16 June 2023

Do you have a good potential litigation that you can not fund or you do not wish to fund?

There are two certainties in life, Death and Taxes.  What some people may not appreciate is how closely related they are!  And that the current UK Inheritance Tax rate is 40%! 

There is currently no form of death related Tax or tax on gifts made during lifetime for those domiciled in Cyprus since January 2000.

In contrast, in the year to End of March 2023 HM Revenue and Customs collected £7.1 Billion of Inheritance Tax, and this is on the rise.

The National Federation of Cypriots in the UK estimates that there are currently approximately 300,000 Cypriots living in the UK meaning, on death they have a potential UK IHT liability of 40% on all assets they hold in the UK. The reality is that UK Inheritance Tax can be levied upon all assets situated in the UK even though the owner may no longer live in the UK, and it gets worse.

If a person at death is deemed to be domiciled in the UK then in addition to their UK assets being taxed at 40%, they can also be taxed at 40% upon any other assets they may own anywhere in the world, including property and assets in Cyprus!

This can leave families with a very large tax bill to pay and often a very complex situation to deal with.

If this applies to you and your family, then taking advice and action can potentially reduce the tax burden by making use of the reliefs and planning which can be available.

The question of domicile can be complex and being Deemed Domiciled is automatic.

From 6^th April 2017 a person living in the UK even if born outside of the UK, once they have lived here for at least 15 of the preceding 20 tax years is deemed to be UK domicile.  This has the effect of UK Inheritance Tax being levied on their worldwide Estate.

This directly impacts upon Cypriots who have retained property and assets in Cyprus, perhaps even intending to returning to live there again one day, as all of their worldwide assets become liable to UK Inheritance Tax.

If your Estate is valued at over £325,000 then 40% tax applies to the excess. There are however, various allowances and reliefs that may be available and if available, must be claimed at the time. The most important and generous of these is “Spouse Exemption” where assets passing to a UK Domiciled surviving spouse are exempt from Inheritance Tax irrespective of value. If however the surviving spouse is non UK Domiciled then Spouse Exemption is limited to £325,000 and the rest of the Estate is therefore taxed at 40% .  This has a particular impact where one spouse may have returned to live in Cyprus, or another country, and the other has remained in the UK.

North London is home to a large number of Cypriot families where the “average” house price is currently £922,000. This puts everyone immediately within the realms of Inheritance Tax even before taking into account other assets.

There are, however, many legitimate ways in which potential Inheritance Tax liabilities can be mitigated. It all starts with a robust and appropriate Will to utilise exemptions and prevent an automatic distribution of the Estate, which can happen when someone dies without a Will (Intestate)

Further, for those who have left the UK but retained UK properties, they may be able to sell the property with lower Capital Gains Tax liabilities if re-basing to 2015 applies. The important thing is to take advice from the right Law firm with expertise and experience in this area.

Inter-Generational Asset Protection and Wealth Preservation is about keeping family wealth within the family. This also has the added benefit of protecting it from divorce and future Capital Taxes as it passes through the generations.

Investing some time and taking advice can save your family from the burden of a tax hit of 40%  not to mention the stress, upset and additional costs related to dealing with an Estate post death.

If you would like some assistance with your Inheritance Tax planning, please do not hesitate to contact us.