One major misconception of those living in the UAE is that they are not liable or they simply forget about the consequences of Inheritance Tax whilst they enjoy their tax free income.

As someone of British domicile, just because you are residing offshore does not mean you will be able to avoid it.

I think of IHT planning more like life- time planning.  Rising costs of residential homes and health care mean more money is required in our older years, so it is no good sacrificing everything just to plan for someone else’s future. Yet, inheritance tax is a financial fact, so it makes sense to know how it will affect you, and whether you can soften the blow. Below are some key areas to consider and some of the steps you can take to minimize your IHT bill.

Nil Rate Band – The Nil Rate band currently stands at 325,000 GBP. This essentially means that there is no tax to pay if an individual’s estate is worth less than this. Your estate includes all of your assets, property, cash, shareholdings and so on. It is important to remember that if you are married you can transfer this nil rate band to the survivor. So as a married couple or in a civil partnership your n il rate band becomes 650,000 GBP and no tax is payable unless the joint assets exceed this figure. This limit has been frozen until at least 2018, when the Government will look again at whether to increase it. Above that amount, anything you leave behind is subject to tax of 40% or 36% if you leave at least 10% of your assets to a charity.

Gifting – Is something that should certainly be considered and can be a very simple but effective way of reducing tax liabilities. The annual gift allowance is 3,000 GBP per tax year. The rules stipulate however that you must live for 7 years after making the gift, which means early planning of how to pass on your assets is important. Bear in mind that this is the total annual amount that you can give away, NOT a total amount you can give to each beneficiary, each year.It is also worth noting that your annual exemption can be carried forward for one year if it has not been used. In other words, if you did not make any gifts of money during last year, you can give away a total of £6,000 this year. Equally, if you gave away £1,500 last year, you’ll be able to give away a total of £4,500 this year.

Any gifts that are part of your normal expenditure, are exempt – provided they are made from your after tax income and not your savings and that you have enough money left over to maintain your lifestyle.

Cash gifts to charities, community amateur sports clubs, and political parties are also removed from a client’s estate immediately and are not included under the seven-year gifting rule for IHT calculation purposes. It is also possible to use small gifts exemption: An individual can make small gifts up to the value of £250 to as many individuals as they like in any one tax year.

Trusts – Are legal entities that own assets on behalf of one or more beneficiaries. A trust allows you to set aside an asset to benefit a specified person or people (the beneficiaries). The asset is managed by a trustee until such time as the beneficiary is intended to benefit. So, for example, your spouse may look after property on behalf of your children until they reach a responsible age.

You can set up a living trust while you are alive and name yourself as trustee so you retain control of the things you put into the trust during your lifetime. Alternatively, you can use your will to create a testamentary trust. This type of trust is established and funded according to instructions in your will. You can put almost any sort of property into a trust account. When you put things into a living trust, importantly  they do not have to be probated.

Life insurance and critical illness policies – Are a great way of protecting your family, particularly if you are the main bread- winner but again they can form part of your estate for IHT purposes. There are steps you can take however to avoid your policy forming part of your estate. A life insurance policy may also be written under trust. And by utilizing this option the money from the policy will fall outside the estate on death.  Which sort of trust it should sit within will depend on an individuals circumstances but by writing a life-insurance policy in trust, the proceeds from the policy will be paid directly to the beneficiaries rather than to your legal estate, and will therefore not be taken into account when inheritance tax is calculated. This means the value of your estate may not move above the threshold. It is also important to remember that any inheritance tax is payable within six months of a death. By putting life insurance in trust, it may help your family meet any tax bill

Pensions – Tend not to fall inside the IHT arena, however if there are lump sums to be paid on death the funds can become taxable on second death. Again this is an area where a trust can be used to avoid any IHT. If you have pension savings in a workplace pension scheme but you no longer work for the employer the scheme may choose to do no more than pay a refund of your pension contributions. The payment of death benefits on most pension schemes is ‘discretionary’ and therefore won’t be part of the estate for Inheritance Tax purposes. Discretionary means that the pension provider is free to decide who to pay the death benefit to. Often they’ll follow the deceased’s wishes, although they don’t have to. If the lump sum isn’t discretionary there may be Inheritance Tax to pay. Your pension provider will be able to give you details about your pension.

Inheritance Tax planning can be a minefield. The first port of call is to establish what you’re your estate is worth and whether it exceeds the thresholds. If your estate exceeds the figures mentioned and you would prefer your family to inherit your wealth rather than knowing the taxman could take a large chunk of your hard-earned cash then detailed IHT planning is imperative.