Expatriate Estate Planning

You may think that as an expatriate you have slipped through the net and your estate will be free of inheritance taxation liabilities - well unless you have taken certain steps already this may very well NOT be the case.

You may think that as an expatriate you have slipped through the net and your estate will be free of inheritance taxation liabilities - well unless you have taken certain steps already this may very well NOT be the case.

When it comes to asset protection you have to take active responsibility to protect yourself and your family - now and for the future.

And the good news is that the solutions to your estate planning problems are out there!  But unless you get informed of your options, the tax man may very well benefit substantially from your death. 

Stop him in his tracks - read on!

The Future

From school fee planning to retirement planning - when it comes to planning for our future and that of our families we have no problem considering the options and possible solutions. 

Considering our own mortality however, is not something we like to spend much time doing!  Yet the fact of the matter is - it is unavoidable.  And just as death is not something we can escape from, death duty is just as inevitable. 

That said - there is specific action that can be taken to protect your assets from the tax man.

This article will help you understand what your estate tax liabilities may be, and how best you can take action to protect your assets and avoid your family losing out to the tax man.

What is IHT?

IHT or inheritance tax is what the UK Government call death duties, the US Government prefer to refer to death duties as Estate Tax and in France for example, death duties are called Estate and Gift Tax.

Whatever the name for this form of taxation one thing is universally true - the further taxation at death of assets on which and for which you have paid your tax liability throughout life, is quite simply unfair.

Automatic expatriate avoidance

If you believe that simply by moving away from your country of birth you can avoid inheritance tax, you may very well be wrong. 

Depending on your circumstances at the present time it may well be possible to reduce your income and capital gains taxes - but it is far harder to escape taxation of your estate at death.

UK expatriate example

If you are British but no longer a UK resident and you hold property in the UK and abroad, at death the British tax man will be entitled to claim inheritance tax on your worldwide assets.

The percentage he will be able to claim will be 0% on the first £275,000 of your estate (tax year 2005 - 2006) and 40% of everything over that amount. 

N.B., The first £275,000 is not exempt - it is simply taxed at 0%, meaning the tax man can change that to be a positive percentage amount at any time in the future!

Your UK inheritance tax liabilities are not based on your country of residence, they are not based on the amount of time you have been out of the country, they are based on your domicile.

Determining domicile & changing domicile

Losing residency in your country of birth is fairly easy to do!  Leave that country for long enough and you’ll lose your residency there.  Losing or changing your domicile on the other hand is quite another matter.

Your domicile will always revert to your country of birth unless you take specific and direct action to change that.

Going back to the UK expatriate example above: the expatriate Brit had given up his residency but had not given up his domicile, furthermore, as he still had assets in the UK, the UK tax man was able to claim IHT on his entire worldwide assets at the time of death.  Maybe a good solution for him would have been to change domicile during his life.

However, changing domicile is not easy to do and it is not something that is generally actively encouraged! 

For a British national to change their domicile for example: -

- They must leave the UK with the ‘intention never to return’. 
- They must acquire a new domicile - a ‘domicile of choice’
- And they must then live in the new domicile and show that it is their intention to live there forever!

At this stage the ex-British national living in their ‘domicile of choice’ can still be deemed to be UK domiciled for IHT purposes! 

- You can be ‘deemed domiciled’ in the UK even if you have been away from the country for the last 17 out of 20 years for example.

- You can be ‘deemed domiciled’ in the UK for the 3 years after you cease to be officially UK domiciled!

I’ve written an article specifically about changing your residence or domicile and if you’d like to read it it is here: -

Changing Your Tax Status