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US/UK Estate Planning – What You Need to Know – With Aidan Grant (We’re The Brits In America S1:E26)

Episode 26 Shownotes – US/UK Estate Planning – What You Need to Know

A complex web of unique tax obligations could cost you millions – if you don’t know how to navigate it.

In recent years, as global mobility has increased, so have the financial details for expats. The UK’s inheritance tax system, with its comparatively low exemption thresholds, poses significant challenges for Brits who’ve amassed substantial assets in the States. Whilst the US offers more generous exemptions, it has its own estate planning complexities.

Navigating these waters requires more than just basic knowledge; it requires expert insight. Enter: Aidan Grant, Senior Associate in tax and trust planning at Collyer Bristow. He joins Richard on this week’s episode of Brits in America.

You’ll gain knowledge of the intricacies of estate planning, domicile status and the pitfalls of living trusts – if you’re a Brit living in America, you simply can’t afford to miss this episode!

We’re the Brits in America is affiliated with Plan First Wealth LLC, an SEC-registered investment advisor. The views and opinions expressed in this program are those of the speakers and do not necessarily reflect the views or positions of Plan First Wealth.

Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Plan First Wealth does not provide any tax and/or legal advice and strongly recommends that listeners seek their own advice in these areas.

About Richard

Richard Taylor is a British expat, dual citizen (UK & US). Originally from Bolton, he now lives in Greenwich, CT, where Plan First Wealth has its head office.

As the firm’s leader, Richard launched Taylor & Taylor, now Plan First Wealth, and continues to fuel the firm’s growth. Richard is a Chartered Financial Planner (UK – CII) in addition to holding the IMC (CFA UK) and Series 65 (US – FINRA).

Connect with Richard on LinkedIn

About Aidan

Aidan Grant is a Senior Associate at Collyer Bristow in London in the Tax & Estate Planning team, specializing in a wide range of private client tax matters and with a particular focus on US/UK cross-border advice.

He also was qualified in September 2016 and became a member of the Society of Tax and Estate Practitioners in 2019.

Connect with Aidan on LinkedIn

Richard Taylor:

[00:00:29 – 00:01:20]

Welcome to the we’re the Brits in America podcast, a plan first wealth podcast for Brits in America by Brits in America dedicated to helping British expats thrive in America. I’m your host Richard Taylor and plan First wealth is the business I founded and run today, and we work with successful British expatriates living across the US to make the most of their opportunity and avoid the expat landmines. However, while Plan First Wealth, LLC is an SEC registered investment advisor, the views and opinions expressed in this program are those of the speakers and do not necessarily reflect the views or positions of plan first wealth. Information presented is for educational purposes only. Now, if you aren’t already receiving our weekly emails, please go to our website www.planfirstwealth.com and sign up to WealthHub.

Richard Taylor:

[00:01:20 – 00:01:53]

It’s free and you will then be notified every time we drop a new episode and so much more. Alrighty, let’s get back to this week’s show. Welcome to our Ask an expert show where I invite a fellow professional in the US UK cross border space to come in and talk to me about the issues, we think Brits in America need to be aware of if they are going to thrive here. My guest today is Aidan grant. Aidan is a senior associate in the Tax and trust estate planning team at Collier Bristow in London and our topic today is estate planning consideration for Brits in America.

Richard Taylor:

[00:01:53 – 00:02:55]

That is the extra wrinkles and complications that we need to be aware of and dodge in our estate planning so as to not unwittingly land ourselves an expensive bother with the tax authorities in the UK and or the US. Now, Aidan is the perfect professional to guide us through this topic because not only is this his day job at Collier Bristow, and not only was Aidan an American by birth, which since then renounced, I believe, but Aidan is also a fellow podcast impresario with his UK USA podcast dedicated to cross border estate planning for international families. On a serious note, this is an important topic for reasons I’m sure will become obvious once we get into our conversation. And much like regular tax prep, it is seldom understood by local domestic us estate planning attorneys which has the potential to result in some very unpleasant outcomes for Brits in the US undertaking even the most basic and rudimentary of estate planning. Be sure to stick around to the end because we’re going to talk about the cost of advice, because it is a fear of this above all else, I think, stops many people from seeking the advice which they really need.

Richard Taylor:

[00:02:56 – 00:03:01]

So without further ado, let’s get into this. Hi, Aidan. Welcome to the we’re the Brits in America podcast.

Aidan Grant:

[00:03:01 – 00:03:02]

Hi, Richard. Thanks for having me.

Richard Taylor:

[00:03:02 – 00:03:08]

You’re very welcome. Thank you for joining us. So, as I alluded to, you’ve got your own podcast, of which I am an avid fan.

Aidan Grant:

[00:03:08 – 00:03:17]

That’s very kind. Thank you. This is like the Avengers assembling in the US UK space. I really feel like we’re gonna go on to have a kind of a, you know, a dynasty for the next ten years.

Richard Taylor:

[00:03:17 – 00:03:18]

I’m here for that.

Aidan Grant:

[00:03:18 – 00:03:20]

You can be Captain America. I’ll be Iron man.

Richard Taylor:

[00:03:20 – 00:03:30]

Okay. I’ll take that. Seriously, though I am a fan, I said this to you privately. I’ve enjoyed many episodes. I’ve actually reached out to some guests on there and have started to build relationships.

Richard Taylor:

[00:03:30 – 00:03:44]

But by far and away, my favorite guest, as I told you, was your mum. I even took her advice and bought a book. I haven’t quite finished it yet, but I took her advice. So kudos to you and to her. So if you wouldn’t mind, I always ask her at this stage, tell us an abridged version of your story.

Richard Taylor:

[00:03:44 – 00:03:48]

How you ended up here in this unfortunate position, sat here talking to me.

