How will the IHT rule changes impact me?

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I’m 58 years outdated and a UK citizen who has lived in Hong Kong for 12 years. I’ve three kids, all of whom are adults, and two grandchildren, all primarily based within the UK. I personal a UK property and maintain an funding portfolio in Hong Kong. I perceive that the scope of inheritance tax modified not too long ago. What are the modifications and the way will they influence me?

Anna Warren, tax director at Bentley Reid, says that, traditionally, a person’s legal responsibility to inheritance tax (IHT) was primarily based on the idea of domicile. Whereas there have been a number of sorts of domicile, it was broadly primarily based on the place your father was domiciled at delivery, and the place you meant to dwell completely.

This might convey uncertainty for people who had lived outdoors the UK for lengthy durations as to whether or not they can be topic to UK IHT. The UK has since shifted to a residence-based system and an individual’s IHT legal responsibility now depends upon whether or not they’re a long-term resident (LTR) — a UK tax resident for no less than 10 of the earlier 20 tax years. IHT impacts a long-term resident’s worldwide belongings, whereas a non-LTR would solely be topic to IHT on their belongings held within the UK.

Your IHT legal responsibility will rely upon whether or not you propose to remain in Hong Kong long run or not. Broadly talking, it is best to be capable of create a tax- environment friendly succession plan.

Having a look at your belongings, your UK property shall be topic to inheritance tax, however your Hong Kong funding portfolio can be thought-about outdoors of scope.

You possibly can due to this fact take into account a number of choices. First, by way of gifting. Items made to a different particular person are usually thought-about doubtlessly exempt transfers (PETs), which broadly require the donor to outlive seven years for the present to be exempt from IHT. If you’re a non-LTR on the time, presents of non-UK belongings shall be outdoors the tax scope and no IHT will come up.

Subsequent, you may discover using settling belongings into an offshore belief. There must be no IHT when transferring non-UK belongings right into a belief. A person who’s an LTR (or beforehand UK domiciled) can not put belongings right into a belief with out an instantaneous 20 per cent IHT cost on the worth above the nil-rate band. Using trusts can provide wider succession planning advantages, particularly when not eager to make outright presents. The long run IHT implications of the belief will rely upon the LTR standing of the settlor and whether or not they’re excluded.

Then, you may additionally take into consideration utilising a household funding firm — this automobile is usually a technique to present belongings to kids whereas retaining a component of management.

These new guidelines imply that long-term non-resident people have a clearer understanding of whether or not they’re topic to IHT. Those that are non-LTR have extra flexibility to plan and doubtlessly shield their non-UK belongings from UK IHT.

This all comes with the caveat that any succession planning is completely dependent in your particular person circumstances.

The opinions on this column are meant for common info functions solely and shouldn’t be used as an alternative choice to skilled recommendation. The Monetary Occasions Ltd and the authors usually are not answerable for any direct or oblique consequence arising from any reliance positioned on replies, together with any loss, and exclude legal responsibility to the complete extent.

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