2nd Edition, February 2017
You're receiving this newsletter because you are registered with VFS International.
Having trouble reading this email? View it in your browser.
Not interested anymore? Unsubscribe instantly.

VFS will be publishing a series of articles called VFS Insights, raising awareness of issues which may have a significant impact on your financial affairs and your estate, either in your lifetime or in the future. VFS Insights will cover the latest and most important changes in the rules and regulations governing financial planning and what they mean for you and your family. They will also cover existing risks and the measures that can be taken to mitigate their impact on your estate.

The focus of the opening articles in our series is estate planning and inheritance tax. Many people, including non-domiciled, non-UK residents or nationals and anyone owning residential property in the UK, may be more exposed to inheritance tax than they realise.

INHERITANCE TAX: Ex-pats living abroad are not prepared for the financial fallout when a widowed spouse returns to the UK

Many families are potentially at risk of incurring a UK inheritance tax (IHT) bill they weren't expecting. Even if you live in a country without estate duties, your family could be at risk of paying inheritance tax in the UK later on if your spouse or partner is domiciled there. There are two specific - and extremely common - family situations that now generate a possibly unexpected UK IHT liability. You might also be surprised to learn that you don't have to own property in the UK to be at risk.

The first scenario applies to couples without assets or property in the UK but with a spouse who is domiciled there. So, Bob who is domiciled in country X dies and leaves his estate to Jenny, his wife who, though domiciled in the UK, has lived in country X with Bob and their children for many years. All well and good. Nothing to worry about there. The problem arises when Jenny decides she would like to "return" to the UK to live, perhaps to continue the education of her children or to be with other family. In so doing, the estate built up by Bob, which Jenny inherited on his death, will be immediately diminished by a hefty UK inheritance tax bill payable by her children on her death. Unfortunately for them, the portion of their father's estate above the Nil Rate Band (NRB) of £325,000 is subject to 40% tax in the UK. Sadly, this scenario is all too familiar. So families at risk must plan ahead in order to avoid putting estates built up over generations in one country unnecessarily at risk in another.

The second situation applies to couples with a UK-domiciled spouse and with assets, including property, in the UK. So, take Joanna. She is UK domiciled and has a flat in London which is let out while she lives happily in country X with her husband, Charlie, who is domiciled there. Nothing to worry about. The sting comes when Joanna dies, naturally leaving her UK estate including the London flat to Charlie. As if losing his wife isn't bad enough, Charlie is horrified to find that her flat is considered a UK-situs asset and is therefore subject to inheritance tax there. Even though the tax-exempt allowance has recently been raised to the standard £325,000, under new rules, the rest of Joanna's estate will be subject to 40% inheritance tax, which Bob must now pay.

In the UK, where both husband and wife are domiciled there, transfers between spouses are exempt. It is possible for expats to avail themselves of this benefit without moving home. To be eligible for the free transfer, the non-domiciled spouse can elect to become UK-domiciled for IHT purposes only. However, it comes with a nasty sting in the tail. Non-domiciled spouses who become domiciled in the UK for IHT purposes then have to pay IHT on their assets worldwide.

There are solutions available, some of which are relatively simple and cost effective, which can help affected families and couples reduce their exposure to inheritance tax. To assess your liability and discuss your options, please seek advice from your VFS financial advisor.


Information throughout this newsletter, whether stock quotes, charts, articles, or any other statement or statements regarding market or other financial information, is obtained from sources which we, and our suppliers believe reliable, but we do not warrant or guarantee the timeliness or accuracy of this information. Nothing in this newsletter should be interpreted to state or imply that past results are an indication of future performance. There are no warranties, expressed or implied, as to accuracy, completeness of results obtained from any information contained within this newsletter or any linked websites.Unless expressly stated otherwise the information in this newsletter relating to products and services does not constitute an offer, or inducement to enter into a legally binding contract, and does not form part of the terms and conditions for such products and services. Furthermore, the information provided is not intended to be taken as financial advice and does not take into account any investor's individual requirements and circumstances. Products and services listed here may not have been registered or authorised by any central bank, governmental or regulatory authority in the country of your residence. Accordingly, you may not have the benefit of protection from the securities laws, banking laws and other relevant laws and regulations of your country of residence with respect to products or services referred to on, or through this newsletter.


Send this email
Quick contacts

Follow this link >

© Copyright VFS International All rights reserved.