Aidan Grant:

[00:03:48 – 00:04:06]

Look, that’s very kind of you. It’s a privilege to be able to do this and to be able to reach out to people to talk about what I’ve always considered both personally and professionally are important issues. Because, as you very kindly pointed out already, I was born to a mixed US UK marriage. My mother is still an American citizen. She’s been living in the UK now for some decades.

Aidan Grant:

[00:04:06 – 00:04:10]

I won’t divulge how many. I was born in Chicago to a British father and an American.

Richard Taylor:

[00:04:10 – 00:04:11]

You were born in Chicago?

Aidan Grant:

[00:04:11 – 00:04:17]

Oh, I’m a midwestern at birth, but you can’t tell by the accent. I’ve been living in the UK now for the best part of 30 plus years.

Richard Taylor:

[00:04:17 – 00:04:20]

You play a Brit supremely well, I.

Aidan Grant:

[00:04:20 – 00:04:56]

Have to say, until my baseball allegiances come out. And then you’ll start to feel some of the American in me. I’ve been accustomed to the issues that come with cross border US UK planning for my whole life, because it’s something I always knew existed as an American living overseas. It happens to be that in my role as a tax and estate planning lawyer here in the UK, I was able to turn my personal experiences into my professional passions and turning what was a complicating factor into productive solutions for those who I found were in a similar vote to me. And here at Colley Bristow, we love acting for all people in that kind of us UK space.

Aidan Grant:

[00:04:56 – 00:05:05]

Not only Americans living in the UK, but as you find through your practice and your podcast, Brits who move to America and still retain that kind of degree of US UK tax nexus.

Richard Taylor:

[00:05:05 – 00:05:13]

Wait, was it a conscious career decision or was it just you found yourself being involved in tax estates and et voila, you leveraged this complication.

Aidan Grant:

[00:05:13 – 00:05:49]

Law is something I came to for, I think, other reasons. I’ve always enjoyed this area of law broadly on a kind of UK basis. While doing this and having the pleasure of dealing and the privilege of dealing with international clients, it just made sense to start to spend more time dealing with Americans than, you know, lots of the other sorts of countries and jurisdictions that we deal with. The fact that it has, you know, personal significance to me is lovely, but it also means I get to travel to the US and see people in the US and have a continuing relationship with the people, with a culture that I’ve always had a strong bond to. So it was an easy decision for me to start to specialise in this particular space.

Richard Taylor:

[00:05:50 – 00:06:12]

It’s great that you’re able to leverage that because it is a real niche within a niche, this, this UK US. And it’s complex. Like, it’s a real thorny issue and experts and expertise are required. And it’s great that you’ve been able to take this. What I can imagine for years must have been in some ways a frustration when you work out that being an American citizen, it’s got many fantastic benefits, but certainly outside the US, it can be a burden.

Richard Taylor:

[00:06:13 – 00:06:17]

And I’m sure for a while it was frustrations, but being able to leverage it into this career must be rewarding.

Aidan Grant:

[00:06:17 – 00:06:56]

The thing that I actually get the most satisfaction from in many times is addressing the issue that you already raised, which is this perceived and perfectly understandable assumption that because we’re dealing with multiple jurisdictions and we’re dealing with two different tax codes at the same time, for example, that planning necessarily has to be complicated. It doesn’t have to be complicated. Planning can still be simple and perfectly suitable for a person in question. The issue is that we maybe have fewer options available. So the analogy I sometimes draw, and it’s certainly analogy I’ve used on my podcast previously, is imagine in an investment management or an estate planning perspective.

Aidan Grant:

[00:06:56 – 00:07:36]

Let’s say that the average American, the everyday American who goes down to their local attorney’s office wants to talk about their estate planning. There may be six or seven different doors you could walk through, all of which are perfectly sensible plans. All I’m doing in my guise as a cross border lawyer and someone who specializes in this type of work is to say, well, let’s just quietly close four of those doors because we know those aren’t going to work for you because they’ll impact you adversely in one of the other countries. Now, we’ve still got three very good doors we can walk through, and those three doors might be the simplest doors, or one of them might still be the simple door. And it’s a perfectly suitable outcome for a client to take that option as part of their estate planning.

Aidan Grant:

[00:07:36 – 00:08:18]

Whether the client appreciates and knows that I’ve only given them three choices rather than seven choices, that’s my job as an attorney, to present those choices to them properly and fairly. But making sure clients feel comfortable knowing that they don’t have to make complicated, administratively bureaucratically complicated decisions is one of my roles, is to break it down and say, let’s start from simple, and let’s only deviate from simple when we have reason to do so because of tax efficiency or because of, you know, asset protection, child protection, those kind of things. But let’s start with this assumption, mentally and practically, that we can still keep it simple. And that usually ends up with clients and individuals feeling more content at the end.

Richard Taylor:

[00:08:18 – 00:08:54]

What a fantastic reframing. And that’s something I needed to hear. Anyone listening to this? What you just heard, as I’m going to explain, is a testament to seeking advice early, and the reason Aidan sees it as simply a reduction of options, but not necessarily complex, and I see it as a complex web of mess, is because I often meet people who are already knee deep in the cross border stuff and they’ve gone through the wrong door, either because they’ve been poorly advised or because they took no action when they should have taken some action. And before we can tidy stuff up and be proactive, we’ve got to rectify stuff.

Richard Taylor:

[00:08:54 – 00:09:05]

Whereas if people seeked out good advice, preemptive advice, so much of the issues I encounter could have been avoided. And it doesn’t have to be complex, you’ve just got fewer doors to go through.

Aidan Grant:

[00:09:05 – 00:09:07]

Yeah, that’s it, yeah.

Richard Taylor:

[00:09:07 – 00:09:12]

Great. Right, I’m gonna hold onto that. And anyone listening, seek advice early. Right, so let’s get into it. This is cross border estate planning.

