Life insurance and UK inheritance tax for non-doms and expats
Life insurance can provide a lump sum to pay a UK inheritance tax (IHT) bill, which helps your family avoid selling assets in a hurry. Whether it works well for you depends on how the policy is owned, where your assets sit, and your current UK tax status, which has changed in recent years.
The basic problem
IHT is charged on the value of a person's estate when they die, above a tax-free threshold, at a standard rate set by law. The tax bill usually has to be settled within a short period, often before an estate's assets can be sold or released. If most of the value is in property or other assets that are hard to sell quickly, the family may need cash straight away. A life policy that pays out on death is one way to supply it.
Why ownership of the policy matters
A policy paid into your own estate can itself be counted for IHT, which reduces its value to your family. A common approach is to write the policy in trust, so that the payout goes to named beneficiaries outside the estate. Trust law and tax treatment are complex and differ between legal systems. Take advice from a qualified UK adviser before arranging this, particularly if you live abroad.
Who is affected: the domicile change
For many years, UK IHT exposure depended largely on domicile. People not domiciled in the UK were charged only on UK-situated assets, while others were charged worldwide. The UK government has reformed this, moving towards a system based on long-term residence instead of domicile. Details, thresholds and transitional rules matter, and they may be updated. Check the current position on the official UK government tax website, or with a UK tax adviser, rather than relying on older articles, including any that describe earlier non-dom rules.
What this means for someone in the Gulf
- UK assets. Property or investments in the UK can fall within UK IHT even if you live abroad.
- Time spent in the UK. Past residence can affect whether your worldwide assets are exposed. Keep a record of years of UK residence.
- Local rules. Many Gulf countries have no inheritance tax, but succession law, including religious or court rules, can decide how an estate is divided. A UK will may not be recognised everywhere, and in some places wills need local registration.
- Currency and premiums. Check whether premiums are paid in sterling or another currency, and what happens if you change country.
How to compare life insurance for this purpose
- Cover type. A whole-of-life policy lasts until death, while term cover ends on a date. IHT can arise at any age, so the type should match the need.
- Amount. Estimate the likely tax with an adviser. Over-insuring wastes premiums; under-insuring leaves a gap.
- Premium structure. Some premiums are fixed and some are reviewed over time. Ask how and when they can rise.
- Exclusions and conditions. Check medical disclosure rules, and what happens if you move abroad. A policy can be affected by residence changes.
- Insurer regulation. Confirm the insurer is authorised and regulated in the country where it sells the policy.
- Costs. Compare fees, commission and charges, and ask how an adviser is paid.
Other ways to manage IHT exposure
Insurance is not the only tool. Lifetime gifts, charitable giving, spouse arrangements, and using allowances all have conditions and time limits. A qualified adviser can explain which ones apply to you. Combine this with an up-to-date will and beneficiary designations.
Mistakes to avoid
- Assuming old non-dom rules still apply.
- Leaving a policy outside a trust by accident.
- Buying cover from someone who is not authorised.
- Forgetting to review the plan when you change country, marry, or buy property.
Before you act
Gather the facts first: the list of assets in each country, the years you have spent in the UK, your family situation and any existing will or policy. Take those to a regulated UK adviser who works with clients living abroad, and ask them to explain costs and alternatives in writing. Rules and thresholds can change from one tax year to the next, so review the plan whenever the law or your circumstances move.
Dealzbook publishes general information, not personal advice. Rules and prices change, so check with the relevant authority or a licensed adviser before you act. See our editorial policy, or tell us about a mistake.
