People holding assets outside the UK, such as investments, bank accounts or property, need to be aware that these assets do not fall outside the scope of UK IHT just because they are not held in the UK. Furthermore, any money held overseas may now need to be disclosed to HMRC anyway as part of the government’s clamp down on tax avoidance. People with overseas assets should firstly disclose the asset to HMRC then, once the asset is ‘visible’, steps need to be taken to make the asset as tax efficient as possible.
For example, if someone holds an investment outside the UK, they could restructure it to be an offshore bond written in a gift trust. This would effectively remove the asset from their estate after seven years, and any growth on the asset in trust is immediately removed from the estate. This is a good option for people happy to gift their investment and relinquish the benefit of the asset.
If giving up all the benefit of the investment is not suitable, there are other types of trust which allow some IHT mitigation whilst retaining access to some or all of the capital.
Trusts can also help provide ways to navigate complex family situations, as well as ensuring that funds are available without the delay of probate. They can assist with protecting the assets for the beneficiaries and can help ensure the right people get the right proportion of assets at the right time.
Using an offshore bond enables investors to gain control over the timing and nature of any events that are subject to tax. This means the investment can grow free from tax (other than withholding taxes on the underlying funds), making it a more efficient investment going forward. A Whole of Life plan set up under a suitable trust can also have a highly cost effective role to play in mitigating an IHT liability for clients with UK assets.
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.”
*Skandia International Q2 2014 adviser survey, completed by 377 financial advisers from across the globe.