preparing for inheritance tax
An individual’s domicile status can have a signi cant impact on how much IHT will be chargeable on their estate. The Summer Budget proposed changes to the taxation of non-domiciliaries which may a ect them adversely. When passed the changes will come into e ect from April 2017.
Ascertaining an individual’s domicile can be tricky as there is no single legal de nition of your country of domicile. It will generally be established according to three factors:
- where you were born;
- if you have assets in that location;
- where your father was born;
In addition there is the concept of deemed domicile which has been introduced for IHT.
CHANGES TO DEEMED DOMICILE
Individuals will be deemed UK domiciled for all tax purposes if either of the following apply:
- He/she are resident in the UK for 15 out of 20 years (current legislation states 17 out of 20 years).
- They have a UK domicile of origin and he/she resides in the UK (for example a returning UK domicile).
- If the individual has been resident in the UK for 15 of the last 20 years (point 1), the individual will need to spend more than 5 tax years outside UK to lose their deemed UK domicile status (currently 3 tax years).
- From the 16th year the remittance basis will no longer be available.
- There will be no special grandfathering rules for those already in the UK.
NON-DOMS HOLDING UK RESIDENTIAL PROPERTY
Individuals or trusts owning UK residential property through a non-UK ‘envelope’, typically an o shore company, will be subject to IHT on the value of the property. IHT will be imposed on the value of UK residential property owned by the o shore holding company on the occasion of any chargeable event. A chargeable event would include the following:
i. The death of the individual (wherever resident) who owns the company shares.
ii. A gift of the company shares into a trust.
iii. The 10 year anniversary of the creation of the trust.
iv. The distribution of the company shares out of trust.
v. The death of the donor within 7 years of having given the offshore company away to an individual.
vi. The death of the donor/settlor where he/she benefits from the gifted UK property or shares within 7 years prior to death.
The UK government does not not intend to change the IHT treatment of other UK or non-UK assets held by non-doms or excluded property trusts.
Non-doms should review their current structures to ensure that where possible IHT efficiencies are preserved.
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