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UK Inheritance Tax – How it May Affect You


  • If you have connections to both Australia and the UK, your estate may be subject to the UK Inheritance Tax.
  • The amount of tax will depend on your domicile status, but it could be up to 40%.
  • There are exceptions and ways the tax can be minimised or avoided.

In our changing investment environment, it is common for people to have assets in Australia and other countries offshore. In recent years, we have had many clients who inform us during estate planning appointments that they have assets in the United Kingdom. If this is you or someone you know, it is important to know how this will affect your estate when you pass away.

The UK made significant changes to the way its inheritance tax affects British people living in Australia and Australians that own assets in the UK. The changes mean that if you are not a UK domicile, you will no longer be able to ‘completely’ avoid paying this tax.

Firstly, it is important to note for those who are UK domicile that there is usually no UK Inheritance Tax if the estate value (your property, money and possessions combined) is valued at less than £325,000.00 and/or if everything that is above the £325,000.00 is left to a spouse.

When will the UK Inheritance Tax apply?

As defined by the Australian Government Taxation Office, your domicile is the country which you officially have as your permanent residence or have a significant connection with.

Domicile is generally determined by the place of your parent’s domicile, however, many of us ‘fly the nest’ to start a life abroad and so your domicile may change (‘Domicile by choice’).

In this way, if you were to pass away being domiciled outside of the UK then this will affect the UK Inheritance Tax on UK assets only. However, there are exceptions to this rule and importantly, if you have lived in the UK for 15 of the last 20 years of your life then you will not be classified as domiciled outside of the UK even if you have moved by choice to another country. Similarly, if the UK was your domicile in the last 3 years of life the former premise applies.

If you pass away with UK domicile, all assets both in the UK and out may be subject to a tax rate of 40% for those parts that are more than the tax-free threshold of £325,000.

Additionally, UK Inheritance Tax may apply to gifts you have given during life. Gifts given within the 7 seven years prior to your death may be taxable depending on who it was given to and the value. Interestingly, if you sell a home to a relative for less than market value then the difference in value may be taxable!

UK Tax Specialist and Planner

Importantly, you should speak to a UK tax specialist and planner.

Generally speaking, some key takeaways to help avoid paying UK Inheritance Tax:

  • If you are not a UK domicile and you gift assets you hold outside of the UK before you have become a deemed domicile, these assets will not be subject to the tax, both before and after your death.
  • Similarly and as detailed above, if you are gifting to your spouse then this will find the assets exempt!
  • Gifting of assets worth up to £3,000 per year tax-free;
  • Charitable donations (tax exempt entirely);
  • regular gifts out of surplus income; and

What does this all mean?

In summary, if you have assets in the UK, it is important to be aware of the potential implications of the UK Inheritance Tax on your estate. The rules surrounding the tax are complex, and whether or not you are subject to it will depend on a range of factors including your domicile, the value of your estate, and the nature of any gifts you have made.

If you have assets in both Australia and the UK, it is important to ensure that your Will takes into account both jurisdictions. An ‘International Will’ can help to ensure that your UK assets are included in your Will in a way that complies with the relevant laws in both countries. Our experienced wills and estates team at Coutts can provide tailored advice to help you navigate the complexities of estate planning across multiple jurisdictions and ensure your assets are protected according to your wishes. We can ensure your UK assets form part of your Will by way of an ‘International Will’ as the UK and Australia is signatories of the Convention Providing a Uniform Law on the Form of an International Will (1973).

For further information please don’t hesitate to contact:
1300 268 887

Contact our Campbelltown Lawyers today.

This blog is merely general and non-specific information on the subject matter and is not and should not be considered or relied on as legal advice. Coutts is not responsible for any cost, expense, loss or liability whatsoever in relation to this blog, including all or any reliance on this blog or use or application of this blog by you.

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