New QROPS rules and UK inheritance tax, are you affected?

Find out how you can be subject to the IHT regardless of your nationality.

(IHT) Inheritance tax, IHT can be due on UK assets.

(QROPS) Qualifying Recognised Overseas Pension Scheme, to move or not to move, that is the question.

John Booth of IPP Financial Advisers discusses how UK inheritance tax applies to anyone with UK based assets and to worldwide assets for British Nationals. Also how the last UK budget affects the QROPS market for anyone with a ‘Frozen’ pension left in the UK.

Most people know that inheritance tax was abolished here in Singapore.

However, how many people realise buying UK based assets will make them subject to UK inheritance tax regardless of their nationality? Indeed, an average central London 2-bed flat or even 100,000 HSBC shares could make a Singaporean or anyone who has never even been to the UK liable to over a £50,000 in UK inheritance tax.

To be clear ALL nationalities are subject to UK inheritance tax on all their UK based assets over the nil rate band allowance ( the amount you can take tax free) of £325,000. So before adding to your UK asset portfolio be sure to take this into account.

IHT – Quick Facts
What is considered to be taxable for British Nationals? All your worldwide assets, cash, property, shares etc., even your life insurance policy and pension can count. Also any transfers of assets which occurred within seven years of the individual’s death.

It all comes down to a question of “domicile”. Domicile in this context is not simply a matter of living and  working abroad but have you taken steps to permanently sever all ties to the UK with the intent never to return? The bank account you took out as a student, the club membership you are keeping for old times sake  and even your private pension can link you back to the UK and the 40% IHT.

You may not have lived or paid tax in the UK for years. This is not the same thing as having taken up permanent domicile in another country. Also if you leave your new country to live elsewhere you will revert automatically to having UK domicile.

Non - UK domiciled spouse. Your assets may pass tax free to your spouse until their demise BUT NOT if your spouse is non-domiciled to the UK. A Non-domiciled spouse only has a £55,000 personal allowance,  and IHT is payable upon your demise and before probate is settled.

How will Her Majesty’s Revenue & Customs (HMRC) know? All parties concerned with your assets are “subsidiarily liable” for payment of the tax. In short before any assets or funds are transferred they will seek clearance from HMRC. Also when you passport is returned to the UK it will trigger a waiting for probate file.

QROPS – Quick Facts
Until recently it was not possible to transfer a UK pension to another country. This is because, in return for the tax-relief received on your pension contributions, HMRC makes it compulsory to purchase an annuity with at least 75% of the pension’s final value regardless of where the pensioner retires in the world. Any residual value on the pensioner’s death is collected by HMRC rather than being passed to the deceased’s  estate.  Today, with the permission of HMRC through a Qualifying Recognised Overseas Pension Scheme (QROPS), it is possible to move your pension offshore and benefit - without the compulsion of purchasing an annuity. Following the last UK budget and the tightening of the QROPS rules it has become very clear that you should be aware of all your options before deciding which course of action to follow.

Clearly, these two issues are very complex matters and the situation varies from case to case. It is vital that this is not just left as something to get around to one day. It is best to speak to an expert who can fully evaluate your position before offering professional advice. Call today for a no-obligation, no-cost appointment.

IPP Financial Advisers Pte Ltd and the author, in any event, will not be liable to you for any direct/indirect or any other damages or losses of any kind arising from or in connection with your reliance on any information in and/or materials contained in this article. Although the author has made the best efforts to provide accurate information, no warranty or guarantee is given regarding the accuracy, reliability, veracity or completeness of the information provided herein.

John Booth, Principal Consultant (Expat, Advisory Group) President of the Chairman’s Round Table 2010 & 2011

IPP Financial Advisers Pte Ltd
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