If you have emigrated to Australia from the UK, it’s likely that you may still have retained assets there.
Perhaps you still own property, or have an investment portfolio and savings in a UK bank account.
Furthermore, you may also have an accrued UK pension fund from the time you spent working.
While it’s tempting to consider these assets as simply retained, and hopefully increasing in value until such a time as you perhaps return to the UK, it’s important to consider the taxation implications.
You may already have plans in place to manage these through your annual self-assessment tax return.
However, you should also be considering any Inheritance Tax (IHT) liability on those assets in the event of your death.
Estate planning of this kind can be a complicated process. This is even more the case if you have retained assets in both the UK and Australia.
In this article, we have provided six important issues you should be aware of when you are managing your financial affairs and have retained assets in the UK.
1. You will be liable for UK Inheritance Tax on your UK-based assets
As you may well be aware, IHT in Australia was abolished in 1979, although tax will be applied in the event of any changes to your beneficiaries’ financial position because of receiving any legacy you leave them.
However, you will be liable for UK IHT on any assets you have in the UK, regardless of your existing domicile or residency status in Australia.
This will be payable at 40% of the value of those assets above your nil-rate band (£325,000 in the 2024/25 tax year).
If you plan to leave your home to your children, you can also utilise the residential property nil-rate band, standing at £175,000 in 2024/25.
Both of these allowances will pass to your surviving spouse or civil partner on your death. This means that assets worth £1 million could pass to your heirs, without any IHT being payable.
But, any value in excess of these thresholds could be taxable at 40%.
2. It’s important to be aware of the value of your UK wealth
You should bear in mind that the value of any investments you hold and property you own in the UK may well have enjoyed significant increases in value in the last few years, so it is prudent to keep a close eye on the value.
Furthermore, in the recent UK Budget statement, the chancellor, Rachel Reeves, announced that accrued UK pension benefits will become liable for IHT from April 2027.
This means that if you have existing plans in place, you will need to review these to ensure that you have taken the value of your pension benefits into account.
You may also want to consider the possibility of transferring your UK pension assets to an Australian arrangement by means of a Qualifying Recognised Overseas Pension Scheme (QROPS), both as an estate planning and retirement management measure.
In Australia, superannuation rules allow the remaining balance of your fund to be passed to a beneficiary. SIS dependants (such as spouses, children, or individuals with an interdependency relationship) can receive the balance as either an income stream or a lump sum. These payments are generally tax-free for dependants.
For non-dependents, only the taxable portion —comprising concessional contributions, investment growth, and relevant fund earnings—is generally taxed, usually at a rate of up to 17%.
Find out more: Why a QROPS could form an essential part of your retirement plan
3. There are some simple steps you can take to reduce your Inheritance Tax liability
One of the easiest ways to reduce your IHT liability on your UK assets is to make gifts.
Each individual can gift up to £3,000 in a tax year (your “annual gifting exemption”) and have it immediately fall outside the value of your estate. If you have not used the previous year’s exemption, you can bring this forward into the current year. This means that a couple could immediately gift up to £12,000 and reduce your combined IHT liability by this amount.
You can also make gifts out of any UK income you have, which could be a consideration if you have property in the UK you are currently renting out. Bear in mind that gifts must be made regularly, directly from income, and not affect your standard of living.
As well as making gifts, you can also reduce your IHT liability by transferring assets. However, you should note that IHT will still be payable if you were to die within seven years of making the gift. This may be on a tapered basis if your gifts are in excess of your nil-rate band.
Estate planning can be a complicated issue, and mistakes can prove costly by leaving you or your beneficiaries facing an unwelcome tax bill. Because of this, we would always recommend speaking to a financial expert about your IHT planning arrangements.
Find out more: A guide to gifting assets to reduce your IHT liability
4. Residency will replace domicile as the key factor for the taxation of returning UK expats
Another important change announced in the recent UK Budget may also affect your estate planning arrangements.
From April 2025, residency will replace domicile as the defining criteria when it comes to the taxation of non-domiciled individuals in the UK.
This means that the UK will impose IHT on the value of your worldwide assets if you are, or have been, a long-term resident in the UK for at least 10 of the last 20 tax years.
This will also apply to any non-UK assets you have in a trust prior to you becoming a long-term UK resident – although there will be concessions for trusts created before the changes were announced on 30 October 2024, and transitional rules will apply.
This is clearly a complicated issue, and you will need to be aware of how these changes could affect your estate planning. This is particularly the case if you have just moved from the UK, or are planning to return there in the future.
Importantly, we would recommend obtaining expert advice with regard to your residency status to determine how long you will be subject to IHT after leaving the UK.
5. You should ensure you have separate wills for the UK and Australia
Australian wills are valid in the UK and, likewise, UK wills are recognised in Australia. However, there are some clear advantages in ensuring you have a separate will in place for each country where you have assets.
Some of these advantages include:
- A single will covering all your assets may be delayed through the probate process in one or both countries.
- Different wills can ensure all your assets are considered.
- Separate wills create a clear demarcation between your UK- and Australian-based assets.
It is sensible to get expert help when you are drafting your wills to ensure that they are worded correctly and, importantly, to avoid one contradicting the terms of the other.
6. Start planning ahead, and keep your records up to date
While death is something no one likes to think about, the sooner you start planning for what happens to your wealth when you pass away, the better.
You’ll clearly want to ensure your loved ones inherit as much of your hard-earned wealth as possible. So, planning early means there’s no rush in getting everything arranged, and mistakes are less likely to occur.
As well as having two separate wills for your UK and Australian assets, we would also recommend that you keep details of your Australian assets separate from those in the UK.
When you pass away, it will understandably be an emotional time for your family. So, making sure your records are in good order, and you have taken steps to effectively plan your legacy could spare them from unnecessary stress.
Get in touch
If you have any queries regarding your legacy planning, please get in touch with us.
Please note
The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
This article is for information only, it does not take into account your personal objectives, financial situation, or needs. Please do not solely rely on anything you have read in this article and ensure that you conduct your own research to ensure any actions you may take are suitable for your circumstances.
All contents are based on our understanding of HMRC and ATO legislation, which is subject to change.
