Domicile and IHT Problems

Domicile and IHT.

Issues over domicile and IHT are becoming far more common. Many people in the UK have overseas connections: perhaps they have a foreign husband or wife, or they were born abroad, or lived abroad for many years.

Domicile and IHT
Domicile and IHT

This (domicile) can have a vital effect on how much Inheritance Tax (IHT) is paid, as those domiciled outside the UK don’t receive the same allowance as us Brits.  For example, a wife whose domicile remains in Southern Ireland but whose husband is British will NOT necessarily be entitled to receive the husbands assets tax free under his Will.

Ensuring that the correct domicile is estatablished can dramatically affect the impact of inheritance tax on death and which countries tax rules apply to what.  We are lucky to have the services of a highly experienced solicitor in this area. We can’t offer any free advice in this area, as it is no simple matter, and simple answers may be quite wrong.   The facts need to be investigated carefully.  Contact our Estate Planning Team initially.

The following is is the result of an important case on domicile and IHT (and won’t be of intrest to everyone!)

Supreme Court dismisses appeal in the Gaines-Cooper tax residency case: Unwelcome news for many disputing their residence status but not quite ‘game over’ says, KPMG.

Commenting on the judgement from the Supreme Court on the long-running “Gaines-Cooper” tax residency case, tax partner, Mike Walker, of KPMG in the UK, said:

“The taxpayer (Robert Gaines-Cooper) lost his appeal in today’s Supreme Court judgment which finally draws a line under the long-running legal proceedings resulting from this case.

“Mr Gaines-Cooper and the significant number of other people with residency disputes with the tax authorities will be disappointed by today’s decision.

“But the decision does offer a small ray of hope for other taxpayers embroiled in arguments with HMRC over their historic residency status in that it says (in paragraph 45*) that a decision by the tax authorities on residence should be based on ‘a multifactorial evaluation’ of circumstances.  However, the judges do also stress the importance of a distinct break in severing residence ties with the UK.

“Residency status is a relatively common tax issue.  We believe that there are significant numbers of people currently involved in residency disputes with the UK tax authorities.  According to a Foreign and Commonwealth office statement last year, around 5.6 million Brits are living abroad permanently.

“In practical terms, today’s decision reinforces the need for anyone currently attempting to demonstrate to the UK tax authorities that they have made a distinct break from the UK and are no longer resident here.  They need to focus on gathering evidence for the ‘multifactorial evaluation of circumstances,’ the decision refers to, taking professional advice on building their case.  While the Gaines-Cooper decision is unwelcome news for people in this sort of position, it is not quite ‘game over’ for them.

*Paragraph 45 of the Supreme Court decision:

45.  At last comes the moment in which to stand back from the detailed textual analysis of the booklet and to survey the wood instead of the trees. Unlike – so it seems – its successor, namely HMRC6, the exposition in the booklet of how to achieve non-resident status should have been much clearer. My view however, is that, when all the passages in it to which I have referred were considered together, it informed the ordinarily sophisticated taxpayer of matters which indeed were unlikely to come as a surprise to him, namely that:

(a) he was required to “leave” the UK in a more profound sense than that of travel, namely permanently or indefinitely or for fulltime employment.

(b) he was required to do more than to take up residence abroad.

(c) he was required to relinquish his “usual residence” in the UK.

(d) any subsequent returns on his part to the UK were required to be no more than “visits”; and

(e) any “property” retained by him in the UK for his use was required to be used for the purpose only of visits rather than as a place of residence.

He will surely have concluded that these general requirements in principle demanded – and might well in practice generate – a multifactorial evaluation of his circumstances on the part of the Revenue albeit subject to appeal as to matters of domicile. If invited to summarise what the booklet required, he might reasonably have done so in three words: a distinct break.

Mike Walker concluded:

“Today’s decision reinforces the need for a clear statutory residence test (domicile) which is scheduled to take effect from 6 April 2012.  We expect details of how it will operate to be unveiled in the draft finance bill due out on 6 December this year.  We hope that the new rules will include a clear test for residency without any need for ambiguous guidance on how it might operate.”

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Domicile & IHT.