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Where Taxpayers and Advisers Meet

IHT and domicile

riccardob
Posts: 93
Joined: Sun May 29, 2011 10:02 am

IHT and domicile

Postby riccardob » Mon Jan 23, 2012 7:07 pm

Hello,

I am a foreign born individual who is now living in the UK.
I have read the information available on the HMRC website in relation to domicile / IHT and
it would appear that having a burial plot abroad could help towards being granted foreign domicile.

1) My question is, if I chose cremation as part of my funeral wishes would a cremation based in the UK be counterproductive towards my children claiming my domicile as foreign based for IHT purposes? To be more specific my current wishes are for my funeral to be held here and to be cremated here and for my ashes to be taken to my home country (this is mainly to facilitiate my children in the funeral arrangements more than anything). If it is certain that this would be detrimental to my domicile position then I would reconsider.

2) I have been informed that HMRC are very cagey in relation to domicile and that sometimes ones domicile could be the basis for a lengthy court battle with HMRC. My next question is to find out if HMRC ever "settle" on a lower rate of IHT for larger estates if the beneficiaries are strong mided enough to pursue the matter in the tax courts where there might be a 50 50 chance of the domicile going either way.

I could do with your opinion on the above.

many thanks

tax_schmax
Posts: 392
Joined: Wed Aug 06, 2008 3:53 pm

Re: IHT and domicile

Postby tax_schmax » Tue Jan 24, 2012 10:46 am

The famous case of Richard Burton is worth considering. He lived most of his life in USA and Switzerland. When he died, he wanted to assume Swiss domicile. He was ultimately buried in Switzerland as the domicile he wanted for himself. However, he had a Welsh flag draped over his coffin, and based upon this simple act, HMRC deemed him Welsh and bought his worldwide estate into UK IHT. In short, it's difficult to predict.

As for HMRC agreeing to settle on a smaller sum, the rates of tax are clear. You may hear of HMRC "doing deals" with the likes of Vodafone, but these are usually tax structures built within the law, but exploiting certain things to deliver an advantageous result. A sort of very clever tax mitigation scheme. These are available to individuals with deep pockets, although there are no guarantees that these stuctures will work. We may be getting a General Anti Avoidance Rule, which basically says "if it's clever and delivers an unexpected tax saving, we'll ignore it and tax it as we feel it should be taxed." We currently have a piece of case law that says something similar. The Ramsey principle, says that if a planned series of events combine to make a saving advantageous to the taxpayer, when there is no commercial purpose to the events, HMRC will look through these steps to see what was trying to be achieved. If the key objective is to save tax, HMRC will ignore the steps and tax it as they feel it should be taxed.

However, if your estate is suitably large, trusts are an excellent and simple way for your family to savoid tax relatively simply. You just need to identify how much of your estate you need access to and plan with the rest. Lifetime gifts are extremely worthwhile and efficient. "It's nicer to give with a warm hand than a cold one".

maths
Posts: 7903
Joined: Wed Aug 06, 2008 3:25 pm

Re: IHT and domicile

Postby maths » Tue Jan 24, 2012 8:19 pm

1) My question is, if I chose cremation as part of my funeral wishes would a cremation based in the UK be counterproductive towards my children claiming my domicile as foreign based for IHT purposes? To be more specific my current wishes are for my funeral to be held here and to be cremated here and for my ashes to be taken to my home country (this is mainly to facilitiate my children in the funeral arrangements more than anything). If it is certain that this would be detrimental to my domicile position then I would reconsider.
Domicile depends upon a vast array of factors; no one factor determines an individual's domicile status.

Your proposal per se is not a problem.
2) I have been informed that HMRC are very cagey in relation to domicile and that sometimes ones domicile could be the basis for a lengthy court battle with HMRC. My next question is to find out if HMRC ever "settle" on a lower rate of IHT for larger estates if the beneficiaries are strong mided enough to pursue the matter in the tax courts where there might be a 50 50 chance of the domicile going either way.
Domicile is a determination made by the courts if necessary. Very rarely can a deal be made but it is possible. However, not safe to rely on this.

riccardob
Posts: 93
Joined: Sun May 29, 2011 10:02 am

Re: IHT and domicile

Postby riccardob » Tue Jan 24, 2012 11:34 pm

many thanks.

