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UK inheritance tax (IHT) is assessed on the value of an individual’s estate on death at 40% subject to exemptions and reliefs.

What are the criteria for levying IHT?
Domicile is the basis of liability and not residence or nationality.

Are UK expatriates liable to IHT?
Generally, yes. Where an individual is UK domiciled, his taxable estate includes all worldwide assets. (In the case of non-UK domiciliary, only his UK assets are liable.) The UK domiciled expatriate is in exactly the same position for IHT purposes as those who remain in the UK.

What is domicile?
Domicile is a general legal concept. A person born in the UK generally has the UK as his domicile of origin. A UK expatriate will retain his UK domicile of origin unless there is no realistic possibility that he will ever return to the UK. The onus of proof on domicile matters is on the individual's personal representatives and not the UK Revenue.

When is IHT due?
IHT can arise on death and on certain lifetime disposals. Where a liability to IHT arises on a person's estate, the tax due must normally be paid before the estate can be distributed to the beneficiaries.

What can be done to mitigate IHT?
Making lifetime gifts, which are exempt if the donor survives seven years.

Are there any drawbacks?
The main drawbacks are that the gifts have to be irrevocable and generally the donor cannot benefit from them either directly or indirectly.

Is there an alternative and tax-efficient way of mitigating IHT?
Yes, life assurance is a tax-efficient way of helping the family pay IHT liabilities on death.

Are there any other advantages of using a life policy written in trust to fund the potential IHT liability?
Yes, the policy proceeds are payable immediately to the surviving trustee (or the Trust Company) as the case may be upon production of a certified copy of the death certificate. (Legal costs and delays in obtaining probate are avoided which can take up to 2 years in some instances).

What type of life assurance is IHT efficient?
A regular premium policy on single or joint life basis. Last death, WOL in Trust is considered the best.

Are the policy proceeds liable to IHT?
No, if the policy is written in trust. A policy that is not written in trust will form part of the estate and exacerbate the IHT liability.

Are the premiums liable to IHT?
Each premium is a gift liable to IHT unless exempt.

Which exemption is normally first utilised?
£3,000 p.a. exemption. Up to £3,000 can be transferred free from IHT each tax year. (Any unused balance can be rolled forward for one tax year only.)

What happens if the total premiums payable in the year exceed £3,000?
Normal expenditure exemption. The normal expenditure exemption is available for regular gifts made out of income without affecting the donor's usual standard of living.

What happens in the unlikely event that the total of premiums payable in the year is in excess of both the £3,000 and normal expenditure exemptions?
The first £325,000 of chargeable transfers or premiums paid is potentially charged at nil rate (200/2009 tax year). A lifetime gift in this category is exempt if the donor survives seven years.

What type of trust is recommended?
It is important that the trust is flexible and can provide for almost any eventuality.

Is a Gift Trust flexible?
Yes, it permits the trustees to vary the ultimate beneficiaries under the trust.

Can I (the Settlor) be a trustee?
Yes, you can appoint yourself and another (your spouse, for example) as trustees. Alternatively, for a small annual fee you can appoint other institutions to be sole trustee.