Non-domiciled holders of whole-of life policies may no longer qualify for an exemption of inheritance tax under new HMRC rules, sparking the need for revised estate planning to avoid unexpected tax bills, Skandia has warned.
Under new proposals HMRC requires greater tests to be carried out to determine whether a policy is considered to be situated outside of the UK and therefore qualifies for an exemption of inheritance tax.
The tests could mean that policies, which were written 'under seal' and taken abroad, could now be hit with up to 40% UK inheritance tax.
The method of estate planning has been popular over the years, with the UK attracting wealthy individuals from across the world.
However, Skandia warned that affected clients could now be hit with unexpected tax bills on their death if they are not given further advice on their estate.
Head of wealth planning Colin Jelley said: "All tax changes bring opportunities to provide on-going advice, and this is no exception. Giving a client further advice on this issue alone could save them tens of thousands of pounds if they are impacted."
Tests the HMRC wants to introduce include what country the insurance provider is based in, where the policyholder is living when they die and the location of any property if the policy is used as security.
Clients who then qualify as holding a UK situated policy may find it useful to consider moving their assets into a trust, depending on their current state of health and other key factors, Skandia suggested.
Jelley said: "Using trusts is an excellent way for advisers to demonstrate the value of their advice to clients, and the potential savings from such wealth planning really can be significant."
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