Inheritance Tax Incidence – UK
WHAT IS INHERITANCE TAX?
Inheritance Tax is a tax charge on any part of your estate that exceeds the specified threshold limit (also known as the nil rate band). Your estate is the combination of property, savings and investments, other assets and any gifts given away within seven years prior to your death
Inheritance law in the UK applies to all official residents, whether national or from overseas, on all their worldwide moveable assets. If you are a non-resident who owns UK property, UK inheritance law will also apply to some of your estate.
Inheritance Tax is a tax on the estate (the property, money and possessions) of someone who has died
No Inheritance Tax is payable if the value of the estate is below a threshold limit. Standard Inheritance Tax rate (as per specified rate) is charged on the part of the estate that’s above the threshold limit. However, there are few reliefs and exceptions available.
WHO IS LIABLE TO PAY INHERITANCE TAX?
Executors of your estate (as appointed in your Will) are responsible for valuing your estate and completing an Inheritance Tax return when you die. They must also pay the Inheritance Tax bill within six months of your death
Is there any type of tax payable on assets inherited by legal heirs/ beneficiaries/close to kin? Also, who is responsible to pay the tax
India- Under the laws governing India, on the death of a person, no inheritance tax is payable
United Kingdom – Under the laws governing United Kingdom, on the death of a person, his estate (assets eligible for transmission/ distribution to legal heirs/ beneficiaries/close to kin) will be subject to inheritance tax based on the domicile status of the deceased person. If a person was domiciled in the United Kingdom, upon the persons death, all global assets owned by the deceased will be subject to inheritance tax in the United Kingdom. Thus, even interest in terms of ownership or beneficiary ownership of assets in India would also be subject to inheritance tax in the United Kingdom.
If the deceased is not a domicile of United Kingdom but owned assets in UK, then the estate of the deceased ((assets eligible for transmission/ distribution to legal heirs/ beneficiaries/close to kin) will be subject to inheritance tax only on assets located in the United Kingdom.
It is pertinent to note that domicile status and residential status are two different concepts and should not be confused for one another.
Q) When the beneficiary is a resident of United Kingdom, what are the tax implications in the hands of the beneficiaries who receive any part of the estate of a deceased person?
When a beneficiary inherits any part of the estate of a deceased person, it is presumed to be post payment of inheritance tax by the executor. Thus the beneficiary does not have to pay inheritance tax in United Kingdom unless the estate of the deceased person does not or cannot pay the inheritance tax.
When someone living outside the UK dies
Inheritance Tax is only paid on your UK assets, for example property or bank accounts you have in the UK. However, HMRC will treat the deceased as being domiciled in the UK if the deceased either:
- (A) lived in the UK for 15 of the last 20 years
- (B) had permanent home in the UK at any time in the last 3 years of his/ her life
Executor might be able to reclaim tax through a double-taxation treaty if Inheritance Tax is charged on the same assets by the UK and the country where deceased lived