Offshore investments and IHT

What happens when someone with offshore investments dies? The tax implications may vary according to where and how their assets were held, and of course how much tax planning they had done.

Luxembourg has recently come under fire from the European Commission for inheritance tax provisions which were said to discriminate against people who were not resident in the country.

The original position was that non-resident heirs had to jump through extra hoops to inherit assets that had been left to them. When an investor dies, his or her heirs technically owe the government an amount equivalent to the IHT on the estate.

Non-residents have to provide a guarantee that they will pay the amount before they can take possession of the assets. If the court officials cannot secure an adequate guarantee from the heir then the estate can be frozen.  Assets are not frozen if the heir is resident in Luxembourg.

The European Commission have taken the view that this is not consistent with the freedom of movement of capital that is meant to exist between Member States of the European Union.

This example illustrates the complexity that can arise in matters of probate when there is a cross border element. Accordingly, any inheritance planning that investors undertake will have to be planned by an adviser who appreciates the tax systems in a wide range of countries.

Inheritance tax planning measures are perfectly legal methods of arranging your affairs to mitigate your tax bill. This may include a number of measures such as making gifts and setting up trusts. It may also be possible for your inheritance tax planning to include a foreign pension scheme.

If you are a non-UK resident, some overseas schemes may be structured to permit the lawful distribution of your pension assets to your beneficiaries without any inheritance tax bills at all.

Of course, this is complicated stuff, and should only be attempted with professional advice. But like all financial planning, the sooner you get started, the better.