Could relocating overseas help shield your family from a 40 per cent inheritance tax charge?
From April next year, most unused pension pots and pension death benefits are set to fall within the scope of inheritance tax, raising the prospect of families being hit with bills of up to 40 per cent.
With the £325,000 tax-free allowance still frozen, a growing number of Britons are searching for ways to preserve more of their wealth — and for some, that may mean considering a future outside the UK.
A number of countries either do not levy inheritance tax at all or charge far less than Britain, making them increasingly attractive to those thinking about estate planning.
But is moving abroad really enough to keep your estate out of the taxman’s reach?
Here are some of the destinations Britons may look at if they are hoping to reduce or avoid inheritance tax — and the key issues to understand before making such a major move.
Australia abolished inheritance tax in 1979, though other costs and taxes may still apply
Australia
Australia has not charged inheritance tax since the levy was scrapped in 1979.
However, residents inheriting assets from a deceased person could be subject to taxes.
The capital gains tax applies when someone disposes of an asset inherited from a deceased estate, according to the Australian Taxation Office.
Income tax is also applied to rental income or dividends earned from inherited shares or property.
New Zealand
In New Zealand, there is no inheritance tax system in place for the transfer of assets once someone has died.
Neither the beneficiary nor the estate is charged inheritance tax or stamp duty, Wise explained.
But, there are some circumstances where charges may apply. This includes when the beneficiary sells inherited property and the person it was inherited from was planning to sell it and make a profit themselves.
If the house is sold at a profit and the intentions of the original owner carried through, a tax may be applied.
Singapore
Estate duty, which refers to a charge on the total market value of a person’s assets when they die, in Singapore was scrapped in 2008.
‘For the majority of estates, there is no estate duty payable as various exemptions are provided,’ Inland Revenue Authority of Singapore said.
The country is generally referred to as a tax haven and the highest personal income tax rate stands at 24 per cent for those earning over S$1 million (£577,080).
There has not been estate duty in Singapore since 2008
Slovakia
No tax is applied to inherited assets in Slovakia, which ditched such charges in 2004. The country does not apply estate, wealth/worth or gift taxes either.
However, if the beneficiary sells a property they inherited, they may be subject to a capital gains tax if they have owned it for less than five years.
Sweden
Sweden does not have inheritance, gift or estate tax. Swedish residents haven’t had to worry about their heirs being charged since 2005.
However, there are some other taxes to consider instead such as capital gains which stands at 30 per cent. Taxes also vary between non-residents and residents.
Austria
Austria is another country with no inheritance or gift tax, with the charge being scrapped in 2008.
However, the Austrian government is actively debating the issue and a tax could be reintroduced in the future, Global Law Experts reports.
Canada
There is no such thing as an inheritance tax in Canada, but other taxes can implicate things.
Asset transfers after death can be treated as a sale and therefore the increase in value could be subject to capital gains, No More Tax explained.
In Canada, there is no such thing as inheritance tax
Hong Kong
Hong Kong scrapped estate duty, which worked in a similar way to inheritance tax, in 2006.
The country does not charge taxes against gifts, or wealth/worth, according to No More Tax. In most cases, only income earned in Hong Kong can be subject to tax.
Mexico
There are no federal or state inheritance taxes under Mexican law, but other charges could still apply.
Inheritance is treated as income but is exempt from income tax if it is received by a Mexican resident.
If received from a spouse, lineal ancestors or descendants it is also exempt, according to PWC.
Macau
There are no inheritance or estate taxes in Macau. There is also no general gift tax.
But, the transfer of real estate may be subject to stamp duties.
Hong Kong abolished estate duty in 2006 and does not charge taxes against gifts, or wealth/worth
Can Britons benefit from moving to countries without inheritance tax?
Despite how tempting the tax laws may be in different countries, Brits moving abroad may still not be exempt from UK IHT, MP Estate Planning explained.
Inheritance tax in the UK is based whether an individual is a long-term resident.
A long-term resident is defined by if they lived in the UK for at least 10 consecutive years of a total of 10 years or more within the previous 20 tax years. If this is the case, they could be subject to IHT.
Assets situated in the UK may fall under IHT – for example, if you move to Australia but still own a house in the UK, it may not change anything from a tax perspective.
IHT is also applied to assets overseas owned or on death when the person is a long-term UK resident.
The UK government outlines how IHT won’t be charged on trust assets that were placed in the trust while the person was non-UK domiciled, overseas on October 30, 2024 or overseas on the date of death or when their rights to the trust ended.
The problem of double taxation can also arise in countries such as Sweden, France and America. It can often be avoided if the country has a double-taxation agreement with the UK, but is still another issue to resolve.
With the various different taxes, rules and residency/domicile issues, the experts recommend looking at your legal options at home for a more certain way to protect your assets from the UK IHT rather than relocation.
