With regards to an individual’s taxation status, there are two concepts to consider. First is their country of residence. This is generally where you and your family, live, work, go to school, pay your taxes and conduct the majority of your day to day activities. The second concept is that of domicile which derives from common law and associates an individual with a particular country (generally from birth although domicile can derive from a number of other circumstances) which is regarded as your permanent home.

The two concepts are different and must be considered separately for wealth planning purposes. For example an individual could be resident in Spain but domiciled in the UK. The individual would be liable to all applicable Spanish taxes. However, in addition to the Spanish estate taxes on their Spanish situs assets, their estate may remain liable to UK Inheritance Tax (IHT) unless measures had been implemented to establish what is known as a domicile of choice in Spain. In summary, an individual can have a separate country of residence and country of domicile at the same time.

There is a misconception that once you leave the UK you need not worry about IHT. However, your domicile is deemed life lasting unless measures are implemented to demonstrate that you have chosen to make your permanent home in another country. We at Abacus Wealth are able to provide advice on what these measures should include. Even after implementing such measures, there is normally no certainty that you have lost UK domicile until you pass away, although in certain circumstances, it is possible for your domicile to be tested before then.

UK domiciled individuals are liable to IHT on their worldwide assets. This is levied at the rate of 40% on any amount above the nil rate band. The application of this and exemptions available are detailed in the following link.

The very fact that different scenarios can apply to differing circumstances gives an insight to the issues that need attention. So if you are a UK domicile at death your estate could well be subject to a large tax bill. Remember that your domicile status is the key. Your residence is irrelevant

Q. Are there any measures that I can take to eliminate/reduce the tax?

A. There certainly are and they vary from the relatively simple to the technically challenging!

The latest UK Government statistics reveal that in 2017-18 IHT receipts amounted to £5.2b. It was famously stated a number of years ago that IHT is a voluntary tax. It can be reduced by planning with the objective of passing as much asset value to your beneficiaries as possible and not the UK Government!

If this article is relevant to your situation and you would like to consider taking action to reduce/mitigate your liability to IHT, please contact me for a complimentary consultation.

Robert Webb ACSI, LLB (Hons)
Wealth Manager