Richard Taylor:

[00:09:12 – 00:09:29]

So the reason we’re having this conversation is. Well, there’s many reasons, right? But the anecdote I told you is Brit comes to America. Brit has stuff in the UK generally, even if it’s just bank accounts. But there’s often this property, usually there’s pensions, almost always there’s bank accounts.

Richard Taylor:

[00:09:29 – 00:09:51]

Brit comes to America and at some point thinks, maybe I’ve got young kids. So it’s especially important, I need to get some sort of estate planning in place in the US. So they tootle on down to their local attorney and before they’ve even said, hello, local attorney fits them with a living trust. I’m being facetious, obviously, right? But it is just estate planning 101, not in all states, but in a lot of them.

Richard Taylor:

[00:09:51 – 00:10:09]

And we know that can cause serious problems. And it’s all related back to this concept of domicile. So this is my. I’ve enough taxonomy to be dangerous interpretation of this, but we’re here, really, to talk about the extra wrinkles, the complications, a lot of which, I understand, comes down to domicile. So tell us more.

Aidan Grant:

[00:10:09 – 00:10:49]

With pleasure. It’s important to preface at the beginning that, as at the date of this recording, the UK is proposing to rather fundamentally overhaul the way in which it levies taxation on people outside the UK and on what we currently refer to as non domiciliaries, people who aren’t UK domiciled. And so it might be that what I say here isn’t going to be relevant in the next twelve or 24 months, but a lot of the principles are still going to remain the same. And so I don’t think it affects the underlying sort of thrust of the discussion when you talk about domicile. What we’re actually referring to here is inheritance tax, an inheritance tax, the UK version of estate tax and gift tax in the US, the tax you pay when you die, effectively, Aidan, am I.

Richard Taylor:

[00:10:49 – 00:10:56]

Right in thinking is a technical definition, like an estate tax is a tax on estate, an inheritance tax is a tax on what you receive.

Aidan Grant:

[00:10:56 – 00:11:20]

It’s a really good question and something that confuses people. In practice. Estate tax and inheritance tax in the US and the UK respectively, are levied in exactly the same way. If we’re being strict, according to our terminology, our inheritance tax is in fact an estate tax, because tax is levied at the estate and then the recipient receives the proceeds subject to the tax having been taken. You are right.

Aidan Grant:

[00:11:20 – 00:11:45]

Strictly speaking, inheritance tax is a form of estate tax. Estate tax in the US is a relatively straightforward affair where people are us citizens, for example, they are considered domiciliaries under us law and us estate tax applies. It’s quite straightforward. In the UK, it’s not quite so straightforward. UK inheritance tax is levied, very importantly by reference to your domicile status.

Aidan Grant:

[00:11:45 – 00:12:22]

As you so kindly teed me up, domicile status is a kind of wishy washy, nebulous concept which dates back over centuries under UK common law, all relating to where you, an individual, intend your ultimate home to be. So I, as a UK resident, someone who’s been living here for 30 years, consider the UK to be my home. I have no plans to leave the UK and that makes me a UK domiciliary. You, Richard, for example, have moved to the US and you may now consider the US to be your indefinite home. You have no intention of going anywhere else and you are very comfortably settled in the US.

Aidan Grant:

[00:12:22 – 00:13:00]

You would therefore be someone who the UK refers to as a non domiciliary, because you are not UK domiciled. And that is a easy thing to say. It is a hard thing to prove. And because of it being a hard thing to prove, the UK has certain what I’m going to grandiosely refer to as anti avoidance rules that say if you fall into one of a number of different camps, then notwithstanding what your state of mind is, because that’s ultimately what domicile is, we are going to tax you as if you are a domiciliary. And these are objective tests that we can apply and we call those the deemed domicile rules.

Aidan Grant:

[00:13:00 – 00:13:40]

Because we deem you to be a domiciliary, we can come on to what those look like and how that impacts when people should be taking UK advice. But the important point to say is, how does domicile affect inheritance tax and how will it affect your listeners? As a general rule, and as ever in tax law, there are always caveats and exemptions and loopholes. But as a general rule, it is worth assuming that UK inheritance tax is going to be paid on UK assets. So if you have a property in the UK, if you have a bank account in the UK, a general investment account in the UK, it is safe to assume that is going to have inheritance tax levied when an individual passes away, whether or not they live in the UK or not.

Aidan Grant:

[00:13:41 – 00:14:29]

The key is their non UK assets. Because if you are not UK domiciled under the current law, as it stands, if you are not UK domiciled, your foreign assets outside the UK are not subject to inheritance tax. If you are UK domiciled, as I am, for example, then my worldwide estate, my assets inside and outside the UK are exposed to inheritance tax. And that is why this issue of domicile status is so important for people moving to the US, because it is going to determine whether the US may or may not have the right of taxation, but whether simultaneously the UK is going to try and tax us wealth to UK inheritance tax. And we want to make sure that if there’s any client who’s in the that exposure banned, that they take UK advice as regards their estate planning as well.

Aidan Grant:

[00:14:30 – 00:14:38]

And so we can pull the additional levers, as we would say in the UK levers, as the US would say, to make sure that inheritance taxes managed to control still during that period.

Richard Taylor:

[00:14:38 – 00:14:45]

Well, there’s two big issues, right? There’s number one, the UK inheritance tax ban. So that nil rate is much.

Aidan Grant:

[00:14:46 – 00:14:46]

Much.

Richard Taylor:

[00:14:46 – 00:14:58]

Yes, tiny. Thank you much. We come to the US, and people come to the US mainly for financial reasons, career reasons, opportunity reasons. They build significant assets over here. In my experience, the majority of their net worth is usually in the US.

Richard Taylor:

[00:14:59 – 00:15:11]

And the US has much higher exemption. 510. Well, six, five and a half, 11 million, whatever it is, and it might go down soon, but millions, whereas the UK is what, 350,000 pounds.

