Tax on international assets is a common concern for UK business owners.
We’re often asked how internationally mobile UK business owners can manage and mitigate Inheritance Tax (IHT) on overseas assets, as it can be unclear until it’s too late to plan ahead.
IHT on overseas assets
Estates valued above £325,000 are subject to IHT in the UK, and any ownership stake or share in a business is included in the value of the estate.
International assets can make valuing your estate more complex.
The amount of IHT you may have to pay on international assets currently depends on your domicile status – whether the UK is your permanent home.
If your permanent home is abroad, you’ll only have to pay IHT on your UK assets, such as property or money – but if you’re UK-domiciled, then your entire international portfolio will be included in the valuation of your estate.
These are the current rules, but changes are on the way!
The UK is moving away from a domicile-based regime to a residence-based one from 6 April 2024, meaning your international assets could be subject to IHT if you have been resident in the UK for 10 years or more.
Tax treatment in other jurisdictions
Your IHT liabilities on international assets may depend on how these assets are taxed in the country where they’re located.
Some jurisdictions have a ‘double taxation’ arrangement with the UK, potentially allowing you to reclaim tax if IHT is charged on the same assets in the UK and in the country where you live, if you live abroad.
Business assets, planning and relief
With careful planning, you can minimise IHT due on your international business assets.
Business Relief (BR) can be applied to reduce the overall value of your business or its assets to calculate IHT, if you owned the business for two or more years. This can be applied to certain assets gifted during your lifetime or as part of a Will when your executor is calculating IHT.
You can claim 100 per cent BR on a business or an interest in it or shares in an unlisted company.
Relief at 50 per cent may be available for landing, buildings and machinery that you own or used in a business that you control.
This relief will only apply to assets liable for IHT in the UK, so it largely benefits UK-resident business owners with overseas assets.
If you’re a UK business owner currently resident abroad, it may be time to discuss this with your tax adviser and assess what action you can take to reduce your IHT liabilities!
