Leighton Jones, the director of Guardian Wealth Management, UAE, reveals the three crucial tax saving issues you’ll want to consider in order to set your final affairs straight.
Where there’s a will, there’s a way to manage your UK tax bill
Affluent Brits showed worrying levels of ignorance when asked what they knew about the current threshold for UK inheritance tax (IHT). As many as 14 per cent taking part in Close Brothers Asset Management survey, Heir Today, Gone Tomorrow, claimed it was £500,000 (Dh3.088m), or higher.
Nearly a third (32 per cent) were oblivious to the need to plan for inheritance tax and getting on towards a half (47 per cent) admitted to not having sought any kind of professional advice about IHT. With this in mind, Leighton Jones, the director of Guardian Wealth Management, UAE, reveals the three crucial tax saving issues you’ll want to consider in order to set your final affairs straight:
1. First, wise up on the tax threshold charges and put a realistic figure on your own net worth. The current UK IHT threshold remains frozen at £325,000 which means anyone leaving an estate worth more than this amount will be charged IHT at 40 per cent (although different rules apply to married couples). To appreciate how this will affect you personally, ask your adviser to do some projections based on the assets you are holding now and what their net worth could be in 10, 20, 30 or 40 years’ time.
British expats, particularly those participating in the high performing economies of Arab Gulf states like Dubai and Abu Dhabi, benefit hugely from their no-tax environment. It becomes easy to forget that future tax liabilities to other jurisdictions, not least back in Blighty, will kick in at some point. Far too many expats believe that their current status of ‘non-resident for tax purposes’ makes them exempt from all UK taxes. However, being non-resident only applies to the time you spend away from the UK and to certain taxes - notably income tax. British expats never lose their UK domicile status - even if they’re sojourn abroad stretches over several decades. And being UK domicile means Her Majesty’s Revenue & Customs (HMRC) has the right to tax your estate wherever in the world your assets are based.
2. The second issue for discussion affects all British expats owning property in other countries. Each location where you own a property could make a taxable charge on your estate alongside HMRC’s claim. Legislation planned for enactment in the summer of 2015 ushers in a new set of rules that will apply whenever an EU citizen dies leaving property in a different EU country/ies. The UK has opted out because of the fundamental differences between its common law system and the civil law code more generally followed in Europe. But be warned. UK-based individuals’ estates could still be affected by these changes - which means your tax liabilities will extend to those jurisdictions where your assets are based. You can opt for just your national law to be applied, but only if your will has been drawn up in the right way stipulating this. With this early notice of the changes to come, you’d be wise to plan ahead.
3. Finally, ensure you are thoroughly briefed on the seven-year gift rule. It’s a great way to plan ahead in order to protect your wealth for the benefit of loved ones, enabling substantial gifts, including property, to be passed on. Provided you survive the subsequent seven years and the manner of giving complies fully with the rules, there will be no taxable charge made on the value. Amazingly, reports Close Brothers, 18 per cent of the most affluent respondents taking part in the survey were completely unaware of this legitimate exemption.
If you have no idea at all of the extent of inheritance tax you’ll be leaving your loved ones, then you need to talk to your financial adviser. Raise these three issues and ask what retrospective allowances could relate to your circumstances in order to lessen any future bill.
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