Aidan Grant:

[00:15:11 – 00:15:57]

The US exemption, as I believe in 2024, is at about $13.5 million per person. And if you’ve got two American citizen spouses that can be rolled over from one spouse to the other if not used. So it is possible at the moment for you to have an exemption in the US worth in excess of $25 million, which takes us to the classic sort of catch 22 of both estate tax in the US and inheritance tax in the UK, but much more acutely in the US, that people often really despise estate tax, and they either tax at their death, it actually applies to very, very few estates, because in the US, under those circumstances, it’s only estates of a married couple worth more than $25 million. You are right. The UK inheritance tax allowance is, by default, 325,000 pounds per person.

Aidan Grant:

[00:15:57 – 00:16:25]

And again, let’s assume we can roll that over between spouses, because we usually can. That’s still only 650,000 pounds versus $26.5 million per person in the US, as the law currently stands. And it’s that discrepancy that causes American estate planners to be frightfully concerned of inheritance tax. Because of that discrepancy as to how many more people are going to be caught inside the taxation net at death.

Richard Taylor:

[00:16:25 – 00:16:34]

I mean, let’s just. I’ve come to America, I’ve made it. I’m worth $10 million. Vast majority of it’s in the US. And maybe I haven’t severed my domicile.

Richard Taylor:

[00:16:34 – 00:16:45]

Maybe I post on Facebook my desire to return to the shores of the UK one day and spend my time drinking in country pubs with a dog at the fire. You know, I don’t know who I’m referring to here. Wouldn’t possibly be me.

Aidan Grant:

[00:16:45 – 00:17:10]

It’s worth saying, as a coder in here, I have a client that my colleagues and I act for who had been due to publish an autobiography. And we said, in a really uncool way, could we maybe take a look at your autobiography? Because we may have some questions as to certain parts we might want to tweak. Just the odd word, the odd phraseology here, because why would you want to present HMRC, our version of the IR’s? I.

Aidan Grant:

[00:17:10 – 00:17:31]

Why would you want to present HMRC with basically the handbook to what you’re currently thinking, you know, looking backwards or looking forwards? You know, we’re not publishers, we’re not literary agents, but we are tax lawyers. And we might like to take a look at just the odd phrase you’ve used. Just to say you don’t do exactly as you said, Richard. You think, God, but I do long for those country pubs and, you know, the pint of bitter in front of the fryer, so it does happen in practice.

Richard Taylor:

[00:17:31 – 00:17:52]

Well, is this the real person version? I think I’ve googled it. I’m not sure it’s true. The story of Richard Burton, who spent 28 years or something living in Switzerland to break his domicile to avoid UK inheritance tax, but then sent his ashes or his body to be buried in Wales, draped in a welsh flag. And the underground revenue, as HMRC, were then called to claim that he was always domiciled in the UK.

Richard Taylor:

[00:17:52 – 00:17:52]

Is that right?

Aidan Grant:

[00:17:52 – 00:18:17]

Yes, you are right. I wasn’t familiar with the Richard Burton analogy, but that is absolutely true. The thing about domicile status is sometimes a bit of a Schrodinger’s cat, because you don’t know what you’re looking at until you’ve opened the box. If you have someone who would spend 50 years outside the UK on year 49, you would, by any measure of an argument, say, this person is not intended to return to the UK. You’re a good, really, really good argument to say this person is non domiciled.

Aidan Grant:

[00:18:17 – 00:18:52]

If at year 50, though, they come back to the UK as an elderly person, and then they sadly pass away while they’re in the UK at that point, despite the fact that the previous 49 years had been exactly the same in year 50, because they’ve come back to the UK and they then have died, you could see the revenue painting the picture of. Well, they ultimately always intended to come back to the UK. They wanted to be in their homeland when they passed away. They got buried in the plot by the church where they grew up. And suddenly that final year has recharacterized the entire previous lifetime.

Aidan Grant:

[00:18:52 – 00:19:22]

The analogy I sometimes draw, and I don’t know if you’re a sports fan, Richard, you know, you’re in an english football game, an American soccer game. The game is a nil nil boar fest, but your team nicks a goal in the 90th minute. Your experience of that entire football game has now changed because, looking back, it was so tense, and then we nicked a goal right at the death. 89 minutes of that game, your experience was exactly the same. And if it had been the other team that had scored, you’d have said it was a horrendous game, despite the fact that 99% of it was exactly the same.

Aidan Grant:

[00:19:22 – 00:19:42]

It’s kind of the same with the domicile rules. What you do at the end can sometimes have that important factor. So it is important to keep your domicile assessment, your estate planning, up to date, because it might be that something you’ve done, and we can come on to this later, something you’ve done might have caused your domicile to shift, and we need to then reflect on what that means for your planning.

Richard Taylor:

[00:19:42 – 00:19:52]

Wow. Right. So this is a really common example that we encounter. They’ve come to America, they’re now worth four, five, 6 million, whatever. Done well, done well.

Richard Taylor:

[00:19:52 – 00:20:04]

And by American standards, have no estate tax problem whatsoever. That’s all going to your heirs. But by uk standards, you’ve got a 650,000 pound nil rate ban. Let’s call it a million dollars. Be generous, call it a million dollars.

Richard Taylor:

[00:20:04 – 00:20:25]

The remaining 4 million, potentially. So if you’re considered UK domiciled, subject to UK inheritance tax at 40%, that is a vastly different outcome. So. Well, that’s the first problem, and we’ve got to talk about how we avoid that, what we do to mitigate it, who’s a burden on. But the other problem, which I’m sure we’ll talk about second, is this issue of living trusts.

Richard Taylor:

[00:20:25 – 00:20:30]

So let’s tackle what I mentioned first, like, how do we make sure that doesn’t happen to a client or their family?

