose or a will from abroad would suffice?
4. Similarly I would like to have a will drafted abroad but with UK friends as executors? 
5. What is the best advice you could give me in this specific situation? Ta

A/ my "estate" in the UK is around £650k (including the share of the house if it is sold)  

I would be grateful for any further advice of what I might need to consider etc ....  so I do not repeat the same mistake from 25 years ago, being cluless and getting along with the flow... 
Thank you 

Jeremy535897

You are a British citizen who appears to have been resident here for at least 25 years. Consequently you will be regarded as domiciled in the UK for all tax purposes, whatever the facts. Actual (as opposed to deemed) domicile is a question of fact. Your domicile of origin is normally your father's domicile at the date of your birth. You can replace this with a domicile of choice, but only if the facts show that your permanent home is elsewhere. But the UK also deems you to be domiciled here if you have been resident here for at least 15 out of the last 20 years.

As a UK domiciled individual you will be liable to UK inheritance tax on your worldwide estate. You may also be subject to local taxes on property situated in another country. The UK is likely to give credit for the overseas tax paid, to the extent it does not exceed the UK liability. There may even be an inheritance tax double tax agreement between the UK and the other country. The other country may also operate forced heirship rules.

You will need to take legal advice on where you need to write wills, but the normal approach would be to have a local will for the overseas property (unless it passes by survivorship), with the UK will referring to it. It may well be that if the overseas property (or rather your share of it) is less than your nil rate band of £325,000 (less any non-exempt gifts in the previous seven years), in which case there would be no UK inheritance tax to pay if you predecease your partner and leave everything else to them (so long as you are married or in a civil partnership). I would not burden a UK lay person with the executorship of an overseas estate.

ggloria007

There must be a legal way to avoid such a high inheritance tax in the UK legally... trust perhaps, or to sell and give away all above 325k... to give the sister property abroad??? 

Flugelhorn

ggloria007 said:

There must be a legal way to avoid such a high inheritance tax in the UK legally... trust perhaps, or to sell and give away all above 325k... to give the sister property abroad??? 

wouldn't we all love to avoid IHT! 

Yes you can give the property away but it has to be genuinely given, not that you still retain use of it etc etc - she can then sell it / give it away or whatever and you have no say

If you died within 7 years of the gift it would still be partly considered in your estate

Albermarle

There must be a legal way to avoid such a high inheritance tax in the UK legally... trust perhaps, or to sell and give away all above 325k.

Anything you give to charity, will not be included in any IHT calculation. Also if you leave at least 10%? to charity in your will , then the IHT tax rate on your remaining estate is reduced from 40% to 32 %.

ggloria007

My problem is not really uk property... law etc... my sore is the family home of my parents who struggle big time to repay it as working class people. They both died really due to working hard, saving for our education and big sacrifices ... they never went on holiday. So, I will do anything so it remains that way and this home is not taxed 40%  I might return "home"  and leave "British passport" at the Heathrow before getting on the plane to SA.  

ggloria007

Anyhow  .. reading one of Martins articles he explains:

The politics of inheritance tax are controversial. The idea is that without it you perpetuate inherited wealth, so the children of the rich stay rich. Inheritance tax redistributes income so some of the money goes to the state to be distributed for the benefit of all.

The argument against it is that when money's earned, tax is paid at the time, so to pay tax on it again isn't fair.

So what rich people do to avoid this distribution... they are still rich  their kids are still rich... my neighbour said this evening: they have "good advises" from even better solicitors" ... she also said I should look at making a "trust" 

I am going to ask probably stupid question but let's try : how can "trust" reduce the inheritance tax? 

ggloria007

Flugelhorn said:

ggloria007 said:

There must be a legal way to avoid such a high inheritance tax in the UK legally... trust perhaps, or to sell and give away all above 325k... to give the sister property abroad??? 

wouldn't we all love to avoid IHT! 

Yes you can give the property away but it has to be genuinely given, not that you still retain use of it etc etc - she can then sell it / give it away or whatever and you have no say

If you died within 7 years of the gift it would still be partly considered in your estate

Yes  that is the best idea 💡 I will give sister  my half (genuilly) as I already have enough here... ensure it is on her name and that she lives there... job done!  Thank you... I just need to ensure I live next 7 years!!! 

Jeremy535897

If you permanently leave the UK and become domiciled and resident in South Africa, after five tax years you would be out of the UK inheritance tax net, unless you retained UK situated assets.

There are many sorts of trusts, and if you are happy to give your half of the property your sister lives in without strings, I think it is unlikely that a trust will improve upon that.

Are you married or in a civil partnerships. Assets passing between spouses and civil partners are exempt from inheritance tax.

Albermarle

. my neighbour said this evening: they have "good advises" from even better solicitors" ... she also said I should look at making a "trust" I am going to ask probably stupid question but let's try : how can "trust" reduce the inheritance tax? 

In simple terms.

When you make a trust, you have to give your money, house etc to the trust. As it is no longer your money, it will not be included directly in IHT calculation.

The Trust is run by Trustees ( somebody you can trust) and they have the power to distribute the money in the trust.

However it is a common misconception ( by your neighbour for example) that it is easy to avoid IHT completely by using a trust. There are some disadvantages.

1) Some IHT tax is taken from the trust ( I think even before you are dead) as HMRC are not stupid.

2) Trusts can be complicated and expensive to set up and operate and tax may have to be paid each year

3) You have to trust the Trustees not to do inappropriate actions with the money.

Trusts can be useful in certain circumstances, but in most cases the main beneficiary are the lawyers who charge for setting them up and running them. It is probably easier just to pay up the IHT .