8 useful estate planning tips for those with assets in both the UK and Australia

Category: News

When you pass away, you’ll want to ensure your financial affairs are in order for your loved ones. You’ll also want to minimise your 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.

In this article, discover eight key points for managing your financial affairs to ensure more of your wealth goes to your heirs, rather than the government.

1. How Inheritance Tax charges are applied in the UK

Inheritance Tax (IHT) is payable at 40% of the value of your UK-based assets above your nil-rate band (NRB) of £325,000.

There is also an additional residential property nil-rate band (RNRB) of £175,000 if you plan to leave your home to your direct descendants.

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

You should therefore ensure you know how much your UK estate is worth, and what this might mean for your family when you die.

2. Reducing the IHT payable on a UK estate

There are some simple ways for you to reduce the potential IHT payable on your estate.

One of the most common is to gift assets. Everyone is entitled to make £3,000 worth of gifts per tax year. Couples can double that to £6,000, or £12,000 if they use the previous tax year’s unused allowance.

You can also make regular gifts out of any surplus income you have, although this is subject to certain requirements.

Beyond that, potentially exempt transfers (PETs) are exempt if you survive for seven years after making the gift. Tapered rates of IHT apply, from years three to seven.

As well as straightforward gifts, there are also more complex ways to reduce IHT, including gifting your property, and various business-related reliefs.

It’s a complex subject and mistakes can prove costly, so we would always recommend speaking to a financial expert about your IHT planning arrangements.

3. The tax position on inherited wealth in Australia

IHT was abolished in Australia in 1979. Australian assets can therefore be passed down to your heirs tax-free.

However, tax will be applied in the event of any changes to someone’s financial position because of receiving the inheritance.

For example, if you inherit any investments or cash lump-sum, you will need to pay the relevant tax on any subsequent income.

Additionally, you will have to pay Capital Gains Tax (CGT) on any gain in value of the asset when you come to dispose of it. This is calculated on the increase in value from the date you received it.

4. The importance of domicile

When it comes to assessing IHT liability, the domicile status of the deceased is crucial.

HMRC will treat you as being domiciled in the UK if you either:

  • Lived in the UK for 15 of the last 20 years
  • Had your permanent home in the UK at any time in the last three years of your life.

So, being non-UK-domiciled is a huge advantage when it comes to IHT. If someone is living in the UK, but is non-domiciled, IHT will only be applicable on their UK-based assets.

In comparison, when someone who is UK-domiciled dies, their entire worldwide estate is subject to IHT, including all their Australian assets.

5. The situation if you are domiciled in Australia with assets in the UK

If you are domiciled in Australia, IHT is only paid on your UK assets.

The interaction of the UK and Australian tax position on death is complex. Pitfalls exist in the tax systems of both the UK and Australia. It’s easy to fall foul of these and end up with an unexpected and unwelcome tax charge.

Again, we would strongly recommend that you get expert advice in this regard.

6. Make sure you have separate wills for the UK and Australia

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

Likewise, Australian law recognises 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.

Despite this, we would recommend that you set up a will in each country, dealing with the relevant assets in the UK and Australia separately. The two key reasons for this are:

  • It ensures all your assets are considered
  • It creates a clear demarcation between your UK- and Australian-based assets.

7. Keep your financial records in order

It will be much easier for your family to manage your finances if everything is organised. 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 stress.

So, make sure you your records and financial details are up to date.

We would also recommend that you keep details of your Australian assets separate from those in the UK.

8. Start planning early

While death is something no one likes to think about, the sooner you start planning for what happens to your assets when you die, the better.

You’ll clearly want to ensure your loved ones inherit as much of your hard-earned wealth as possible. So, starting the planning process early means there’s no rush in getting everything arranged, so mistakes are less likely to occur.

Watch our cross-border estate planning webinar

Because of the importance and potential complexity of this subject, we’ve devoted one of our regular client webinars to it.

Titled “Cross-border estate planning”, it features contributions from two experts in the field of taxation and estate planning:

  • Alan Collett (bdhTax)
  • James Whiley (Hall and Wilcox)

It covers all the points we’ve flagged up here in detail, as well as other key issues and some tips on the best way to structure your finances to avoid having to pay too much of your hard-earned wealth in tax.

We would strongly recommend you take time to watch it.

Get in touch

As an experienced financial advice company with a strong presence in both the UK and Australia, we are uniquely placed to advise you on your cross-border financial arrangements and help you with the issues we’ve raised in this article.

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