The topic of inheritance tax for UK beneficiaries regularly arises when a family is planning their Estate, so we have provided a fictional scenario to illustrate how a UK Inheritance Tax (IHT) liability could arise for UK resident beneficiaries of a Jersey Will.
Background
A Jersey couple with accumulated joint assets of in excess of £3 million, including their main residence, leave their entire wealth to their UK resident daughter.
Upon the death of the daughter, the heirs to her Will would face a potential UK inheritance tax exposure of over £1 million.
Why?
Without planning whilst the couple are alive, 40% of their hard-earned wealth in Jersey may be taxed by HMRC in the UK when passed down to the third generation. Or put simply, upon the death of the UK resident daughter, her Estate will face a 40% Inheritance Tax and that includes the inherited £3 million (assuming it hasn’t grown by that time).
What options are available for estate planning in this scenario?*
At the time of planning their own Estate, the grandparents had an opportunity to consider the future implications for their UK resident family.
As Jersey residents, they could have settled their assets into a Jersey trust for the benefit of their children meaning the assets are not in the children’s name when they died, thus saving 40% inheritance tax later on.
It is important to emphasise, that prior to the death of the second parent there would still have been an opportunity to place the assets into trust.
Once the assets pass to the UK based children, they cannot be tax efficiently settled into a trust.
Next steps
Consideration needs to be given to professional fees to set up and run a trust and stamp duty payable on setup, however, this in the majority of cases will be significantly less in comparison to the IHT savings.
Our Directors have worked with many Jersey families to enable them to plan for the future and ensure their UK resident grandchildren do not face the same inheritance tax scenario outlined above.
Our directors provide complimentary 1/2 hour meetings to anyone wishing to explore the practicalities of setting up a Trust or a Will Trust. Please contact Hannah Roynon-Jones for more information.
*The contents of this case study are based on our current understanding of HMRC practice as at October 2022 which is subject to change.
