The information contained in this article was correct at the time of writing
September 14, 2023
International Life Assurance Cover for inheritance tax liabilities in the United Kingdom
International Life Insurance to Cover UK Inheritance Tax for Non-Residents
Inheritance tax (IHT) planning is essential for wealthy individuals globally with assets in the United Kingdom. While the UK has one of the highest inheritance tax regimes in the world, international life insurance offers non-UK residents an effective way to cover future IHT liabilities. This article provides an overview of utilizing life insurance to cover IHT for non-UK domiciles owning UK assets.
Understanding UK Inheritance Tax Rules
UK inheritance tax is charged at 40% on the value of the deceased’s estate above £325,000. For a married couple or civil partners, the exempt threshold doubles to £650,000. Complex rules apply to non-UK domiciles owning UK residential property through overseas ownership structures. From 2017, UK residential property indirectly held by a non-UK company is subject to IHT. The valuable residential property nil-rate band provides some relief but adequate IHT planning is still essentialal.
Life Insurance to Pay Future Inheritance Tax Liabilities
Life insurance is one of the most effective ways for non-UK individuals to cover future UK inheritance tax bills. By taking out a life insurance policy on the UK resident liable for IHT and designating chosen beneficiaries as policyholders, funds are available to pay IHT on their death. Structured correctly, the insurance payout is usually excluded from the estate itself, avoiding further IHT charges. Hence, life insurance avoids forced sales of UK assets or beneficiaries struggling with large unexpected IHT bills.
Utilizing Specialist UK Financial Advice
Navigating UK inheritance taxation and exemptions requires expert knowledge. For wealthy non-UK domiciles owning complex UK assets, it is essential to utilize specialist UK financial advisers to identify tax liabilities and implement appropriate planning. Advisers need to consider the UK property and asset ownership structure, domicile status of foreign owners, and how life insurance can work smoothly with wills and trusts. With the relevant experience and credentials, specialist advisers offer essential personalized advice and ongoing policy management.
Life Insurance Policy Options for Non-UK Residents
Several life insurance options are available to non-UK residents seeking to cover future UK inheritance tax bills, with some key considerations:
- Life Insurer Location – Seek established global life insurers familiar with non-resident clients and overseas assets and tax regimes.
- Policy Ownership – Life insurance intended to cover UK IHT will need to avoid being counted as part of the estate itself. Using an appropriate trust structure to own the policy is optimal.
- Policy Ownership – Life insurance intended to cover UK IHT will need to avoid being counted as part of the estate itself. Using an appropriate trust structure to own the policy is optimal.
- Ongoing Reviews – Given fluctuating exchange rates and asset values, regular reviews of coverage levels are key. Seek insurers who make adjustments smooth and inexpensive.
Case Study: US Entrepreneurs with UK Assets
John and Jane are entrepreneurs in their 60s with a £5M property portfolio spread across the UK. While they live in the US, changes to IHT rules now make their UK assets liable for IHT on their death. Concerned their children would struggle to pay the £2M+ IHT bill without selling some property, they utilized a specialist UK adviser. Implementing a offshore trust owning a £2.5M joint life insurance policy means their children can now smoothly pay future IHT liabilities.
Taking Action to Insure UK Inheritance Tax
For wealthy non-UK individuals and families owning valuable British property or other assets, obtaining quality financial advice is crucial for effective IHT planning and insurance. To discuss your unique situation and ensure your beneficiaries are financially protected, please contact our specialist team today
