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.