Inheritance Tax If you Emigrate

HUMBUG

Always wondered what would happen to IHT if I emigrated from the UK .  Being single, owning a small 1 bedroom flat that is worth (horrendously in my opinion) about 325k and having savings and pension that will probably be hit with 40% tax there aren't too many options open to me to reduce my IHT liabilities . 

My easier options seem to be

1. Get Life Insurance to try and pay off the IHT bill when I die. 
2. Giving at least 10% of my estate to charity in my WILL.
3. Spend my savings and investments , maybe even cash in & spend my SIPP before I croak (including stumping up for private health insurance).
4. Emigrate to another country that doesn't have IHT (ie. like Portugal) and where the weather is better providing I live there for at least 5 years (I suspect it depends on the country rules about becoming a domicile) and provide proof of my commitment to be a domicile of that country. I would also need to break any financial and personal connections to the UK.

For point 4  , all I could find which made some sense to a layman like me, is below.

https://chilternwills.com/2021/09/22/emigrate-to-avoid-tax/#:~:text=If you were born in,tax on your UK assets.

It was written back in 2021 so am unsure whether any HMRC rules have changed but they seem to be grey areas and not very concise.

For example , I wasn't born in the UK even though I'm British having lived here for 64 years.  Does that mean I am categorised as a non-domicile?

Anyhow , something I am tempted to consider, but there is income tax and CGT to pay if I sell my property which cost me £64k back in 1988 which will be quite a hefty bill too. 

Maybe , if I bought a more expensive property and then sold it relatively quicky before I emigrated would reduce my CGT. 

Brie

Don't think there's any CGT if you've lived in your flat since you bought it.  What income tax would there be?

eskbanker

HUMBUG said:

owning a small 1 bedroom flat that is worth (horrendously in my opinion) about 325k

[...]

of course , there is income tax and CGT to pay if I sell my property which cost me £64k back in 1988.  That's quite a hefty bill too.

If it's your own home, rather than an investment property, then CGT doesn't apply, and I don't understand what income tax has to do with it?

HUMBUG said:

Maybe , if I bought a more expensive property and then sold it relatively quicky before I emigrated would reduce my CGT. 

Not following how that would work?

HUMBUG

Brie said:

Don't think there's any CGT if you've lived in your flat since you bought it.  What income tax would there be?

Isn't there CGT and income tax to pay if you sell your property but not use the proceeds to buy another property?

HUMBUG

eskbanker said:

HUMBUG said:

owning a small 1 bedroom flat that is worth (horrendously in my opinion) about 325k

[...]

of course , there is income tax and CGT to pay if I sell my property which cost me £64k back in 1988.  That's quite a hefty bill too.

If it's your own home, rather than an investment property, then CGT doesn't apply, and I don't understand what income tax has to do with it?

HUMBUG said:

Maybe , if I bought a more expensive property and then sold it relatively quicky before I emigrated would reduce my CGT. 

Not following how that would work?

Maybe I misinterpreted that article link in my opening post .

It says :
"If HMRC conclude that you are indeed becoming non-resident, in future UK income tax and capital gains tax will only be due on any income and gains arising on your UK property."

Brie

So if you sold your property there's no CGT.  If this is soon after you move then it's unlikely that HMRC will have spotted that you've gone off shore.  If it's a few years and you've been renting the property in the meantime then that's a different thing all together.  

So they'll start looking at your rental income and some CGT because the property is in the UK even if you aren't.  But as before - if you sold the property and moved there's no CGT and as there's no income from that property (aka non rent) there's no income tax.  

You might still have your state pension or occupational pension in the UK (so income tax) or shares held here that get sold (possibly CGT & income tax).  

SiliconChip

What reason do you have for wanting to reduce your estate's IHT? Who are you intending to leave the money to, and will they be concerned if the amount above £325K is reduced by 40%? Your plans seem completely unnecessary to me (I speak as another single person whose estate is also likely to be subject to IHT).

HUMBUG

SiliconChip said:

What reason do you have for wanting to reduce your estate's IHT? Who are you intending to leave the money to, and will they be concerned if the amount above £325K is reduced by 40%? Your plans seem completely unnecessary to me (I speak as another single person whose estate is also likely to be subject to IHT).

I would like the option of leaving my money sometime in the future to whoever I wish without the government taking another extra 40% of my savings/investments . All of which has been accrued after income tax on my earnings and taxable interest on my savings.

Plus I don't think its fair that RNRB 175k does not apply to single home owners.

HUMBUG

Brie said:

So if you sold your property there's no CGT.  If this is soon after you move then it's unlikely that HMRC will have spotted that you've gone off shore.  If it's a few years and you've been renting the property in the meantime then that's a different thing all together.  

So they'll start looking at your rental income and some CGT because the property is in the UK even if you aren't.  But as before - if you sold the property and moved there's no CGT and as there's no income from that property (aka non rent) there's no income tax.  

You might still have your state pension or occupational pension in the UK (so income tax) or shares held here that get sold (possibly CGT & income tax).  

Many thanks , so no CGT if I sell my property and it doesn't count as income?

I've just found this link which seems to confirm it, something called 'Private Residence Relief'.

https://www.gov.uk/tax-sell-home

GDB2222

HUMBUG said:

Brie said:

So if you sold your property there's no CGT.  If this is soon after you move then it's unlikely that HMRC will have spotted that you've gone off shore.  If it's a few years and you've been renting the property in the meantime then that's a different thing all together.  

So they'll start looking at your rental income and some CGT because the property is in the UK even if you aren't.  But as before - if you sold the property and moved there's no CGT and as there's no income from that property (aka non rent) there's no income tax.  

You might still have your state pension or occupational pension in the UK (so income tax) or shares held here that get sold (possibly CGT & income tax).  

Many thanks , so no CGT if I sell my property and it doesn't count as income?

I've just found this link which seems to confirm it, something called 'Private Residence Relief'.

https://www.gov.uk/tax-sell-home

What many people do, in order to avoid/reduce IHT, is give money away whilst they are still alive. 

Keep_pedalling

HUMBUG said:

SiliconChip said:

What reason do you have for wanting to reduce your estate's IHT? Who are you intending to leave the money to, and will they be concerned if the amount above £325K is reduced by 40%? Your plans seem completely unnecessary to me (I speak as another single person whose estate is also likely to be subject to IHT).

I would like the option of leaving my money sometime in the future to whoever I wish without the government taking another extra 40% of my savings/investments . All of which has been accrued after income tax on my earnings and taxable interest on my savings.

That would only be true if your flat has not gained in value since you purchased it.

You don’t need to resort to emigrating to avoid leaving anything to the government, you could leave everything over your NRB to charity, you could spend as much of it as you can on yourself, or when you have found the person you want to leave everything to you could marry them or form a civil partnership.