The inheritance tax issues facing foreign nationals owning UK property

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The UK has historically been, and indeed remains, an attractive proposition for foreign nationals to live, work and invest their money. In past years a buoyant property market has led to large numbers of foreign nationals acquiring UK assets, often UK residential property, as an investment. Recent falls in the value of sterling following the Brexit vote have only increased the attractiveness of such investments. However, such investors should always consider carefully the UK tax implications and succession issues that may arise from holding and later disposing of such an asset, or dying whilst still owning a UK property.

The general position under international law is that real estate and other non-movable assets are subject to the inheritance tax regime of the country in which they are located at the death of the owner (whether owned by a national of that country or not). Therefore, the estate of any foreign national who has acquired UK real estate and dies whilst still owning it could well have a significant UK inheritance tax liability to pay (the current tax rate is 40%). However, UK tax law does offer a number of tax reliefs from UK inheritance tax and foreign nationals who might be impacted by the above should seek expert advice on qualifying for, and maximising, such reliefs.

A key step in such a process is to put in place a succession document known as a Will, which has been drafted to apply only to the UK assets of a foreign national. Any other assets of the foreign national in their home jurisdiction would ideally be covered by a Will made in that jurisdiction. The advantages of using such a “UK only” Will are that:

  • It would govern the succession/inheritance of those UK assets;
  • The Will would be administered and implemented in the UK via the UK’s efficient and simple probate process (this is in contrast to a number of other jurisdictions that use notarial systems in which probate can often be a slow, complicated and costly process); and
  • The Will, prepared in line with UK tax advice, could minimise any UK tax arising on the owner’s death. Foreign Wills applying to UK assets often trigger greater UK inheritance tax as they are drafted with different legal systems in mind.

A number of our clients have found that forward planning in this fashion minimises their UK tax footprint and, in tandem with legal advice from their home jurisdiction, ensures that their UK assets pass as they would have wished upon their death.

A connected issue that should also be borne in mind is that any foreign national who has acquired a UK residential property will need to be mindful of the number of days they spend in the UK during the tax year to avoid triggering UK tax residency and its associated tax implications.

We will talk through the options with you, and give advice as to the best way to provide for your nearest and dearest over the long term. We have decades of experience and will advise you on your position in relation to inheritance tax, capital gains tax, and all other UK taxes.

If we can be of assistance in connection with any of the above issues, please contact partners Anna Coakes or Matthew Biles.

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