Inheritance tax has been ranked as the top three most hated taxes in the UK for the past decade, and remains firmly in second place. In addition, Stamp Duty Land Tax (SDLT) came in third, while Council Tax was awarded the number one spot.
Respondents to the survey of 2,000 people were annoyed that their loved ones were missing out on the benefits of inheritances, and even faced a hefty inheritance tax bill.
If you are Chinese living or retiring in the UK, or if you do not live in the UK but own property in the UK, you should consider how UK inheritance law affects you and whether you are subject to inheritance tax in the UK. Although it sounds far-fetched, planning your taxes in advance may save you unnecessary headaches.
Inheritance tax is a levy on the estate (house, money and property) of the deceased and the standard rate of inheritance tax in the UK is 40%.
Inheritance law in the UK applies to all official residents, whether domestic or overseas, to all their estates worldwide.
In the case of a non-resident who owns property in the UK, UK inheritance law and UK inheritance tax will also apply to part of the estate.
Under what circumstances do I not need to pay tax?
The estate value is below the £325,000 threshold.
All items above the £325,000 threshold are reserved for spouses, civil partners, charities or community amateur sports clubs.
Property located abroad is not subject to inheritance tax (IHT) if it is owned by a non-UK resident. Such attributes are called exclusion attributes.
If you are a non-domiciled residence, you do not pay tax in the UK.
Special case description:
- If you are a UK resident, you must declare any foreign assets and income in the ‘foreign section’ of your self-assessment tax return (if you stay in the UK for 183 days or more, you will be considered a resident).
- When domiciled abroad, estate tax is only paid on your UK assets. However, you do not have to pay this tax on your foreign currency accounts with banks or post offices, overseas superannuation or holdings in authorised unit trusts and open-ended investment companies.
- If you have rental income from overseas property, you are subject to UK income tax. If you rent out the property, rental income will be added to your gross income for the year and may put you in a higher tax bracket. If you sell your property, it may be subject to capital gains tax in the UK.
- If a UK resident owns property outside the UK, they can claim a fee equivalent to the local estate tax in the country where the property is located. If there are no exemptions, double taxation is required.
How to evaluate an estate？
First, banks, utility providers, and other institutions that hold accounts are primarily assessed and an official statement of their assets is required.
Second, assess the home, car, jewelry, and any outstanding payments due to them, as well as any gifts that may have been made in the first seven years. Also, estimate any outstanding debt.
As a final note, HMRC stipulates that the executor of an estate must pay estate tax by the end of the 6th month following the person’s death. After this deadline, HMRC will charge interest.
The whole process is relatively complex, so if you have assets of different kinds or those assets are located in different countries, it is best to seek the help of a professional accounting firm. If you have any questions, our professional team will be happy to answer you.