A court case on domicile will cost in the tens of thousands? Is this correct?

Also as a side issue, property / money held overseas does not need a uk grant of probate to be released to the beneficiaries.
How does the procedure work in this case? Are HMRC happy to wait until the foreign country has sorted the foreign estate?

riccardob
Posts: 93
Joined: Sun May 29, 2011 10:02 am

Re: IHT and domicile

Postby riccardob » Wed Jan 25, 2012 6:46 pm

many thanks.

So you don't think a cremation in the UK would shift the balance towards UK IHT?
It would appear that draping a coffin with a welsh flag gives HMRC a case to prove uk domicile so I am hoping
that if my ashes are taken abroad this will not cause trouble.

A court case on domicile will cost in the tens of thousands? Is this correct?

Also as a side issue, property / money held overseas does not need a uk grant of probate to be released to the beneficiaries.
How does the procedure work in this case? Are HMRC happy to wait until the foreign country has sorted the foreign estate?

maths
Posts: 7903
Joined: Wed Aug 06, 2008 3:25 pm

Re: IHT and domicile

Postby maths » Wed Jan 25, 2012 9:03 pm

A court case on domicile will cost in the tens of thousands? Is this correct?
It could do.
Also as a side issue, property / money held overseas does not need a uk grant of probate to be released to the beneficiaries.
If a will drawn up under UK law legitimately extends to the overseas assets then UK grant is required. Often overseas assets are covered not by the UK will but a separately drawn up will under foreign law, in which case no UK grant is not normally necessary.

How does the procedure work in this case? Are HMRC happy to wait until the foreign country has sorted the foreign estate?
If any IHT is due and is paid later than the required deadline interest is charged.

riccardob
Posts: 93
Joined: Sun May 29, 2011 10:02 am

Re: IHT and domicile

Postby riccardob » Thu Jan 26, 2012 9:02 pm

maths thanks again.

Don't want to be a pain but I am thinking that how can HMRC charge interest if the foreign jurisdiction has been slow in sorting someone's estate?
Surely beneficiaries or indeed the deceased cannot be held responsible for this.

Also what happens if the person deceased dies without a will in relation to the assets held abroad? I take it a UK grant of probate would still not be required am i right?

Also how are cash accounts in a foreign bank treated? I know the situation with property is a little bit simpler as most DTA allow the foreign jurisdriction to take care of succession but bank accounts are different I think.

maths
Posts: 7903
Joined: Wed Aug 06, 2008 3:25 pm

Re: IHT and domicile

Postby maths » Fri Jan 27, 2012 12:48 am

Not sure what you're really trying to get at.

A non-domiciled individual on death is liable to UK IHT only on UK situs assets.

A UK domiciled individual on death is liable to UK IHT on worldwide assets.

IHT following death is due to be paid within a prescribed time limit; failure leads to interest charges.

riccardob
Posts: 93
Joined: Sun May 29, 2011 10:02 am

Re: IHT and domicile

Postby riccardob » Fri Jan 27, 2012 8:58 pm

Not sure what you're really trying to get at.

A non-domiciled individual on death is liable to UK IHT only on UK situs assets.

A UK domiciled individual on death is liable to UK IHT on worldwide assets.

IHT following death is due to be paid within a prescribed time limit; failure leads to interest charges.

What i meant was that even with a UK domicile sorting out assets based overseas may take some time due to the foreign authorities.
For example in the case of a property the foreign tax office would be the one involved in sorting the succession.
If tax is payable to HMRC and it takes some time to sort the foreign estate out because the foreign authorities are slow i don't think it would be fair for HMRC to charge interest if the issues are due to a slow probate overseas. Or should i assume HMRC does not give a monkeys if probate abroad takes ages?

maths
Posts: 7903
Joined: Wed Aug 06, 2008 3:25 pm

Re: IHT and domicile

Postby maths » Fri Jan 27, 2012 11:24 pm

If the deceased is non-domiciled then overseas property is not subject to IHT.

However, if UK domiciled then IHT payable on worldwide property; there is a deadline and if not met for whatever reason interest is charged. As you say basically HMRC don't give a "monkeys"!


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