Aidan Grant:

[00:20:30 – 00:21:02]

Excellent question. So there are really three different high level ways you can think about planning for that eventuality. One is to kick the can down the road, defer tax and push the tax burden further into the future. We do that through things like a tax efficient will, making sure that if we leave assets, we leave assets to a surviving spouse, if we have a surviving spouse, because that’s a tax free disposal to the spouse, as I think it is in the US. If you were over the allowance, but you did leave money to her spouse, you’d get amount of deduction for estate tax purposes, same as in the UK.

Aidan Grant:

[00:21:02 – 00:21:19]

That is, at its basic level, a tax deferral mechanism, because the same amount of money is then going to be taxed on the surviving spouse’s later death. But tax deferred is tax saved. So says the old adage. And maybe during the surviving spouse’s lifetime, we have another way of dealing with the assets. But, you know, number one, push the tax burden down the road.

Aidan Grant:

[00:21:19 – 00:21:43]

Two, we minimize the amount of the estate that is exposed to inheritance tax. Now, that could be because we give assets away during our lifetime. So, you know, we’re wealthy enough and privileged enough to have assets surplus to our requirements, and maybe we then start to give assets away to the next generation, to children, to grandchildren. Or we invest in assets that qualify for inheritance tax exemption. And there are some assets that qualify for inheritance tax exemption.

Aidan Grant:

[00:21:43 – 00:22:12]

Or we do things like debt planning. So if you have a house with a mortgage on it, you only pay tax on the net equity that you own in the property you deduct the mortgage off. So you can kind of depress the amount of your estate that’s exposed to inheritance tax. The last option, which is an increasingly growing area, is to say, I’m going to accept that the tax is paid, but I’m going to make sure that the funds are available at my death to pay for that tax. So the con way of doing that would be doing something like life insurance.

Aidan Grant:

[00:22:12 – 00:23:00]

So taking out a us life insurance policy and placing it into an eyelet, an irrevocable life insurance trust structured carefully in both the US and the UK, and you would take out a sum equal to your projected inheritance tax exposure. The policy matures at your death or on the surviving spouse’s death, and that kicks out an amount equal to the tax you would have to pay that is then available to your heirs to pay that inheritance tax. Effectively, at the end of the day, it’s the same result. All you’ve really done with the life insurance in that final option is you sort of prepaid that tax mitigation over your lifetime, which is particularly useful for clients. If, say, they’ve got a high income and they’ve got surplus income every year, you could start to put that into a life insurance policy, rather than that income otherwise being added to your estate and just making it swell even larger.

Aidan Grant:

[00:23:00 – 00:23:20]

So there are a number of different scenarios. And a good estate plan, a good, harmonious, cross border estate plan will combine different elements of these, maybe layer multiple ones together. Let’s start with the will. Let’s make sure assets are held efficiently. Let’s make sure that, you know, assets being left to the next generation are managed and handled in a way that are not just tax efficient, but, you know, protect the assets.

Aidan Grant:

[00:23:20 – 00:23:40]

If it’s for young children, we then lay on top of that. Once we’ve done the foundation of the will, you know, what assets do you need to live on? Are you funding your pensions properly? Have you spoken to your wealth managers, to your financial advisors about whether you can start to give away assets and still make sure you leave enough for yourself? And then, on top of that, you then look to some of these other avenues, like life insurance.

Aidan Grant:

[00:23:40 – 00:23:53]

So no one good estate plan focuses solely on one issue alone or one solution alone. You kind of layer and you diversify your estate plan so that you’ve got as many different ways as possible in shielding the assets.

Richard Taylor:

[00:23:53 – 00:24:06]

Am I right in thinking this is for the person for whom the domicile question is unclear? Maybe. Or they are UK domiciled in the US. Correct me if I’m wrong, but what about if I’m saying, but, Aidan, I think I’m not UK domiciled. I’m not going back.

Richard Taylor:

[00:24:06 – 00:24:07]

How do I prove this?

Aidan Grant:

[00:24:07 – 00:24:53]

So it’s worth saying that, yes, you’re right. This is most important for those people who might still be UK domiciled, but if you’ve been in the US for 20 years, but still keep a sizable UK estate, let’s say you’ve not sold your UK home. You bought it in the 1980s, you moved to the US in the year 2000, but you’ve just kind of kept it as a investment or as a pier de terre, or you come back and spend time in the UK occasionally, that house is going to have risen in value quite considerably, especially if it’s in London. You could be left with quite a sizable UK estate, even if it’s like the rump of your estate, you know that allowance is only 650,000 pounds. A property in London, a bank account, an investment account, these things clubbed together could quite easily weigh positively on the inheritance tax scale.

Aidan Grant:

[00:24:53 – 00:25:33]

So, number one, I would say, even if you are not UK domiciled, those individuals who have UK assets, this is still planning that they need to think about really carefully in terms of how do we evidence it? It’s in kind of one of two ways. Domicile status is ultimately, I mentioned previously, a state of mind test, a subjective test that is impossible to prove. Otherwise, we would just all say we’re non domiciled. It is certainly possible, taken appropriate legal advice, to put together a domicile statement in collaboration with a lawyer, which says, considering the following facts, I hereby state that I am not a UK domiciliary for the following reasons.

Aidan Grant:

[00:25:33 – 00:25:57]

Now, again, you shouldn’t just put one of those in place without having taken the advice that it’s appropriate for you to put it in place. Otherwise it’s not really worth the paper it’s written on. It might be a factor to write down saying, I am not a UK domiciliary, but if all of the facts and circumstances in practice completely weigh against you, then HMRC are going to say, that’s great, but we don’t care. You clearly are UK domiciled. So that is way number one.

