Understanding the Challenge
For expats, managing gift and inheritance tax (IHT) across multiple countries can be complex and requires careful consideration. Every jurisdiction has its own rules around residency, domicile, and the taxation of worldwide assets, which means that even well-prepared individuals may face unexpected obligations if their affairs are not correctly structured.
This article outlines some of the key cross-border gift and inheritance tax considerations for expats, as well as practical planning points to help you take a proactive approach to protecting your estate.
Understanding Gift and Inheritance Tax
Gift tax applies to assets transferred during an individual’s lifetime, while inheritance tax generally applies to assets passed on after death. Each country applies its own rules, exemptions, and tax thresholds, and these may vary considerably.
For example, the UK’s inheritance tax regime applies to worldwide assets for those domiciled in the UK, but only to UK-based assets for individuals who are non-UK domiciled. Meanwhile, jurisdictions such as Australia or the UAE may not levy formal inheritance taxes, though other forms of taxation or reporting requirements can still arise.
Without professional guidance, these overlapping frameworks can sometimes result in double taxation or missed opportunities for efficiency.
Key Factors Affecting Cross-Border Taxation
1. Residency and Domicile Status
Your residency and domicile status are among the most important factors determining where and how your estate is assessed for tax.
- Residency is typically based on the number of days spent in a particular country.
- Domicile is a more complex legal concept linked to your permanent home and long-term intentions.
An expat who has lived abroad for many years may still be considered UK-domiciled for inheritance tax purposes unless they have taken formal steps to change this. Understanding your current and potential future status in each jurisdiction is essential to effective estate planning.
2. Source and Location of Assets
The jurisdiction where an asset is located — whether a property, investment, or business interest — can influence which country has taxing rights. Some countries tax assets based on location (situs), while others look to the owner’s residency or domicile. Without proper coordination, this can lead to multiple claims on the same asset.
3. Double Tax Treaties
While double taxation agreements (DTAs) exist between certain countries to help avoid the same income or asset being taxed twice, these treaties often have limited coverage for inheritance or gift taxes. Determining whether such agreements exist between your relevant jurisdictions can be an important step in your planning process.
Planning Strategies for Expats
Plan Early and Review Regularly
Cross-border estate planning should be revisited periodically, particularly if there are changes in your personal circumstances, family situation, or relevant tax laws.
Use Trusts and Other Structures
Trusts and similar legal arrangements may offer flexibility and control when managing assets across borders. However, the rules governing these structures vary between jurisdictions, so professional advice is essential before implementation.
Gift Strategically
Making use of available annual exemptions and lifetime allowances in each jurisdiction can help to manage potential inheritance tax exposure. Structured gifting, when coordinated with advice, may provide benefits for both you and your beneficiaries.
Life Insurance
In some cases, Life insurance may help ensure that sufficient liquidity exists to meet potential inheritance tax obligations, reducing the need for beneficiaries to dispose of key assets at short notice. Policies should be arranged and structured appropriately within your overall estate plan and with professional advice.
Work with Specialist Advisers
Given the complexity of international tax systems, working with advisers experienced in cross-border financial and estate planning is strongly recommended. A collaborative approach between your tax, legal, and financial professionals can help ensure that all aspects of your plan remain coordinated and compliant.
Common Mistakes to Avoid
- Assuming tax laws in one country apply globally
- Overlooking the impact of changes to domicile status
- Failing to declare or report offshore assets appropriately
- Ignoring the potential tax implications for beneficiaries in different jurisdictions
Each of these can create complications and may affect how efficiently your wealth is transferred to the next generation.
Final Thoughts
For expats, navigating cross-border gift and inheritance tax requires a careful and well-informed approach. Understanding how residency, domicile, and local tax rules interact is key to protecting your estate and ensuring that your assets are transferred in accordance with your wishes.
At Blacktower Financial Management (DIFC), our advisers have experience supporting internationally mobile individuals with estate planning and cross-border wealth strategies. We can help you review your existing arrangements and work with your tax and legal advisers to ensure your plan remains suitable and compliant.
Disclaimer: Blacktower Financial Management (DIFC) Limited is regulated by the Dubai Financial Services Authority (DFSA). This blog is for general information purposes only and does not constitute legal, tax, or financial advice. You should seek independent advice from qualified professionals before making any decisions based on its contents.
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