IHT on donations to charity

[granada]

On the basis of a POA we have been responsible for the welfare of an elderly relative for some 5 years. Prior to the onset of dementia, she had resided in the United States for over 40 years. Five years ago she returned to the UK to enter a care home.
Her substantial financial assets remained in the United States under the supervision of her long time American lawyer and it is he who has funded her care home fees and other expenses. She has no assets in the UK.
During her time in the UK, a tax return has been submitted To HMRC each year detailing the income from her United States assets, but as tax in the United States was paid on her United States income the double taxation agreement meant that little or no UK income tax was due.
She has very recently died, and her will (drawn up and held in the United States many years ago) leaves the entirety of her estate to American charities. We have received conflicting advice of where probate must be obtained for this lady.
On the one hand it has been suggested that her estate must be dealt with in America under the tax supervision of the American tax authority.
And on the other it has been suggested that “as a UK national, resident in the UK, and submitting a yearly tax return to HMRC then it is HMRC who must deal with her worldwide assets (namely her assets in America)
It was the written wish of this lady that her estate goes to named United States charities in recognition of the many years she resided in that country and the fact that it was there that she acquired her wealth.
As legacies to charity they escape Inheritance tax in both countries, but we have been informed that HMRC IHT exemption in the UK is conditional on the legacies going to European Charities only. If this is the case then to meet the donners wishes it would be preferable for her estate to be dealt with in the United States. Is this feasible?
Informed comment would be greatly appreciated.

[Lee Young]

You will need a grant of representation in any country (or state) where she has assets.

Separately, you may well have to deal with both the IRS and HMRC. Put simply, if she was domiciled here in any part of the UK at the time of her death then you will need to deal with HMRC and pay UK IHT on her worldwide estate. If she was domiciled outside of the UK then UK IHT will only apply to her UK based assets.

Domicile is a question of fact. I suspect HMRC will argue she is domiciled here, particularly if she was ok UK origin and therefore "returned home". Its may all come down to how the facts are presented and, if necessary, argued.

[AGoodman]

I agree with everything that Lee says - and would add that if she had moved to a UK care home 5 years ago and it was clear she was not going back to the US, it is almost certainly the case that she would have died domiciled in the UK. You may be able to make out a case if she had dementia before arriving in the UK and somebody else made the decision to move for her but it could be an uphill struggle.

If UK domiciled then any outright legacies to US non-profits will be subject to UK IHT (nb. very few European charities qualify for exemption at the moment).

Probate just establishes title to assets. If she has no assets in the UK then there is unlikely to be any need to obtain probate here.

It sounds as though probate will be required in the US to obtain the assets there.

As Lee says you will almost certainly need to file estate/IHT tax returns in both the UK and US. I would strongly recommend getting help from advisers with expertise in both jurisdictions. There are some good accountants out there with the necessary expertise. If she already has good US accountants then they could work with UK accountants.

[DavidTreitel]

In terms of closing her estate it is going to be important to check that FBARs were filed each year up to the date of death and that the recent US and UK tax returns filed during lifetime were accurate. Did they claim she was non-UK domiciled? If not and UK taxable on the arising basis, the UK would have had the primary right to charge tax. Consequently one would typically expect some UK income tax payable during lifetime but very little - if any - US tax as the US gives relief for UK tax (Article 24 of the US/UK tax treaty), rather than the other way round. It sounds from the question as though the UK returns may not have been accurate.