Aidan Grant:

[00:25:57 – 00:26:36]

Way number two is to make sure you’ve taken advice to look at these deemed domicile rules to say, am I confident that either, one, I’m no longer a deemed domiciliary while I’m in the US? And two, if there is any prospect of me returning to the UK, would I be caught as a domiciliary when I return to the UK? So let me give you kind of one example for your clients in the US, since that’s the focus of this podcast, there will come a point at which someone goes from being a UK domiciliary to being a non domiciliary. Whatever date x is, it could be the day they step off the plane at JFK. It could be five years later when their child is born.

Aidan Grant:

[00:26:36 – 00:27:28]

Whatever the date is, t minus whatever it is, they remain deemed domiciled for three calendar years from the date from which they lost their domicile status. So as an absolute minimum, kind of extrapolating that to its extreme, someone is dealing with a UK individual in the US, or someone listening to this is a UK individual in the US, and they only stepped off the boat in the last three years. They will be taxed as a UK domiciliary, as a deemed domiciliary, because they’re within their first three years and should not do any planning that would give rise to an immediate charge to uk taxation, which is possible under certain us estate plans. That is the sort of domicile advice that someone in the US who is not that far out from having left the UK needs to take very carefully before they put in place their estate plan.

Richard Taylor:

[00:27:28 – 00:27:50]

And what about the person who comes to the US becomes a us citizen? At which point am I right in thinking, even before that, when they get the legal permanent residency, the US considers them a domicile and subjects them to their estate tax. It might not apply, but they’re subject to the regime. You’ve been here for one decade, two decades, three decades, but we’re expats. You can never be certain.

Richard Taylor:

[00:27:50 – 00:28:04]

There’s always a chance you’re going to go back. And maybe you do pine for certain aspects of the UK. There’s always a chance. And you talk about it to the point where the UK could consider you a domicile, having never broken it. You could technically be both domiciled in the US and the UK.

Aidan Grant:

[00:28:04 – 00:28:04]

Correct?

Richard Taylor:

[00:28:04 – 00:28:14]

And then, am I right in thinking, so the US continues to domicile. The UK continue domiciled. You’ve got a state of 5 million. So the US don’t really care because they’re not losing any revenue. The UK is going to come at it.

Richard Taylor:

[00:28:14 – 00:28:16]

So you lose a lot of money there.

Aidan Grant:

[00:28:16 – 00:28:17]

Potentially. We’ll come on to that.

Richard Taylor:

[00:28:17 – 00:28:24]

Okay, but let’s say you’re worth 50 million. So now the US wants to get involved. Who gets first dibs over this?

Aidan Grant:

[00:28:24 – 00:28:40]

I thought that’s where you’re going to go. So this is then when we get to the next level of stuff the lawyers really like. So it is entirely possible. You’re exactly right, rich, that there are circumstances where both countries will try and tax you. This goes to a tax treaty that we have with the US.

Aidan Grant:

[00:28:40 – 00:29:04]

So the UK and the US have two different tax treaties. We’ve got like an income tax, what we call the double tax treaty, that deals with things like pensions and your salary and stuff like that. We also, the UK have a gift and estate tax treaty, known as the Capital Taxes Treaty colloquially, with the US as well, which deals with estate tax and inheritance tax. And it says a couple of different things. It sets out in circumstances where both countries will try and tax you.

Aidan Grant:

[00:29:04 – 00:29:22]

Which country has the right of taxation? You take the most straightforward example. Real estate is always taxed primarily in the country in which it’s located. So if you have a UK property, the UK is always going to have to first buy at the cherry at that asset. If you have a condo in Florida, the US is always going to have the right to tax that to estate tax first.

Aidan Grant:

[00:29:22 – 00:29:54]

You are exactly right that if you are a UK domiciliary living in the US, and let’s say you’re a us citizen, you are a domiciliary of both countries at the same time. Exactly. It’s the same way as if you are a us citizen and you come to the UK and spend more than 15 consecutive years in the UK, you are a domiciliary of both countries. Again, in those circumstances. The tax treaty has a series of what we call tiebreaker tests that say which country, after these kind of bouts, after these fights, which country has the rights to claim you as a domiciliary?

Aidan Grant:

[00:29:54 – 00:30:42]

And there are certain tax consequences that flow from those. And so it might be, depending on the circumstances, it might be that an individual’s UK estate isn’t actually as exposed to UK inheritance tax as we at first feared, because it might be that the treaty gives them some kind of relief if the US wins those kind of tie breakers tests. This is why I said at the beginning, the default position is to assume that the UK state is going to suffer inheritance tax. It might be if we lawyers work hard and we collaborate closely with the financial advisors that we can actually extract more of the UK wealth out of the inheritance tax net. But that’s for reasons that are sort of boring, loyally and technical, we certainly don’t usually construct a state plans on the assumption that we’re going to be able to do that.

Aidan Grant:

[00:30:42 – 00:30:51]

You kind of take a robust, cautious approach with your estate plan. Assume that inheritance tax is going to apply, and if it doesn’t apply, then kind of so much the better.

Richard Taylor:

[00:30:51 – 00:31:19]

You know, when we’re having these conversations, like, I’ve got real life situations going through my head, and I think of all our clients and people we speak to who are staying here, a lot of people are unsure, and then a lot of people speak to them one year and they’re definitely never going back, and then five years later, things change. But a lot of clients, the majority we speak to, are staying here. A lot of them plan on spending more time in the UK in retirement. A lot of them have ambitions to buy a property there and like split between the US and the UK. US is their primary residence for tax purposes.

Richard Taylor:

[00:31:19 – 00:31:22]

Like not go over the not become a tax resident in the UK.

Aidan Grant:

[00:31:22 – 00:31:23]

That’s a big topic.

Richard Taylor:

[00:31:23 – 00:31:31]

Well, yeah, let’s assume that, yes, the various ties and the days, all that. Yeah. But let’s assume they achieve that. They take good cross border tax.

