Britons with overseas assets such as bank accounts, investments or property, wrongly believe their assets can escape UK Inheritance Tax (IHT), according to a latest survey.
The Skandia International Q2 2014 Adviser Survey, completed by 377 financial advisers from across the globe, reported 70% of the advisers saying their clients believed IHT is not applicable to assets held overseas.
As this belief is totally incorrect, experts are urging financial advisers to take action and make their clients aware of the impact of IHT on their overseas assets.
People holding assets outside of the UK need to be aware that their assets could be hit by a 40% tax upon death. Furthermore, anyone UK domiciled (or deemed UK domicile) is required to disclose any money held overseas as a part of government’s clamp down on tax avoidance.
Britons with overseas assets are required to disclose the information to HMRC, and once the assets are ‘visible’, take steps to make them as tax-efficient as possible.
How to make your overseas assets tax-efficient
If you hold an investment outside UK, you could restructure it to be an offshore bond written in a gift trust. This would effectively remove the asset from your estate after seven years – a good option if you are planning to gift your investment to your loved ones.
If you do not wish to give up all the benefits from your investments, there are other types of trust which allow some IHT mitigation whilst retaining access to some or all of the capital. Trusts help in navigating complex family situations and protecting the assets for the beneficiaries, allowing you to distribute assets among your loved ones on your own terms.
Offshore bonds allow greater control over the timing and nature of any events that are subject to tax. This allows investments to grow tax-free (other than withholding taxes on the underlying funds).
Steve Lawless, global head of banking distribution at Skandia, comments:
“Tax and estate planning is now a core part of financial planning, used by thousands to help mitigate the impact of Inheritance Tax on death. However, people with overseas assets may not be aware that these assets could also fall within UK IHT and need to be treated with the same care and attention as their assets held in the UK. People shouldn’t just ignore their obligations on their overseas assets, not least due to the disclosure rules which require all overseas assets to be declared to HMRC. Financial advisers are best placed to assist anyone concerned about their obligations and can help put in place steps to mitigate the tax and administrative burden once assets become disclosed.”