Or taxation as it is otherwise known is a necessary part of living in a developed society; however, with the right planning, the overall liability can be effectively and legitimately be reduced or mitigated.
Never is this more so, than in the case of inheritance tax (IHT) planning. There is a huge amount of naivety of the difference between your residential tax status and that of domicile. This is exacerbated by the lack of clear guidance from HMRC, the UK tax man.
In simple terms, it’s easy to lose your residential status just by living abroad for a period of time as many of us expats have done here in Dubai, but no matter how long you live overseas, it is very hard to lose you domicile status.
So what is the impact of being domicile I hear you ask?
40% tax on your worldwide assets is the short answer. So for every £1,000,000 of wealth, your estate will pay the UK taxman £400,000.
Now it’s not all bad news as you will have a personal allowance known as a nil-rate band (NRB) which currently stands at £325,000 and a few other minor allowances to utilize. The key benefit of taking professional advice is to be able to minimise the impact of this tax without giving away all of your money.
“Inheritance Tax is broadly speaking a voluntary levy paid by those who distrust their heirs more than they dislike the Inland Revenue”– Roy Jenkins MP 1986
There are two main components to this question; first, your savings & investments are usually in a tax efficient location to reduce the “cost” of running your portfolio plus potentially significant benefits from time spent overseas whilst investing. The lower the cost, the greater the growth potential. Second, if you originally came from the UK and live in say Dubai or Abu Dhabi, you may be here in a tax free environment, but your house, pension and other assets are in a taxed jurisdiction!
We live in a social media driven world and you are on Facebook, Twitter, LinkedIn etc. Guess what, so is the tax man and crucially from 2017, an OECD led agreement to automatically exchange information relevant for tax purposes will be in force.
Whether you are British and married to a different nationality, or indeed American, married to a different national, there can be significant and onerous tax issues. Trouble is, you don’t know what you don’t know and these matters only come to light with planning or when you have died and needless to say, it’s a bit late then!
I help international workers and expatriates plan their finances. Providing unbiased and independent financial advice, I work with many of the world's major Banks and Financial Institutions covering many areas. I offer a free consultancy meeting lasting 1.5 hours in which we can review your current financial circumstances and suggest options to you that are designed for your money to work harder for you, and in a tax efficient way.