Tips For Losing Your UK Domicile
LEARNING OBJECTIVES
At The Wealth Genesis, we provide high quality, relevant and up-to-date estate planning advice to British Expats around the world.
IN THIS ARTICLE, YOU WILL LEARN THE FOLLOWING:
What domicile means for expats
The different types of domicile applied by HMRC
How to take steps to remove your UK domicile
Essential estate planning considerations for non-UK residents
This article is intended for non-UK residents with estate planning and inheritance tax concerns.
Domicile and non-dom status currently represent a huge concern for British Expats around the world. These concerns have been heightened with the new Labour government, who are likely to consider new tax regimes to increase HMRC revenue.
If you are deemed domicile in the UK, Inheritance Tax will apply to your estate upon your death, meaning 40% of the total value of your worldwide assets will be taxed (after allowing for main residence tax-relief and nil-rate bands).
For many Expats, this can seem unfair, given they no longer live in the UK, or perhaps have lived outside of the UK for a considerable amount of time.
In this article, we will explain in which scenarios you will be deemed domicile in the UK for Inheritance Tax purposes, as well as providing tips and methods to get rid of UK domicile status.
Inheritance Tax For Non-UK Residents
Inheritance tax is not based on UK tax residency or a residence status test, but rather the concept of domicile. The notion of domicile is a system of determining if IHT is due upon your death, and does not have a simple definition or straightforward rules to follow - rather it is an evolution of legal precedent and cases brought forward by HMRC.
There are various types of domicile, which we will detail below:
01 Domicile Of Origin
This is the domicile that was assigned to you at birth, and typically follows your father's domicile.
02 Domicile Of Choice
You can shed UK domicile status in certain scenarios by living and permanently settling in another country. Living abroad for a long time is an important factor here, however acquiring a new domcile is not easy, nor are the rules laid out in stone. In this instance, HMRC needs to be convinced that your intentions are long term, and that you've severed all of your ties when leaving the UK.
03 Deemed Domicile
The UK and HMRC have certain provisions which allow them to deem an individual as domiciled. For example, if you have non-dom status but spend 15 out of the last 20 years in the UK, you will become 'deemed domicile' for inheritance tax purposes.
It's important for all Non-UK residents to understand that you cannot be without a domicile, you can only ever have one country of domicile, and that the concept of domicile is different form nationality and residence.
How To Lose Your UK Domicile
Before we consider the steps to shed UK domicile, it's vital to understand that each individual case varies, and losing your UK domicile status is complex and must be taken seriously if you wish to mitigate inheritance tax on your UK assets.
Sever Ties With The UK
The most important step is to sever your financial and personal ties with the UK. This means establishing your main residence abroad in the country where you intend to create your permanent home and domicile of choice.
You will also then need to complete at least 4 tax years of living abroad so as to not fall foul of the long-term resident rule.
Note, you also have to ensure that you do not return to the UK for more than a year if the UK is your domicile of origin. If you do, even if for extenuating circumstances, HMRC can use this to prove a UK tie.
When shedding ties to the UK, this extends not only to property, but also investments and legal deeds. For example, holding UK ISAs, pensions or a Will can represent further ties to the UK, all of which can be used to levy IHT on your estate.
They have even used the example of someone intended to be buried in the UK to deem an individual domicile, so you cannot be too careful here.
HMRC will use any tie they have available, so we would encourage all individuals to discuss their position with a financial adviser or tax expert to gain clarity on their position.
Estate Planning Advice For Expats
There are various financial vehicles individuals can use to mitigate IHT and take their assets offshore and outside of the UK. These include, QROPS accounts, QNUPS, offshore investment platforms and international investment bonds.
The Wealth Genesis is fully regulated to provide international financial advice to British Expats around the world. All our advisers are qualified in both the UK and internationally to provide specialist cross-border financial planning.
To discover how we can help you, make an enquiry using the button below, or alternatively schedule an initial consultation using our diary
