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Inheritance Tax And How It Affects Non-UK Residents

Written by
Friday 20 May 2022
2 years ago

The loss of a loved one can be crushing by any stretch of the imagination. But then, to be informed that as the surviving partner, you could be subject to paying 40% in Inheritance Tax on any property, money or possessions that have been left by the deceased is beyond contemplation. So in this article, we’re going to take a look at the impact Inheritance Tax can have on you as a non-UK resident.

However, it should be emphasised that this is a complex subject, and a note such as this can do no more than highlight the issues that need to be considered and discussed. As a result, you must seek expert, tailored tax advice from somebody like The Taxman UK as they will be able to reflect on the individual’s particular circumstances.

What do we mean by Inheritance Tax?

Inheritance Tax or IHT is a tax leveraged on the estate (the property, money and possessions) of someone who has died.

However, there is usually no Inheritance Tax to pay if the estate value is below the £325,000 threshold or if everything above the £325,000 threshold gets left to the spouse, a civil partner, a charity, or a community based amateur sports club. This being said, even if the estate’s value is below the £325,000 threshold, you still need to report the estate’s value to the HMRC.

Inheritance Tax Rate

The current Inheritance Tax rate is set at 40%, and the tax-free threshold is £325,000. This means that you would only pay IHT on the part of the estate that is above the threshold.

For example, let’s say the estate is worth £500,000, and the tax-free threshold is £325,000. The Inheritance or IHT will only be charged on £175,000 – the balance between £500,000 and the tax-free threshold of £325,000. On the surface may not seem so bad, but remember that it is still equal to a single tax liability of £70,000, which could significantly impact somebody’s life.

Inheritance Tax Exemptions

Despite what we have listed here, there are a couple of exemptions to Inheritance Tax that can dramatically impact the amount of tax or the rate that needs to be paid. 

These include; if the home is given to children (including adopted, foster or stepchildren) or grandchildren, then the threshold can increase to £500,000

Or, if the person was married or in a civil partnership and the estate is worth less than your threshold, then any unused threshold can be added to the partner’s threshold when they die, which means their threshold can be as much as £1 million.

The inheritance tax rate can be reduced from 40% to a slightly lower  36% on some of the assets if 10% of the net value of the total estate is left to a recognised charity in the will.

Further Inheritance Tax Relief and Exemptions

Certain gifts given while the person was alive may be taxed after their death. Depending on when you gave the gift, “taper relief” might mean the Inheritance Tax charged on the present is less than the standard IHT of 40%.

Other reliefs, such as Business Relief, do allow some assets to be passed on free of Inheritance Tax or with a reduced bill.

If the estate includes a farm or woodland, then we at The Taxman UK would recommend that you contact the Inheritance Tax and probate helpline directly about any potential Agricultural Relief.

How is Inheritance Tax Paid To The HMRC?

Funds from the estate are used to pay Inheritance Tax to HM Revenue and Customs (HMRC). This is typically carried by the person dealing with the estate (called the “executor”, if there’s a will). 

At this stage, the real pain associated with Inheritance Tax may rear its ugly head as, in some instances, there may be the need to sell off parts of the estate – usually any property to raise the required tax payment.

How Do You Value An Estate In Regards To InheritanceTax

When it comes to valuing an estate with regard to inheritance tax, three essential tasks need to complete, and these include

  1. Identify the deceased’s assets and debts, such as any savings, investments, mortgages, property and loans. Along with any gifts they made, such as cash or items of value in the seven years before they died.
  2. Estimate the estate’s value. This will affect how you report the value and the deadlines for reporting and paying any Inheritance Tax. At this stage, the estimate only needs to be accurate enough for you to know if the estate is likely to owe IHT.
  3. Report the estate’s value – how you do this depends on whether you need to send full details of the estate and its value to the HMRC.

Is There Anything Else We Need to Know About Inheritance Tax?

Well, the beneficiaries (the people who inherit your estate) do not normally pay tax on things they inherit. However, they may have related taxes to pay, for example, if they get rental income from a house left to them in a will. 

Also, people who receive gifts might have to pay Inheritance Tax, but only if they give away more than £325,000 and die within seven years.

How Does Inheritance Tax Work For Non-UK Residents?

Being non-UK domiciled is highly advantageous where IHT is concerned. When a UK domiciliary dies, their estate is subject to IHT worldwide. IHT applies at 40% to assets both within and outside the United Kingdom except to the extent that they are protected by the exemption for assets passing to a surviving partner or fall within the individual’s nil rate band

However, by contrast, when a non-domicile dies, then provided that they are not deemed domiciled in the UK for IHT, the tax generally applies only to UK assets; typically, there is no Inheritance Tax on assets situated outside the UK.

Serving Clients Around the World

Led by a management team that has previously worked in the UK for HMRC, KPMG and Baker Tilly, The Taxman UK has been providing personalised professional online taxation services to non-residents for twenty years.

As a company, we have the expertise to solve a wide variety of UK tax issues for international clients. Our fresh approach and depth of thinking mean we are well equipped to handle all your UK taxation needs, no matter how complex, whether you require assistance to complete an annual Tax Return or want more specific tax advice.

To learn more about Making Tax Digital or how The Taxman UK can help with your tax affairs, visit or email us at [email protected].


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