Aidan Grant:

[00:31:31 – 00:31:33]

That’s the next episode. We can do that. Then.

Richard Taylor:

[00:31:33 – 00:31:49]

I think, as a non lawyer, that gives HMRC an option to look at it and say, yeah, you were a tax resident in America. Yeah. You were a us citizen, but you clearly had significant ties here and we deem you domiciled. And these are clients who are worth between two and 10 million. Maybe.

Richard Taylor:

[00:31:49 – 00:31:51]

That’s a lot of money at risk.

Aidan Grant:

[00:31:51 – 00:32:07]

A lot, yeah. So the sorts of things we look at when we are advising a client on their domicile status is we will say, where are their financial ties closer? Where do they keep most of their wealth? Where are their business interests? Where do they draw most of their salary from?

Aidan Grant:

[00:32:07 – 00:32:18]

Where is their financial sort of focus located? Where are their familial ties? Do they have a husband or wife in the US with them? Where are their kids? Are their kids back in the UK?

Aidan Grant:

[00:32:18 – 00:32:36]

Is there a pull back to the UK to see the kids or the grandkids when they come back? What are they doing while they’re back here? Are they meeting business interests or are they seeing family? Where are their sort of socio cultural ties? It may sound a bit flippant, but we do genuinely have discussions with, sometimes with clients where we go, well, where’s your gym membership?

Aidan Grant:

[00:32:36 – 00:32:47]

Do you have a gym membership in the US and the UK? Where are you registered to vote? When’s the last time you voted? In the UK election? Because if you vote in the UK election, it shows you’re thinking about the future of your country.

Richard Taylor:

[00:32:47 – 00:32:49]

Yeah. You’re still engaged in that.

Aidan Grant:

[00:32:49 – 00:33:10]

Exactly. You know, are you a member of the Rotary Club or the WI or other sort of local sort of associations? Where’s your doctor? All of these things are about presenting a life in America that is permanent and not incidental and tangential. Historic ties, by all means, to the UK.

Aidan Grant:

[00:33:10 – 00:33:34]

So, you know, I have left my family behind. My daughter is still in the UK, she’s got a family in the UK, and I love to go and visit my daughter and her children as a doting grandparent, of course. Why would I not want to come back and do that? But that is not to say that my life is not in America and I have no desire to leave America. It might be that that person, in that sort of hypothetical scenario does, in the future, shift their mindset again.

Aidan Grant:

[00:33:34 – 00:33:52]

Maybe they get older they get frail or infirm and they decide, you know what? I’m going to come back to the UK, because that’s where my family is. And if I need to be cared for, I want to make sure I’m near my family. Or maybe the daughter suggests, maybe you could come back and be closer to me, dad, because then I can then help look after you. It might be that your mindset does shift in the future.

Aidan Grant:

[00:33:52 – 00:34:17]

And that’s why I said previously, domicile as regards an estate plan, is an evolving and ongoing test that you need to kind of reflect on, because it might be that ten years ago, you were obviously not a domiciliary, and in the future you might become one again. And if you actually return to the UK, the chances of those things being the case heighten sort of manifestly.

Richard Taylor:

[00:34:17 – 00:34:39]

You know, I’m someone who’s worth several million dollars. We’re talking millions of dollars at stake here. And what you just painted out, it’s a tapestry of facts and considerations, and you want one side to be much heavier than the other. And if I can just paraphrase a lot of what you said and what I’ve taken from it, don’t leave it to HMRC to put the pieces together on your death. Be proactive.

Aidan Grant:

[00:34:39 – 00:35:04]

The most powerful thing you can do is to sort this out in your lifetime and while you are alive, put together a statement, a summary, a schedule, whatever it happens to be. That shows why it is having taken advice that you do not consider yourself a ukidomic. And if it can be packaged up and tied off with a bow that can be presented to the tax authority, going, look, this was all dealt with five years ago. Here is my advice. Here is everything already categorized.

Aidan Grant:

[00:35:04 – 00:35:50]

One, it’s going to look more powerful because you’ve done it during your lifetime, rather than leaving it sort of posthumously for your heirs to argue for you. But two, if nothing else, who knows you better than you, and rather than send your children or your spouse, who may in that time sadly be grieving and not be in the best position to be thinking about these things, they’ve then got to go and sort of package up and trace back through your life and pull all these threads together. Whereas for you, that’s probably an easier exercise. And so this goes exactly the thing you said at the very beginning of this episode, which is to get these things started early and start to lay the seeds now, are going to bear fruit in the future because your affairs will be in order and it’s going to make everything that much easier for who’s ever to come next.

Richard Taylor:

[00:35:50 – 00:35:59]

Absolutely right. What do you say to the person who has these issues pointed out to them? Responds with, well, HMRC, you’ll never find out. They won’t know.

Aidan Grant:

[00:35:59 – 00:36:15]

It’s a good question. So tax in the UK, like in the US, is filed on a self assessment basis. That means there is a positive obligation on the individuals with whom that obligation sits. We’ll come on to who that is in a second. There is a positive obligation for them to report tax.

Aidan Grant:

[00:36:15 – 00:36:55]

If someone is, let’s say, in the US, and there is a question mark over their domicile states, but they’ve got no UK assets, you can see that there is an argument, how is HMRC ever going to know about it? I, as a lawyer, have to advise my clients on their legal obligations. In practice, just like in the US, HMRC does not audit every tax return. However, HMRC and the IR’s are getting increasingly clever and more sophisticated in how they share and transfer data and information between each other. And so you have to assume that if the data and the information exists, it is capable of being looked at by a foreign tax authority.

