US Edition
Thousands of wealthy British expats with “golden visas” wrongly believe their families will not have to pay inheritance tax, experts warn.
The United Arab Emirates is among the nations to offer expats the opportunity to buy visas that allow them to stay for 10 years in cities such as Dubai and benefit from a policy of little-to-no tax on wealth.
Around 240,000 British people have moved to the Gulf state in recent years, and 90pc of the UAE’s 10m population are expats.
But experts warn that officials and estate agents are failing to tell British expats that, while they will not face income and capital gains tax in the country, their families are liable to pay inheritance tax on their assets when they die.
Chris Etherington, of tax advisers RSM, said HM Revenue and Customs (HMRC) is becoming more sceptical of Britons holding golden visas to escape UK tax on their assets, and that those moving abroad must cut almost all ties with Britain if they want their estate to avoid a hefty death duty bill.
He said: “If you are a British expat living overseas, like in Dubai, then just because you have fallen out of the income and capital gains net in the UK, you are still liable to inheritance tax on your worldwide or UK assets.
“You need to make a more permanent change to your lifestyle to cut ties with the UK for inheritance tax purposes.
“Even if you had moved and changed your domicile to the UAE, the issue is that you are still subject to inheritance tax on your UK assets. That trips people up, especially if they retained assets or property in the UK.”
It comes as the Telegraph and more than 50 Conservative MPs are calling on the Prime Minister to abolish inheritance tax.
Inheritance tax must be paid at 40pc if a person’s estate is worth more than £325,000 (the nil-rate band).
For couples, this is £650,000 – with an additional allowance for homeowners pushing this to £1m if their children inherit their main property.
Revenue from the divisive duty has soared to more than £7bn a year as frozen thresholds dragged more grieving families into the net.
David Lesperance, a tax expert who advises wealthy expats, said: “I have spoken to dozens of British expats that moved to Dubai that weren’t aware, or weren’t told beforehand, of this issue.
“If someone in this circumstance dies, HMRC tells the executors of their estate that their rules state that inheritance tax is applied on domicile status, and the dead person is domiciled in the UK as they still had some connections there, such as family or property or even visits home.
“This is because the UAE would never let that person stay forever as a resident, so they are liable to the tax on their worldwide assets because they were still domiciled in Britain.”
Mr Lesperance said many expats believe they can avoid the death duty by living “off the grid” – but the tax office is becoming savvier when investigating them and their connections to the UK.
He said: “They can still undergo the usual inheritance tax planning – like gifts and trusts. But the problem is very few British expats in Dubai are aware they are liable to inheritance tax, so they don’t do this.
“If you are not that well known, the tax office can look through someone’s internet presence and credit and mobile phone records to see where they have been and decide whether they have connections to the UK for inheritance purposes.
“People file income and capital gains tax returns every year, but inheritance tax is not front of mind because they don’t pay for it while they are alive.”
It comes as The Telegraph revealed earlier this month that HMRC is cracking down on wealthy “day counters” suspected of staying too long during the pandemic.
The tax office is concerned wealthy jet setters from foreign tax havens may have abused the “exceptional circumstances” reprieve and overstayed.
If found to have broken the rules, they could face tax on their worldwide income and assets, as well as penalties of between 30pc and 100pc of the tax they have to pay.