Inheritance Tax Print
As well as the valuable income tax and CGT benefits enjoyed by a non-domicile in respect of overseas assets, on death, a non-domicile is exempt from IHT on the value of his overseas assets. These assets are termed excluded assets for IHT purposes. Prior to April 2017 this exemption lasted until such time as the individual had been resident in the UK for not less than 17 out of the past 20 tax years, whereupon he became liable to IHT on his worldwide estate. From April 2017 the exemption ends when the individual has been resident in the UK for more than 15 out of the past 20 tax years when he becomes deemed domiciled in the UK for all tax purposes.
Prior to becoming deemed domiciled in the UK the individual has an opportunity to settle overseas assets into a trust and provided this is done before he becomes deemed domiciled, the overseas assets will remain excluded assets for the purposes of IHT.
Individuals domiciled in France, India and Pakistan are still able to rely on their respective Double Tax Treaties to avoid the deemed domicile provisions for IHT purposes provided that the devolution of their non-UK assets is not regulated by UK law. However, the treaty relief only applies on death, and do not affect the IHT treatment of lifetime transfers made within 7 years of the death of the transferor or settlements into trusts during the lifetime of the transferor at a time after he has been resident in the UK or more than 15 out of the past 20 years.
Where a UK domicile of origin who has obtained a domicile of choice outside the UK returns to the UK after 5 April 2017 he is treated as domiciled in the UK from the date he returns to the UK. This is subject to a grace period of 1 year where the individual only returns to the UK for a short period. It should be noted that the grace period only relates to IHT and that income tax and CGT will be charged on the individual’s worldwide income and gains from the beginning of the tax year (subject to any claim to Split Year Treatment) during which he returns to the UK.