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UK Inheritance Tax-Australia

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UK Inheritance Tax is normally levied on the following estates:

  • where the deceased is domiciled in the United Kingdom (or in some cases, deemed to be domiciled); OR
  • on assets located in the United Kingdom.
  • If your estate (net of debts) is worth less than the nil-rate band, GBP325000, then you don't need to concern yourself with Inheritance Tax.
    • Since October 2007, the nil-rate band can be higher (up to GBP650,000) for some situations where a spouse has previously died and not used the entire nil-rate band.
    • The rate is 40% but only on the amount above the nil rate band.
    • 95% of UK estates do not pay the tax.
  • Inheritance tax is levied on estates, normally. Only in specific situations is it levied on a beneficiary.
  • It is noteworthy that although there is an Inheritance Tax in the UK, capital gains that have been earned by the deceased up to date of death are not taxed.

Contents

[edit] What is domicile?

Under English law (Scottish and Northern Irish law are similar) domicile is where you have your permanent home. It's not the same as residence or nationality, but can be influenced by both. Under English law, it is not possible to have more than one domicile.

Other jurisdictions also use the term "domicile", sometimes with a different meaning, and it is possible to be "domiciled" in a country under their laws while retaining an English domicile under English law. In order to escape Inheritance Tax, you need to work with the English definition of the term.

[edit] Will your Australian estate be subject to UK Inheritance Tax?

  • In the simplest case, if you have moved all your assets to Australia, become an Australian citizen, made a will in Australia, and spent all your remaining life in Australia, then you would almost certainly be assessed as having become domiciled in Australia at some point before your death.
  • In that situation, the UK Revenue will never even know about your estate (because probate will be done in Australia) and even if they did know, it would not be liable as you would have shed UK domicile.
  • If you have left assets in the UK, such as a house, then it's more complex. The UK Revenue have more chance of knowing about your estate (because a UK probate will be needed) and more chance of arguing that keeping a house or other assets indicated retaining a UK domicile. And regardless of your domicile, the house WILL be subject to IHT if it and your other assets in the UK are worth more than the nil-rate band.
  • If you are only on a short term stay in Australia, then you retain a UK domicile your estate remains within the scope of UK Inheritance Tax (in this situation, normally you wouldn't have moved all your assets to Australia or made an Australian will).

[edit] Should I keep assets in the UK?

  • From a pure inheritance tax point of view, it may be better not to do so for the long term;
  • BUT future liability to inheritance tax is not the only basis on which to make a decision and you should discuss with a good accountant or financial planner.

[edit] If I receive an inheritance while resident in Australia?

  • No Australian tax immediately but you should take advice as the inheritance will likely lead to future income and capital gains which may be taxable.

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