Whatever you do…. don’t die.

Here’s how UK inheritance tax (IHT) works in simple terms:

1. Everyone has a certain amount they can pass on without paying any tax. This is the "nil-rate band" and is currently ￡325,000.

If what you leave behind ("estate") is worth less than this, no inheritance tax is due.

1. If your estate is worth more than ￡325,000, then the amount above this threshold might be taxed at 40%.

For example, if your estate is worth ￡500,000, you could pay tax on ￡175,000 (￡500,000 - ￡325,000).

1. If you leave everything to your spouse or civil partner, there’s usually no IHT to pay. Also, they can inherit your unused threshold, meaning together you can leave ￡650,000 without paying tax. If you leave your home to your children or grandchildren, there’s an extra allowance of up to ￡175,000 on top of the ￡325,000 threshold. Increasing the tax-free amount to ￡500,000.
2. If you leave 10% or more of your estate to charity, the IHT on the rest of your estate can drop from 40% to 36%.
3. Any IHT due, usually comes from the estate itself before the rest is distributed to the beneficiaries.

Who does it apply to?

UK Residents: their entire estate (all their money, property, and possessions) no matter where those assets are located in the world.

Non-UK Residents with UK Assets: If the person was not living in the UK but owned assets in the UK (like property, investments, or bank accounts), those specific UK assets might be subject to IHT.

Gifts Before Death: If a person gives away assets or money in the seven years before they die, those gifts might also be subject to inheritance tax, depending on the value and timing.

Spouse or Civil Partner: If the deceased left everything to their spouse or civil partner, who is also a UK resident, inheritance tax usually does not apply.

What about domicile?

Example: Maria, an Italian Citizen Living in the UK

• Maria was born in Italy and considers it her permanent home. She moved to the UK 10 years ago for work but plans to return to Italy.
• Maria is "non-domiciled" in the UK, even though she lives in the UK.?

UK Inheritance Tax Situation:

• UK Assets: Maria owns a flat in London worth ￡500,000. If Maria passes away, only her UK assets (the flat) would be subject to IHT.
• Non-UK Assets: Her Italian house wouldn’t be taxed by the UK because she’s non-domiciled.

BUT: If Maria lives in the UK for 15 years or more out of the last 20 years, she could be "deemed domiciled." This means her worldwide assets, including house in Italy, would then be subject to IHT.

Example: John, a UK Citizen Moving to Australia

• John, a UK citizen, decides to move to Australia permanently.
• If John passes away while still domiciled in the UK, his worldwide assets, including property and investments in Australia, will be subject to UK inheritance tax.
• Once John successfully changes his domicile to Australia, only his UK assets (like a flat in London) will be subject to IHT. His Australian assets (like a house in Sydney) will not be taxed by the UK.

?What about offshore trusts?

?Scenario 1: UK Domiciled

• John?is UK domiciled and sets up a Jersey trust with ￡1 million. He names his children as beneficiaries. Despite the trust being offshore, the ￡1 million in the Jersey trust is considered part of John's estate for inheritance tax purposes. Upon John's death, the trust's assets may be taxed, affecting what his children (the beneficiaries) receive.

Scenario 2: Non-Domiciled

• Maria?is non-domiciled and sets up a Jersey trust with ￡500,000. She names her grandchildren as beneficiaries. As a non-domiciled individual, the trust's ￡500,000 is not subject to UK inheritance tax. However, if Maria were to become deemed domiciled, the assets in the Jersey trust could be included in her estate for UK inheritance tax purposes.?

The abolition of the non-domiciled (non-dom) status in the UK will have significant implications for how inheritance tax is applied.

For Non-Domiciled Individuals:

• Worldwide assets, including those held in offshore trusts, would become subject to UK inheritance tax if they are UK resident.
• The distinction between UK and non-UK assets for tax purposes would no longer apply, leading to potentially higher tax for those with overseas assets. Now here the catch…..

If non-domiciled non-residents (or trusts they control) hold UK assets, the impact of would be:

As non-residents, their UK assets, such as shares, would still be subject to UK inheritance tax.

Trusts set up by non-domiciled non-residents would still be subject to UK inheritance tax on UK assets held within the trust.

The abolition could mean that the trust's worldwide assets might be subject to UK inheritance tax if the settlor is deemed domiciled or if the rules change to cover all assets.

Talk to an advisor at www.nebawealth.com or www.concentric.je

www.teamplc.co.uk

?