Experts suggest that if you have a life insurance then there is no need to worry about the non-dom legislation issued in the month of October. As famously quoted by Lord Jenkins, Inheritance tax is a voluntary tax, paid by those who distrust their heirs more than they dislike the Inland Revenue’. This statement was quite true until the recent announcement of non-dom legislation which enforces inheritance tax (IHT) on everybody, whether they are UK residents or not.
It is a well known fact that UK nationals have to pay 40% IHT on their world wide estates in the event of death. The law offers inter-spousal exemptions and the condition that the first £325,000 of one’s estate is normally exempted from the IHT. The government has frozen these rules until 2021, which means that a big chunk of the estates will be impacted by IHT in the event of the owner’s death.
Now, to resolve this issue, one of the best methods is to consider a Potentially Exempt Transfer (PET). If you do not know what is PET then let us clarify that it is the method of transferring your property as a gift to your family member. As gifts do not fall under the realm of IHT, you can transfer your estate to your loved ones and they do not need to pay the IHT. Hold on! Isn’t there a clause associated with this kind of estate transfer? Well, the government has reserved the number of years for which IHT would not be imposed on PET. According to law, IHT would not be incurred on PET for a period of seven years.
Now, in case, the donor dies within a span of seven years since offering PET, a portion of or the entire gift (property) will become chargeable to IHT. History suggests that UK families would write in trust to save the beneficiaries from IHT however, as per the amendments made in 2006, writing in trust is subjected to 20% taxes. This is quite an unpleasant scenario for the non-doms as the government has reduced the time period within which one becomes domicile to 15 out of 20 years. This makes the non-doms liable for IHT in case they have worldwide estates.
One of the striking news related to owners of UK residential property is that after April 2017, any kind of shares in offshore companies with a link to the UK residential property would not be considered as an excluded property for IHT. In addition, those who are living in UK properties owned by the offshore trusts would be subjected to IHT charges in the event of their death. According to the latest reports, an estimated worth of £200 billion of UK residential property would fall into the realm of the latest IHT laws by April 2017.
If you are a non-dom and fall into this category then there is no need to panic as a simple life insurance plan would serve as a solution for keeping away the IHT. Whether you have a single or joint life insurance policy, the claim proceeds of the policy would not be considered as part of one’s worldwide estate in the event of the death of the policy holder. To deal with this issue immaculately, you must take expert advice especially when dealing with a high value life insurance policy. Authentic advice should be taken whether you are a UK resident or fall into the category of non-doms. This would help you in a big way to get cheaper life insurance premiums if you have absolute knowledge about underwritings and reinsurance treaties.
Brijesh B. is a personal finance mentor lives in the city of London. He is working at UK’s price comparison website FreePriceCompare.com. He suggests all British breadwinners to compare life insurance plans and keep the premium down for lifetime. When he isn’t writing, he is spending time to find advance technique of farming and its way of applying. He also plays his guitar gifted by his father.