Aidan Grant:

[00:36:55 – 00:37:48]

If you are someone who has UK assets, then your executors are quite likely going to be obliged to file an inheritance tax return at your death, because you need to file an inheritance tax return in order to apply for a grant of probate, which is the document you need when someone passes away to transfer title to the assets from the name of the decedent to the beneficiaries, to the heirs, unless you have joint property or something, which means the assets pass automatically outside of the probate process. But you need to file for a grant of probate, and HMRC is not going to sign off on and let you apply for a grant of probate until they are satisfied with the inheritance tax position. And part of that inheritance tax form will say, do you consider this is to the executors, the people who have the responsibility to report and pay the tax. Do you, the executors, consider that the decedent was a domiciliary? Yes, no.

Aidan Grant:

[00:37:48 – 00:38:23]

If no, why? And separately, there is a box that says, what was the value of the individual’s estate outside the UK? And again, you are required to disclose on a proportionate and reasonable basis, having taken, you know, appropriate investigations, what the value of that foreign wealth was. And so if you say in your client’s example, Richard, you mentioned, yes, fine, they only had a million pounds of assets in the UK, but they had $6 million overseas you are obliged to put $6 million in that box on the inheritance tax return. HMRC then knows, should they so desire to look at the form.

Aidan Grant:

[00:38:24 – 00:38:48]

I have someone in front of me here who is claiming non domicile status as regards their $6 million of wealth overseas. That is all on the executors to publish on a self assessment basis. And it is my responsibility as an advisor, as a lawyer, to make sure that executives know what their obligations are. Because the risks of it going wrong and interest and penalties being levied is only going to make the issue worse further down the line.

Richard Taylor:

[00:38:49 – 00:38:53]

Wow. Okay. So, and this is going to apply if you’ve got anything in the UK, right?

Aidan Grant:

[00:38:53 – 00:39:41]

In a manner of speaking, it’s always, again, like I said at the beginning, work on the basis that, yes, you will need a grant of probate. In practice, if you have a, let’s say a bank account, and that bank account is of a small sum, and let’s say that bank account has less than 5000 pounds in it. Most of the high street banks these days, and it varies bank to bank, will sometimes release assets without a granted probate because the administration needed to process that form is not worth it for the amount of money that they hold. But if you have property in an individual’s name, if you have an investment account, if you have some shares in BP or BT or something like that, or you’ve got a sizable amount of money in an investment account, it is absolutely worth assuming you are going to have to file an inheritance tax to return because you are going to need a grant of probate.

Richard Taylor:

[00:39:41 – 00:39:53]

And let’s just reiterate a point you made. Even if you do only have the account, it might get paid out. You might be escaping scrutiny now, maybe forever. But do you really want to be playing that game? Do you really want that hanging over you?

Richard Taylor:

[00:39:53 – 00:40:06]

I wouldn’t want that hanging over me historically, I certainly want that hanging over me now. In this AI environment and this cooperation between authorities that you are referring to, I mean, if you want to play that game, good for you. But that is a dangerous game to play.

Aidan Grant:

[00:40:06 – 00:40:27]

The solution is not to let it get to that point. The solution is to have done your estate planning properly to mean that that is covered. So, you know, is the value of the UK estate over the nil rate banned allowances? Is the value of the estate going to be suffering tax? If so, let’s get that below the allowance if we think there is a lingering issue of domicile status before or after the UK tax rules change.

Aidan Grant:

[00:40:27 – 00:40:56]

This also includes whatever the rules are going to be in the future. If we think there is a lingering consequence of the worldwide estate being exposed to inheritance tax, let’s take some proactive steps to make sure that that position is covered so we don’t end up in this position. Rather than leaving our executives grappling with that kind of sword of Damocles hanging over their head to say, if I disclose to HMRC, I’m putting my dad’s estate at risk of a huge amount of inheritance tax, don’t even let it get to that position. Do your estate planning early and avoid that position in the first place.

Richard Taylor:

[00:40:56 – 00:41:09]

I endorse this message. Aidan, look, this is great stuff. This is really great stuff. This is why I wanted you on, honestly. So I think what we should do, I think we should wrap it up there and then we should get you back on and we should cover living trusts.

Richard Taylor:

[00:41:09 – 00:41:26]

The problems I alluded to before that we see when people walk past a local estate planning office trust in general, I’d like to get into when someone should be consulting a UK lawyer in addition to the us lawyer, and we’ll cover off some examples and then what that might look like. So if you’re open to coming back on to talk about those things, I’d be very grateful.

Aidan Grant:

[00:41:27 – 00:41:28]

I’d be delighted to.

Richard Taylor:

[00:41:28 – 00:41:40]

Super. Alright, well, in that case, we’ll see you soon. All right, folks, that’s another episode of we’re the Brits in America under our belts. Thank you for listening. I appreciate it and I appreciate you.

Richard Taylor:

[00:41:40 – 00:42:04]

If you’re enjoying the show and would like to support the mission, which is to help brits thrive in America, I’d ask you to subscribe to the podcast wherever you listen and also consider leaving a rating and a review. This stuff really does matter. Please help us get this information to the people who need it. That is your fellow brits living in America. Just a quick reminder that this show is brought to you by plan first, wealth.

Richard Taylor:

[00:42:04 – 00:42:30]

We are a us based US UK cross border financial planning and wealth management firm and we help successful British expatriates living across the US to make the most of their opportunity and ultimately to retire Appiah. So if you’re a British expat living in America and you’d like to know more about what we do for people like you, you can find us at our website, www.planfirstwealth.com. or you can look me up on LinkedIn. Do get in touch. We’d love to hear from you.

Richard Taylor:

[00:42:31 – 00:42:37]

As always, thank you to Sam Nash and The Podcast Guys for their help producing this episode and the entire show. See you next time.

Retire Happier.

Plan First Wealth Is A US/UK Wealth Management Firm Serving Successful British Expats in America With at Least $1M net worth Make the Most of their Opportunity.

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