Confusion surrounding Inheritance Tax rules in France and Spain could disadvantage thousands of expatriate Britons living in these destinations, warns WAY Group.
As the number of Britons taking up residence in Spain and France soared to a total of 961,000 by the end of 2006.
Paul Wilcox, chairman at WAY Group, says: Up until quite recently we had little or no enquiries on the IHT abroad issue but independent financial advisers are increasingly being asked to restructure clients’ affairs ahead of emigration to the sun.
“As a result WAY is being asked for comments on the IHT aspects of leaving the UK which is, of course, quite a grey area.
It says a key fact which Britons retiring to live in France need to be aware of is that there is no exemption beyond the 76,000 personal allowance on transfers between husbands and wives on death and according to the Institute for Public Policy Research , there are some 200,000 expat Britons that permanently reside in the country.
Clearly, in the case of better-off expats, this relatively frugal allowance means that many Brits will be vulnerable and if assets go directly to the children, each child only has a personal allowance of 50,000.
Then tax from 5% up to 40% will be levied and many Brits are unaware of the fact that the kids actually have more rights than the spouse under French law.
Unmarried Brits who live together are also very exposed as the French will hammer you for 60%.
But the French tax authorities also have a system known as assurances-vie, which will allow unlimited amounts to be sheltered from punitive Gallic IHT laws but it is crucial to set up an IHT mitigation plan before taking up residency.
The tax-free allowance is just 15,957, and a further 34% kicks in on amounts over 79,755 but, in some circumstances, for example if they are not a blood relative, expats can be liable to pay 82% under current Spanish law, unless they have made pre-domicile arrangements.
To change to a domicile of choice, a person needs to prove that they are a resident of that new country and that they intend to reside there permanently or for an unlimited time.
Retaining residential property or even a burial plot within the UK can give the Revenue enough ammunition to challenge your domicile of choice abroad, warned Wilcox.
“Pretty much regardless of where you are going, it is important to remove assets from ones estate before leaving, using arrangements such as the WAY Inheritor Plan.
But in doing so, it is vital to ensure that reliable trustees looking after those assets have the power to release funds as necessary back to the donors and, where required, to other named beneficiaries. Failing to do this is where so many expats fall down.”