In this article, I’ll cover two cost-effective ways of minimising UK Inheritance Tax (IHT) Liability with your Portfolio Account Assets.
Many expats build wealth, build their assets and some think about the next steps and others put it off. IHT is a crucial way for people to pass on what they build in their lives. Even though expat may live offshore, being a UK citizen means that they will be taxed on their worldwide assets.
There are talks to remove the IHT allowance, however, until that comes in, I shall continue to write blogs to help expats.
Set the scene
For UK-domiciled individuals, regardless of their residency, UK IHT applies to their global estate, including assets within a Portfolio Account. However, certain assets held within this account can help mitigate potential IHT liabilities.
Gilts:
What are Gilts? Gilts refer to UK government securities issued by HM Treasury to finance public services and state projects. Among them, Free of Tax to Residents Abroad (FOTRA) Gilts, exempt from UK taxation, can be held within the Ardan Portfolio Account under specific conditions.
Inheritance Tax Benefits: According to the Inheritance Tax Act 1984 s 6(2), FOTRA Gilts are treated as excluded property if beneficially owned by an individual, regardless of UK domicile status, provided they are non-UK residents as per the Statutory Residency Test.
Restrictions: Pre-29 April 1996 issued FOTRA securities require both the beneficial owner to be domiciled and ordinarily resident outside the UK for exemption. The three-and-a-half per cent War Loan necessitates non-UK domicile irrespective of the issue date. Unlike assets for business property relief, no statutory holding period applies to Gilts, allowing them to be excluded property if the account holder is non-UK resident in the year of death.
Taxation of UK Gilts for a UK Resident: Upon moving to the UK, Gilts lose their excluded property status and are subject to UK IHT. Although interest income is taxable, no capital gains tax applies upon sale.
Gifting Gilts: For non-UK residents, gifting Gilts doesn’t trigger UK IHT if not within the 7-year period. However, considerations must align with the recipient’s tax jurisdiction, especially regarding acquisitions immediately before death.
Considerations: HMRC’s stance on Gilts and DOTAS rules is undisclosed. Additionally, while UK IHT doesn’t apply to Gilts, estate tax in the individual’s residency jurisdiction upon death might.
AIM Shares:
What are AIM Shares? AIM shares are from companies listed on the London Stock Exchange’s sub-market, aiming to raise funding for small to medium-sized businesses across various sectors and countries.
IHT Benefits: AIM shares meeting specific criteria can qualify for 100% Business Property Relief, excluding their value from UK IHT calculations upon death.
Conditions: AIM shares must be held for at least two years and still held at death, maintaining their qualifying status. Disposing of shares losing qualifying status can reset the ownership period.
Risks: Many AIM-listed companies prioritize growth over profitability, potentially leading to volatile share prices. Losing qualifying status disqualifies AIM shares from business property relief, necessitating specialist advice for status verification.
Summary
There are more ways to minimise IHT as an expat, however, these are just two ways. Gilts offers a way for non-residents to protect their wealth and you can do this via the platform Ardan. Understanding gilts, knowing the rules for investing and keeping up to date with legislation is key in case there are any changes.
If you move back to the UK, it then becomes a different situation and will have to explore the options to see what might be best.
AIM shares are shares of companies that are small and medium-sized companies that are looking for funding. This incentive has been created so that companies and investors can benefit on both sides. The eligibility of companies can change and it’s something you will need to be aware of and these companies are more likely to be volatile compared to bigger stocks. They are also less likely to have that history of data and track record behind them like some of the listed companies.
There are other ways you can mitigate IHT, some of the more popular ways are gifting and trusts, if this is something you want to look at, please contact me using the button at the bottom of this page and we can begin the conversation.
FAQs
FAQs: Minimizing UK Inheritance Tax (IHT) Liability with Portfolio Account Assets
What are Gilts and how do they help with IHT?
Gilts are UK government securities issued to finance public services. Free of Tax to Residents Abroad (FOTRA) Gilts, held within a Portfolio Account, can be excluded from UK IHT if certain conditions are met. Non-UK residency status is crucial for exemption, offering a potential strategy for reducing IHT liability.
What are AIM Shares and their IHT benefits?
AIM shares, listed on the London Stock Exchange’s sub-market, can qualify for 100% Business Property Relief, excluding their value from UK IHT calculations upon death. However, certain conditions must be met, such as a minimum holding period of two years and maintaining qualifying status until death.
What are the considerations for gifting Gilts to minimize IHT?
Gifting Gilts can be a strategy to minimize IHT liability, especially for non-UK residents. However, it’s essential to ensure that gifts are made outside the 7-year period preceding death and to consider the tax implications in the recipient’s jurisdiction.
What are the risks associated with AIM Shares and IHT planning?
While AIM shares offer significant IHT benefits if they qualify for Business Property Relief, there are risks to consider. Volatile share prices and the potential loss of qualifying status require careful monitoring and specialist advice to mitigate risks and maximize tax benefits.
