Inheritance tax (IHT) is a concern for many expats who retain a connection to the United Kingdom (e.g. domicile), as it can significantly impact the wealth passed down to future generations.
However, with proper planning and the right strategies, it is possible to mitigate the burden of inheritance tax.
One such framework that has gained popularity in recent years is the PASTOR framework.
In this blog post, we will explore the PASTOR framework and how it can help expats effectively plan for inheritance tax in the UK.
P – Property Ownership
The first step in effective inheritance tax planning is to review and optimise property ownership.
Property is a major asset that can attract a significant amount of IHT.
One strategy is to transfer the ownership of property to a trust, which allows you to retain control while reducing the taxable value of your estate.
Additionally, utilising available exemptions and reliefs, such as the residence nil-rate band, can further minimise the impact of IHT on your property.
A – Assets
The next aspect to consider is the evaluation and management of your assets.
It is crucial to assess your asset allocation and determine whether they are IHT-efficient.
By structuring your assets in a tax-efficient manner, you can maximise any exemptions and reliefs available to you, ultimately reducing the overall IHT liability.
S – Succession Planning
Succession planning plays a vital role in inheritance tax mitigation.
Having a well-thought-out plan for passing on your wealth to future generations can help minimise the tax burden.
Utilising gifting strategies, such as making regular gifts out of surplus income, can be an effective way to transfer assets and funds to your loved ones while reducing IHT.
It is essential to be aware of the annual exemption and the seven-year rule for larger gifts, as they can have a significant impact on IHT liability.
T – Trusts
Trusts can be a powerful tool in inheritance tax planning, offering flexibility and control over your assets.
Placing assets in a trust allows you to separate ownership from control, potentially reducing the value of your estate for IHT purposes.
Various types of trusts, such as discretionary trusts, interest in possession trusts, or spousal bypass trusts, offer different advantages and should be considered based on your individual circumstances and goals.
Seeking professional advice is crucial to navigate the complexities associated with trusts.
O – Offshore Consideration
For individuals with substantial wealth or international connections, offshore planning can be a viable option for inheritance tax mitigation.
Offshore trusts, if structured correctly, can provide significant tax advantages.
However, it is crucial to be aware of the legal and tax implications associated with offshore planning, as HM Revenue & Customs closely scrutinises such arrangements.
Engaging with professional advisors who specialise in offshore planning can ensure compliance with all legal requirements.
R – Review and Revisit
Inheritance tax planning is not a one-time exercise; it requires regular review and revision.
Tax laws change, personal circumstances evolve, and new opportunities may arise.
Regularly reviewing your estate planning arrangements and adjusting them accordingly is essential to ensure that your strategy remains effective and aligned with your goals.
Conclusion
Effective inheritance tax planning is crucial for preserving your wealth and passing it on to future generations.
The PASTOR framework provides a comprehensive approach to managing your estate efficiently and reducing the burden of IHT.
By addressing property ownership, optimising assets, planning for succession, utilising trusts, considering offshore options, and reviewing your strategy regularly, you can navigate the complexities of inheritance tax in the UK and secure the financial future of your loved ones.
Remember, seeking professional advice from qualified experts is highly recommended to ensure compliance with tax regulations and to tailor your plan to your specific circumstances.
