7 key estate planning tips for Australians in the UK

Category: News

To paraphrase Benjamin Franklin, the two things certain in life are death and taxes.

When you pass away, you’ll want to ensure your financial affairs are in order for your loved ones. You will also want to make sure you minimise your Inheritance Tax liability so your beneficiaries inherit your wealth.

If you have assets in both the UK and Australia, this can add a further layer of complexity. It can also increase the chances of a mistake or an expensive oversight.

Read on for seven key tips to help you with your estate planning process.

1. Understand IHT charges in the UK

In 2019/20, £5.2 billion was paid in Inheritance Tax (IHT). That figure is expected to increase each year as more people become liable for IHT due to increasing property values and the recent freeze to the IHT threshold.

IHT is payable at 40% of the value of your assets above your nil-rate band (NRB) of £325,000 – with an additional residential property nil-rate band (RNRB) of £175,000 if you plan to leave property to your direct descendants.

These allowances will automatically pass to your surviving spouse or civil partner on your death, which means a total of £1 million could pass to your heirs, free of IHT.

So, it is important that you are aware of IHT, how much your UK estate is worth, and what this might mean for your heirs when you pass away.

2. Ensure your domicile status is clear

The payment of UK IHT is based on whether a person is UK domiciled for IHT purposes. If you are domiciled in the UK, you will be liable for IHT on your worldwide assets.

If you are not domiciled in the UK on your death, you will only be assessed for IHT on assets situated in the UK, so any assets you have in Australia will not be liable.

Determining domicile can be complex and the tax-law definition of domicile is different in the UK to that in Australia.

Under UK tax law, you can change your domicile by moving to another country, but the onus is on you to prove to HMRC that there has been a change in domicile status.

In practice, a change of domicile may be difficult to substantiate. So, we would stress the importance of getting specialist advice in this regard, as mistakes can prove very costly.

3. Reduce your IHT liability with gifts

One way of reducing your UK IHT liability is by gifting assets during your lifetime. For example, everyone can make:

  • £3,000 worth of gifts per year plus £250 to any number of individuals
  • Regular gifts out of surplus income (which varies according to circumstances)
  • Potentially exempt transfers (PET). These will be exempt from the value of your estate if you survive for seven years from the date of making the gift, with tapered rates applying from the third year.

There are other gift options, and additional ways you can reduce your liability for UK IHT while you are alive.

We can help with this and work with you to put a plan together to minimise the amount of IHT payable by your heirs on your death.

4. Make sure your will is up to date

Considering how relatively straightforward it is to set up a well, 60% of people do not have one.

Dying intestate means your family do not automatically inherit the full value of your estate, less any possible IHT. Instead, your executors will have to follow a series of steps which will not necessarily result in the distribution of your assets as you might have wished.

You should therefore ensure you have a valid will in place, and that your spouse or civil partner has one too. It’s also worth reviewing it regularly and keeping it up to date as your circumstances change.

5. Have separate wills for UK and Australian assets

An Australian will is valid in the UK, if it was correctly set up in accordance with Australian law.

Likewise, Australian law does recognise a will that has been prepared in another country. This means that your executors can manage the distribution of all your assets under the terms of a carefully drafted English will.

However, we would recommend that you set up a will in each country, dealing with the relevant assets in the UK and Australia separately.

As well as covering everything, having two different documents will help with the management of your estate by creating a clear demarcation between your UK- and Australian-based assets.

6. Don’t forget your Power of Attorney

A will ensures that your assets are distributed in accordance with your wishes when you pass away. But you should also consider what will happen to your finances if you are incapacitated and unable to make decisions or manage your own affairs.

Setting up a Power of Attorney means you will be appointing someone to manage your affairs on your behalf, and you’re able to set out clear directions as to how this should be done – for example, how you want your business managed and dealt with.

As with your will, we would recommend that you set up separate Powers of Attorney in the UK and Australia. You should also try to ensure that whoever you appoint to look after your affairs is resident in the relevant country where they will be acting.

7. Make sure your financial records are in order

As well as ensuring that you have the correct legal documents set up to protect the value of your assets, it is also important to ensure you keep your records and financial details up to date.

You should also make sure that you keep details of your Australian assets separate from those in the UK.

It will be much easier for your heirs or appointees to manage your finances if everything is in order. When you pass away it will clearly be an emotional time for them, so making sure your records are in good order takes away unnecessary inconvenience and stress.

Look out for our free webinar in June

As you will have realised, both through your own experience and from reading this article, estate planning when you have assets in two countries can be complicated.

To help, we will be tackling this very issue in one of our successful series of free client webinars in June.

Keep an eye onyour inbox nearer the time and on social media, as we publish full details and joining instructions.

Don’t forget, we’re here to help you

Please get in touch if you need help or guidance with any of the points that we have set out here.

We have cross-border expertise and are uniquely authorised to give advice in both the UK and Australia, with offices in both countries and advisers with a wealth of expertise on this issue.

Get in touch to find out how we can help you.