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Where Taxpayers and Advisers Meet

Gifts made when Deemed Domicile

pandora_boite
Posts: 14
Joined: Thu Nov 24, 2011 6:51 pm

Gifts made when Deemed Domicile

Postby pandora_boite » Tue Oct 29, 2019 12:21 pm

I am a non-domicile individual (foreign born myself and and foreign born father) who has been classed as deemed domicile as I have lived in the UK for 15 tax years.

I am leaving the UK permanently and want to understand the tax implications of this deemed domicile status mainly around inheritance tax. I have read that "Deemed-domicile status will fall away for inheritance tax purposes for individuals who have been non-resident for more than three consecutive years".

I believe this means that if I die within 3 years of leaving the UK all my worldly assets are liable to UK IHT. What I am not clear on however is the effect that this has on gifts given in those three years. For example:

Say that the year after I leave the UK I give my son $50,000 from an overseas bank account to his account abroad (i.e the funds were never in the UK). Let us disregard any tax implications from the country this gift was made and focus only on UK tax.

Assuming I die 3 years after I gave my son this money i.e I have been non-resident for three full tax years and have lost the deemed domicile status for IHT purposes. Does the gift I gave my son while I was deemed domicile still count towards my UK estate even though at my death I was deemed non-domicile?

Thanks in advance for any comments/opinions on this.

pawncob
Posts: 4497
Joined: Wed Aug 06, 2008 4:06 pm
Location: West Sussex

Re: Gifts made when Deemed Domicile

Postby pawncob » Tue Oct 29, 2019 1:35 pm

It would be illogical for gifts to continue within the IHT regime after the donor has left, so I assume that any gifts made within that 3 year period would cease to be within charge when you leave.
(But since when has tax law been logical?)
This may help:https://www.gov.uk/hmrc-internal-manuals/inheritance-tax-manual/ihtm27220
With a pinch of salt take what I say, but don't exceed your RDA

maths
Posts: 7895
Joined: Wed Aug 06, 2008 3:25 pm

Re: Gifts made when Deemed Domicile

Postby maths » Tue Oct 29, 2019 3:37 pm

On the basis you do not possess a UK domicile of origin or a UK domicile of choice under common law (presumably neither is in point) then the so-called 3 year rule has no application to your circumstances.

The 15/20 rule applies in any determination (the former 17/20 rule probably does not apply under the transitional provisions).

pandora_boite
Posts: 14
Joined: Thu Nov 24, 2011 6:51 pm

Re: Gifts made when Deemed Domicile

Postby pandora_boite » Tue Oct 29, 2019 6:20 pm

Thank you everyone for your responses. Maths, I hope you are right, but I am not sure why you say that the 3 year rule does not apply to me.

Apparently the "deemed domicile" status applies even if I become non-resident. See example 2 on
https://www.gov.uk/hmrc-internal-manuals/inheritance-tax-manual/ihtm13061

This states that deemed domicile sticks even of you have a non-uk origin and then become non-resident. Also, I don't know how accurate taxjournal.com is but see below what they say in the context of the 15 year rule and iht.
" From an income and CGT perspective, the domicile status of a non-UK resident individual is irrelevant. However, that non-resident individual will remain within the scope of IHT on his worldwide assets until he has been non-UK tax resident for three consecutive tax years and assuming he remains non-UK tax resident in the fourth year."
https://www.taxjournal.com/articles/planning-deemed-domicile-after-15-years-06122018

maths
Posts: 7895
Joined: Wed Aug 06, 2008 3:25 pm

Re: Gifts made when Deemed Domicile

Postby maths » Tue Oct 29, 2019 10:52 pm

I think there may be a misunderstanding.

The 3 year rule only applies to those individuals who possessed a UK domicile of origin and who left the UK acquiring a non-UK domicile of choice. Your domicile of origin I assume is a non-UK domicile and hence this rule is inapplicable.

However, as my post mentioned the 15/20 rule would apply to you.

Assume UK residency for the tax year 19/20. Assume also residency for 15 of the previous 20 tax years. As the 15/20 test is met re 19/20 deemed domiciled status applies for 19/20.

To lose this deemed domicile status requires non-residency for each of the tax years 20/21 21/22 22/23 23/24 24/25 25/26 thus losing this deemed status for 26/27.

Any PET made whilst non-resident but deemed domiciled falls in the UK IHT charge if death occurs within 7 years of making the gift.

maths
Posts: 7895
Joined: Wed Aug 06, 2008 3:25 pm

Re: Gifts made when Deemed Domicile

Postby maths » Wed Oct 30, 2019 1:38 pm

Apologies; made a miscalculation re my tax years .

Deemed domiciled status will be lost in the tax year 23/24 not 26/27.

pandora_boite
Posts: 14
Joined: Thu Nov 24, 2011 6:51 pm

Re: Gifts made when Deemed Domicile

Postby pandora_boite » Wed Oct 30, 2019 2:10 pm

Thank you very much for the clarification Math. So just to confirm you are saying:
1) That after 4 years of continuous non-residence I lose deemed domicile status
2) Any gifts made before those 4 years are up, come under the 7 year IHT gift rule

maths
Posts: 7895
Joined: Wed Aug 06, 2008 3:25 pm

Re: Gifts made when Deemed Domicile

Postby maths » Wed Oct 30, 2019 2:12 pm

Yes, based of course on my assumptions as to the facts.

pandora_boite
Posts: 14
Joined: Thu Nov 24, 2011 6:51 pm

Re: Gifts made when Deemed Domicile

Postby pandora_boite » Wed Oct 30, 2019 5:23 pm

Thank you Maths

So, in this case since the 7 year gift shadow is greater than the 4 year deemed domicile shadow, seen purely from a UK tax point of view it would make more sense to loan the money instead of gifting it. If I survived the 4 years I could then decide to gift it.

maths
Posts: 7895
Joined: Wed Aug 06, 2008 3:25 pm

Re: Gifts made when Deemed Domicile

Postby maths » Wed Oct 30, 2019 6:52 pm

A simple loan to a UK resident has for IHT a UK situs.

Thus, even if the loan is forgiven/waived whilst the lender is non-UK domiciled, as the debt is UK situs a transfer for IHT will have occurred thus falling within the UK IHT net (should the lender die within 7 y3ears of the waiver).


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