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Inheritance Tax - Non Resident & Offshore solutions

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Joined: Fri Jan 09, 2009 6:59 pm

Inheritance Tax - Non Resident & Offshore solutions

Postby tnmudzaffar » Fri Jan 09, 2009 7:25 pm

Hi there,

My grandfather recently passed away. He is a non-resident and not a British citizen and owned a UK property in Holland Park. The title of the property is solely in his name, and he is survived by his wife, children and grandchildren. All are non-residents and non British Citizens (except for myself, I am a resident and a non-British citizen).
The property hasn't been valued yet, but the same type of property in the area has been on the market for around GBP 1.2million. I know that the threshold for inheritance tax is around GBP 300K, and so the tax on this property would amount to the region of GBP360K (40% of 900K)!! That is scarily high.
I'm not sure what it states in the will (we're checking at the moment), but if there is no will I assume the property will go to my grandmother (his wife).
Q1: Will my grandmother have to pay inheritance tax on this?
Q2: How do we get around this in the future? I read something about vesting the property offshore (but I don't know how that works)
Q3: If my grandmother had to pay the inheritance tax and did not have the money, then she would have to sell the house to cover the tax cost. Are there any solutions / exemptions to this as she would like to keep the house?

Thanks for your time.

Anthony Nixon
Posts: 260
Joined: Wed Aug 06, 2008 2:18 pm

Re: Inheritance Tax - Non Resident & Offshore solutions

Postby Anthony Nixon » Mon Jan 12, 2009 10:40 am

If your grandmother is entitled to the house then she should qualify for the exemption between husband and wife and the house should be free from inheritance tax.

If not then, yes, there will be inheritance tax, of the scale you indicate, on your grandfather's death.

The solution in these circumstances is for the property to be wholly owned by a non-UK company which is itself owned by a trust set up by a non-UK domiciled individual. The ownership by a non-UK company means that, instead of the house being an asset that is in the UK, what is owned is shares in a company and those shares are outside the UK.

The trust can then take advantage of the inheritance tax rule that assets that are outside the UK, that are owned by a trust created by a non-UK domiciled person, are "excluded property" and free of inheritance tax.

It is probably worth taking steps now to set up this kind of arrangement to prevent there being inheritance tax on the house on your grandmother's death.

Trusts are complicated vehicles and you need good professional advice in order not to fall into the many traps in UK legislation.

If you would like to know how my firm might help, do let me know.

Anthony Nixon CTA TEP Solicitor
Partner, Thomas Eggar LLP,
023 8083 1224

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Joined: Wed Aug 06, 2008 3:25 pm

Re: Inheritance Tax - Non Resident & Offshore solutions

Postby maths » Mon Jan 12, 2009 4:24 pm

Whilst it would appear that some or all of the parties involved are non-UK domiciled it is important for this to be clarified; in this regard it should be borne in mind that long term UK residence may cause an individual to become UK domiciled for inheritance tax purposes.

Inter-spouse transfers are in principle IHT free (unless deceased spouse is UK domiciled and surviving spouse is non-UK domiciled).

Whether your grand-father has made a will or not the "best" IHT solution would be for the property to be left to his wife, in which case no IHT would arise.

If no will exists (ie he died so-called intestate) then his wife does not automatically in fact become entitled to the whole property as you suggest; the children are entitled to a part thereof (in principle then precipitating an IHT charge).

If he left a will and left some part of the property absolutely to the children and part to his wife, as above, a potential IHT charge arises.

Under either scenario, assuming death was within the last 2 years, if appropriate, it may be possible to execute a deed of variation under which the children (hopefully all 18 or over) in effect re-direct their inheritance to the wife; no IHT then arises.

If the above is feasible, then once effected, planning can then be carried out to prevent IHT on your grand-mother's death.

Anthony may wish to comment on the above.

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Joined: Fri Jan 09, 2009 6:59 pm

Re: Inheritance Tax - Non Resident & Offshore solutions

Postby tnmudzaffar » Fri Jan 16, 2009 4:24 pm

Many thanks for your replies. I'll have a look at the Will and discuss it with my family and see what our next course of action will be.

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