What You Need to Know About Inheritance Tax UAE

See all Posts
February 3, 2020

Many expatriates living in the UAE are unaware that in the absence of a Will, recognised by the UAE legal system, the process of transferring assets and managing your wealth after death can be time consuming, costly and riddled with legal complexities. 

Inheritance simply refers to the assets that an individual leaves to his or her loved ones after  they pass away. An inheritance may contain funds, investments such as stocks or bonds, and other assets such as jewellery, automobiles, art, antiques, and real estate or land. 

Planning for your death may seem slightly morbid but it’s an extremely important process, to ensure that you leave your family with a stable life.

In this article, we’re going to talk you through:

  • What is inheritance tax?
  • How to get the most out of estate planning

What is inheritance tax?

Taxation can be confusing, and inheritance tax (IHT) is no different. It’s often referred to as ‘voluntary tax’, simply because there are so many ways to plan and arrange your affairs to reduce it. IHT applies to expats that have relocated from the UK.

This tax is paid on an estate when the owner of that estate dies, depending on certain criteria, the tax may also be payable on gifts or trusts made during that person's life. 

Unlike many other British taxes, which can be eliminated once you become a non-resident, it’s likely that, as a British citizen, wherever you live in the world, your estate will be subject to IHT upon your death.

Even if you are an expat living outside of the UK, you will still be subject to inheritance tax in the United Kingdom if you are deemed to be of a UK domicile status.

Death isn’t the cheeriest of topics, but it’s an area of financial planning that we have to address. 

If you’re a UK domicile and your estate is valued at over £325,000, your estate will be subject to inheritance tax at either 40% or 36% on the amount over the threshold. 

It’s important to understand that being classed as ‘non-resident’ in the UK for personal tax purposes doesn’t change your domicile, you will still be liable for inheritance tax. Unless you’ve got a non-domicile status in the UK, only UK based assets will be liable to inheritance tax. 

Inheritance tax is commonly defined as a tax on people who fail to plan their estate tax efficiently. With careful planning, and independent advice it is possible to legally reduce a significant amount of inheritance tax in the UK.

Get in touch with us today to speak to a knowledgeable wealth manager>

You can protect your property from inheritance tax by moving them into tax efficient financial structures. By using a number of tax efficient financial structures you can not only reduce inheritance tax but also potentially increase the final value as well.

For example, simply setting up trusts for life assurance payouts or transferring your pension pot can help you reduce inheritance tax.

How to get the most out of estate planning

We’ve looked at the complexities surrounding inheritance tax and how you can try to reduce any unnecessary costs. With careful estate planning it’s possible to reduce paying unnecessary tax and minimise uncertainties surrounding how your estate will be managed after you are gone.

It is important to ensure you have a Last Will & Testament if you wish to choose the individuals who will benefit from everything you own- your estate, home, money, life insurance, inheritances and lifelong acquisitions.

Without a Will your estate will fall under the laws of the UAE, leaving your loved ones under-served and with a mountain of problems to sort through.

If an expatriate dies without a Will, access to the assets of the deceased individual are restricted. Assets cannot be transferred or be dealt with without direction from the local Court. 

Your surviving spouse will also encounter problems by not being granted immediate access to money in bank accounts within the UAE, or even bank accounts held jointly in the names of both spouses. 

In the absence of a Will, any accounts will be frozen until instructions are received from a UAE Court and all the deceased’s debts in the UAE are paid.

Something as little as a parking fine with your name attached, will become the responsibility of your family!

However, you can protect your money with certain Wills or Trusts’. 

There are lots of reasons why you should set up a trust, this could be: 

  • To support someone in the future who can’t manage their money yet
  • To support you if one day you are unable to care for yourself

A trust is a legal arrangement, whereby trustees control money or assets which must be used in support of a beneficiary. Trusts are very useful if you’re leaving a large sum of money to a child, or someone with a mental health condition or learning disability.

Your life insurance policy is considered part of your estate. This means it could be subject to inheritance tax. However, by simply putting your policy into a trust, you can help protect your beneficiaries for your family.  

Conversations about money and death can be a difficult and heavy topics to discuss. But by planning for your future, as well as your families, you can leave more than just good memories behind. 

If you’d like help or advice with managing inheritance tax and protecting your assets with a Will, we can help. Ai Investment Group are experts in expatriate and UAE national wealth management, providing you with solutions to maximise and protect your assets.