UK Inheritance Tax Changes: What Brits in NZ Need to Know
New UK Inheritance Tax (IHT) rules could catch Brits in New Zealand off guard, taxing their NZ and UK assets—home, savings, pensions. IHT is a 40% tax on estates above £325,000, and recent changes make awareness essential. Here’s a guide to understand the risks and plan wisely.
What’s Changed:
- From April 2025, IHT applies to all assets (NZ home, savings, pensions) if you were UK tax resident for 10+ of the last 20 years, including a 10-year tail after leaving the UK. After this, only UK assets (e.g., bank accounts) are taxed.
- From April 2027, UK pensions and NZ QROPS (transferred UK pensions) are taxable if you’re in the tail, ending their IHT exemption.
IHT Basics:
- You can leave £325,000 tax-free (or £500,000 if passing a home to kids/grandkids). Couples transfer assets tax-free to each other, combining limits up to £1 million.
Pensions and Assets:
- Transferring a UK pension to a NZ QROPS doesn’t avoid IHT in the 10-year tail. Withdrawing funds at 55 to pay off a mortgage doesn’t shrink your estate’s net value, as pension reduction offsets home equity increase.
- Example: £500,000 estate (£200,000 QROPS, £300,000 home, £150,000 mortgage). Withdraw £150,000 to clear the mortgage: estate stays £350,000 (£50,000 QROPS + £300,000 home). IHT is £10,000 (40% of £350,000 - £325,000).
- NZ benefit: QROPS lump-sum withdrawals and investment growth are tax-free for all residents, in all years, with no capital gains tax, which is a significant benefit compared to keeping your UK pension in the UK.
What to Do:
1. Review UK Residency: If you’re in UK and nearing 10 years of UK residency in the last 20, check your status to limit the 10-year tail.
2. Value Estate: Sum NZ home, savings, QROPS to assess IHT risk.
3. Gift Assets: Gift £3,000 yearly; IHT-free after 7 years.
4. Update Will: Share UK history and QROPS details with your executor.
5. Get Expert Advice: IHT and UK pensions are complex. Contact us to tailor strategies that are best suited for your money to work as hard as possible for you.