While the Money Advice Service confirms that inheritance tax liabilities will not be affected by the UK leaving the EU, a recent news article suggests that British people based abroad may need to pay attention.
Inheritance tax is charged on the estate of someone who has died and is passing on their assets, so long as the estate’s total value is above £325,000. Where IHT is due, it is usually charged at 40 percent but there are ways to reduce or even avoid this tax entirely.
In this article, Tracy Storer, a Senior Partner at Chorus Financial, explained how IHT rules tend to work in Spain, a popular country for British retirees.
“Inheritance tax in the UK is based on the person’s estate and has a tax-free threshold of £325,000, plus generous allowances for your primary residence.
“In Spain, this is very different and works on a beneficiary-based system, where the tax-free amounts differ depending upon the relationship between the deceased and their beneficiaries – i.e., husband and wife, parent and child.
“It is much harder to mitigate against IHT in Spain, but there are ways to structure your assets to reduce the tax liabilities on death.”
UK retirees will need to remain aware of both UK and EU inheritance rules.
The UK Government knows if a person’s permanent home is abroad and inheritance tax (IHT) will only be paid on their UK assets such as property or UK bank accounts.
It may not be paid on certain “excluded assets” such as:
- Foreign currency accounts with a bank or the Post Office
- Overseas pensions
- Holdings in open-ended investment companies and authorised unit trusts
Spain remains a popular destination for British expats to own property live work and retire.
Jonathan Eshkiri from E&G Solicitors in Spain explains how British expats will be affected going forward.
“Beneficiaries of an Estates are identified either through a will or by following the intestacy rules of the country in question. Each beneficiary benefits from a nil rate band which means that if the share of the estate they inherit is below this band, they will pay no inheritance tax in Spain.
“The nil rate band and other deductions vary depending on the location of the assets in Spain.
“The value of the nil rate band is determined by the relationship with the deceased.
“It is vital to seek independent Spanish legal advice when it comes to inheritance tax in Spain so that you are aware of all the possible deductions.”