How do I shield my UK Assets from Inheritance Tax?

We have obtained Canadian Permanent residency and have not been in the UK since
Sep. 2019. Can I legally shield my UK Assets from UK Inheritance Tax?

This is per the UK “Finance Act 2013,” so things may have changed (I’m not an accountant). But gives you an idea of the complexities:

This is a good start, but I don’t believe SRT (i.e non residence) will protect UK situs assets from UK IHT.
The simplest way would be to sell the assets and move the proceeds offshore (combined with doing the same yourself to somewhere with no IHT 5 years before you plan to die…)

Yes, I found out the following.
“From 6 April 2017, individuals who have been UK resident for more than 15 out of the last 20 tax years will be deemed to be UK domiciled for all tax purposes.”
Individuals not domiciled in the UK are subject to IHT on their UK assets only.
So we ARE Non-Dom, but need to sell up quick as I am 76!

Do consider taking tax advice on this - it’s a tricky area. Assuming you had a UK domicile of origin (e.g. if you were born in the UK), you need to document Canada as your new domicile of choice, and sever ties with the UK as much as possible. There’s no hard-and-fast rule about whether HMRC will accept a change from your domicile of origin, and this is a separate question to the 15/20 year deemed domicile rule.

Keep in mind you will still be subject to UK CGT on UK real estate ( effective valuation date of 2015 if purchased before then I believe) so depending on the value of your estate you may actually be better off paying IHT

Gifting your UK assets to your descendants 7 years before the planned dying date may also work?

1 Like

Private pension pots in the UK are not subject to UK IHT. So max out on pensions, then max out even more. You can name your beneficiaries on your pension investment accounts. If you are retired and living off your investments, your pension pot should be the last thing you touch, provided you have that option. As ever though, seek your own professional tax and investment advice.

Also as @tommigun says, you can give away assets and live for at least seven years.

There are also various trust options, but they are complex and entail other charges and costs, so you need professional advice.

I believe this only true before the age of 75 thereafter income tax is charged
https://www.gov.uk/tax-on-pension-death-benefits

That’s correct.

But your beneficiaries would have the option of drawing down the pension pot gradually, meaning taking only a small amount each year so as to keep their total income in any tax year below the higher income tax brackets. Their scope for benefitting in this way would all depend on their personal income and tax positions. I believe they can also just leave the pot untouched and pass it on to their own beneficiaries. I also wonder if there are any tax free lump sums they’d be entitled to take? I can’t remember. Each individual needs to consider their personal circumstances and take professional advice. But I think it’s worth exploring, especially if you’re younger and still have many years ahead to save into a pension. Plus you get the government’s tax relief and employer contributions added, up to certain limits dependent upon your earnings.

There are changes coming in the UK this April… making this even more complicated.

Under current rules, if you die before age 75, subject to meeting the designated to drawdown rules, your beneficiaries do not pay tax on the death benefits they receive.

From April 2024, the age of death is no longer relevant. In all cases, lump sum death benefits paid from uncrystallised or crystallised benefits will only be tax-free if below the deceased’s remaining LSDBA – £1,073,100 for those with no protections minus any Lump Sum Allowance already used.

1 Like

I would personally not recommend placing too much reliance on a pension pot (for whatever purposes) as the govt. can literally just do anything with it at any moment in time with no restraint.
Take for example the last 3 years of a wonderfully generous ‘tax-free’ so-called tapered pension allowance of £4k…
I know it’s going up to £10k again this year, but that just further proves my point.

@PTbound These are all good points. I guess the key message is that one really needs to keep on top of ongoing changes to the law and obtain very good professional advice as it’s quite complicated.

@tommigun You’re right in saying not to place too much reliance on a pension pot - if only due to the age old maxim of not putting all your eggs in one basket. Re the govt potentially doing whatever it wants with your pension pot - well I guess they are unlikely to just take your entire pot and disappear with it - at least not in a West European country such as the UK - and in the meantime you do receive fairly generous tax relief on your contributions, as well as employer contributions if it’s a workplace pension. As to what the income tax and IHT rules are from one year to the next, sure they can vary. But in the UK they’ve just got more generous by raising the annual allowance from £40k to £60K as well as abolishing the lifetime allowance (LTA). I know labour’s threatened to reintroduce the LTA if they get into power, but that’s only because they can see that pensions as currently constructed in the UK have been a good way of transferring wealth from one generation to the next, whilst providing good shelter from the tax man, and going even further, providing a means for already relatively well off people to receive even more money from the government, i.e. the tax relief. As for the tapered allowance it has gone from a measly £4k up to £10K per annum. If your income is within a certain range you can benefit from the new £60K annual allowance which includes tax relief and employer contributions. Any rule changes are likely to affect new contributions as opposed to historic ones, so there’s scope to make hay while the sun shines, piling in while you can and receiving the tax relief currently available. Having said that you’re nevertheless correct that the IHT rules and the income tax rules on pension drawdown can change. But this is true of any wealth stored in any format - property, second homes, savings/investments, ISAs etc. In the UK they just slashed the tax free allowance for capital gains tax from £12,500 to £6,000 to £3,000. Labour is threatening to change the current tax regime for non-doms. We see Portugal about to abolish NHR and have now abolished the real estate option for GV investors. Etc etc. Even multinationals are feeling the pinch - the EU (along with the US and other countries that have or are planning to sign up) are steadily going after governments’ share of corporate profits, wherever in the world the profit is made, declared, reported, stashed away. The fact is that any government can do virtually anything it wants with anything you have, if it really wants to. So I think best thing is don’t put all eggs in one basket, spread the risk around, but there is some role for pensions in accumulating wealth and transferring it on.

Well, this is it, I did not feel like £4k was a “generous tax relief”, but it could be just me :innocent:

The broader philosophical point is that I feel like on any other types of assets/taxes I have considerably more control of how/where/when to dispose of and pay tax vs. the pension where there’s literally nothing I can control.
But I agree, it is one of the available mechanisms to consider in light of IHT.