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Where Taxpayers and Advisers Meet

Inheritance NonDom

NonDom41
Posts: 47
Joined: Tue Nov 28, 2017 3:03 pm

Inheritance NonDom

Postby NonDom41 » Sun Jul 08, 2018 3:38 pm

Following case :

A non domiciled person is resident in the UK since 2005 (below the 15 year limit) and owns properties outside the UK (savings, bonds, real estate). These properties have no UK origin and have no relations to the UK whatsoever. If this NonDom dies before he has reached 15 years of UK residence these properties are not taxed by HMRC. Correct ?

If the NonDom dies after 15 years of UK residency these properties are subject to full UK Inheritance tax. Correct ?

If the NonDom gives these properties to somebody as a gift before the 15 year period and he dies after these 15 years no UK-inheritance tax will apply. Correct ?

If the NonDom transfers these properties into an offshore trust (trust established before the 15-year residency) and the NonDom dies after these 15 years) also no UK-Inheritance will apply. However, the big risk is he will abandon control over his properties because the then installed directors have full power over the trust. Correct ?

Does anyone see another solution to the above matter ?

maths
Posts: 7894
Joined: Wed Aug 06, 2008 3:25 pm

Re: Inheritance NonDom

Postby maths » Sun Jul 08, 2018 6:50 pm

A non domiciled person is resident in the UK since 2005 (below the 15 year limit) and owns properties outside the UK (savings, bonds, real estate). These properties have no UK origin and have no relations to the UK whatsoever. If this NonDom dies before he has reached 15 years of UK residence these properties are not taxed by HMRC. Correct ?

CORRECT

If the NonDom dies after 15 years of UK residency these properties are subject to full UK Inheritance tax. Correct ?

CORRECT

If the NonDom gives these properties to somebody as a gift before the 15 year period and he dies after these 15 years no UK-inheritance tax will apply. Correct ?

CORRECT

If the NonDom transfers these properties into an offshore trust (trust established before the 15-year residency) and the NonDom dies after these 15 years) also no UK-Inheritance will apply. However, the big risk is he will abandon control over his properties because the then installed directors have full power over the trust. Correct ?

CORRECT RE ANY IHT CHARGE. TRUSTEES WILL EFFECTIVELY HAVE CONTROL OVER TRUST ASSETS.

Does anyone see another solution to the above matter ?

NonDom41
Posts: 47
Joined: Tue Nov 28, 2017 3:03 pm

Re: Inheritance NonDom

Postby NonDom41 » Mon Jul 09, 2018 5:05 pm

Thank you, maths.

This means that establishing an offshore trust could be taken into consideration in order to save inheritance tax. The crucial issue is finding a reliable trustee. I suppose the settler of the trust or the beneficiary cannot appoint himself as trustee. However, anybody else can be appointed - am I right?

What else can be done to avoid that a trustee misappropriates the assets and vanishes ?

AnthonyR
Posts: 309
Joined: Wed Feb 08, 2017 2:33 pm

Re: Inheritance NonDom

Postby AnthonyR » Tue Jul 10, 2018 12:33 pm

Trustees owe a fiduciary duty and must act in the best interests of the beneficiaries. However, that doesn't stop an individual who is suddenly given control of vast sums of money from 'doing a runner' (technical term). On top of this, in order for the trust to be offshore the trustees need to be offshore as well and if the settlor is UK resident it's likely to result in bringing the trust into the UK trust regime.

That's why there is a considerable trustee business in offshore jurisdictions such as the channel islands (other islands are available), where such roles tend to be regulated, controlled, insured and taken very seriously.

If it's a sizeable sum, I'd suggest researching some professional trustees who provide this service for high net worth clients.
Anthony Rogers LLB CTA TEP
Fusion Partners LLP
anthony@fusionpartners.co.uk

maths
Posts: 7894
Joined: Wed Aug 06, 2008 3:25 pm

Re: Inheritance NonDom

Postby maths » Tue Jul 10, 2018 9:23 pm

If the trust is set up by a non-domiciled and non-resident then not all the trustees need not be non-resident.

However, if the settlor although non-dom is UK resident then all trustees must be non-resident to keep the trust as non-resident for income tax and CGT purposes.

However, even if the trust is UK resident (and is thus within the charge to UK income tax and CGT) it may still qualify as an excluded property trust for UK IHT purposes.

NonDom41
Posts: 47
Joined: Tue Nov 28, 2017 3:03 pm

Re: Inheritance NonDom

Postby NonDom41 » Fri Jul 13, 2018 9:38 pm

Thank you, maths.

A last question :

If the NonDom is resident for more than 15 years in the UK and dies in the UK after this period of time I think the heir has to pay UK-inheritance tax (if nothing has been arranged before, i.e, trust, gift etc). Just as a quick reminder : All these assets are outside the UK and have no relation to the UK whatsoever and were already outside the UK when the NonDom moved to the UK more than 15 years ago.

Nevertheless the heir (in this case the son) has to pay full UK-inheritance tax. if he lives in the UK. Correct ?
.
However, what happens if the heir (son) lives in Austria in the time of death of the NonDom (his father) ? Austria has no inheritance tax.

is UK-inheritance tax due in this case and who has to pay it ?

maths
Posts: 7894
Joined: Wed Aug 06, 2008 3:25 pm

Re: Inheritance NonDom

Postby maths » Sat Jul 14, 2018 12:13 am

On death of a deemed domicile individual UK IHT arises on the individual's worldwide estate (ie UK and non-UK property).

This applies whether the beneficiary of the estate is UK resident or not.

The UK IHT is payable out of the estate (ie before the beneficiary inherits the UK IHT needs to be paid).The executors of the will are liable to pay the UK IHT out of the estate.

However, in practice HMRC may have great difficulty in collecting any UK IHT as all the assets are outside the UK and in particular if the will appoints only foreign resident executors who may simply refuse to settle and UK IHT charge out of their foreign assets. This collection will also be made even more difficult if the beneficiary resides outside the UK.

There however some international enforcement arrangements and these would need to be examined although theory and practice may diverge.

NonDom41
Posts: 47
Joined: Tue Nov 28, 2017 3:03 pm

Re: Inheritance NonDom

Postby NonDom41 » Mon Jul 23, 2018 12:37 pm

A last question :

As agreed already, If a NonDom makes a gift from his foreign bank account to his son's foreign bank account (and the NonDom lives in the UK below the 15 year threshold and the gift has no UK origin or other relation to the UK) this gift is UK-tax free.

Is an official gift certificate or contract required as a precondition that this gift is accepted as legally correct ? A certificate issued by a notary ?

maths
Posts: 7894
Joined: Wed Aug 06, 2008 3:25 pm

Re: Inheritance NonDom

Postby maths » Mon Jul 23, 2018 1:05 pm

No; nothing official is necessary.

Might be a good idea for a simple letter from donor to donee to set out that a gift of £X is being made. Even this is not strictly necessary.

NonDom41
Posts: 47
Joined: Tue Nov 28, 2017 3:03 pm

Re: Inheritance NonDom

Postby NonDom41 » Mon Jul 23, 2018 5:00 pm

Thank you, maths.


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