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If you are domiciled or considered to be domiciled in the UK, then you are liable to UK inheritance tax on your assets worldwide.

As a rule of thumb, you are considered domiciled where you have your permanent home. As a Briton you can live in another country for many years whilst remaining domiciled in the UK if that is the place you call ‘home’ and if you intend one day to return there.

Changing your domicile is possible, but this is something with many potential ramifications and which you should do only after careful consideration.

Different types of domicile

Domicile of origin – everyone is ascribed a domicile of origin at birth under UK common law. This will not necessarily be the country in which you were born, it is automatically your father’s domicile, or your mother’s if she is single at the time of your birth.

Domicile of dependence – this applies to women married before 1974 (their domicile mirrors their husband’s), minors, and other legal dependents.

Domicile of choice –  according to HMRC “any individual who has legal capacity can acquire a domicile of choice”.

Domicile of choice

You must be both tax resident and physically present in your new country with the intention to live there permanently (or indefinitely) in order to acquire a domicile of choice.

You need to sever as many of your ties  with the UK as possible, otherwise HMRC may consider that you view the UK as your home country with the intention of returning there in the future. Be careful if you intend to elect for UK succession law to apply over local ‘forced heirship’ rules in your new country as this may be regarded negatively by HMRC when establishing domicile.

Even if you have taken steps to adopt a domicile of choice outside the UK, it can take up to four years to shed a UK domicile for inheritance tax purposes.  You may be treated as UK-domiciled if you:

• have been UK resident for 15 of the last 20 tax years
• go back to Britain for a period of more than a year (if the UK is your domicile of origin and place of birth)
• move to a third country (unless you can demonstrate establishment of new domicile of choice).

Establishing your domicile status

It is extremely important to take specialist advice if you are considering changing your domicile status. Any errors might cause HMRC to reject the status you have claimed, potentially leaving your heirs with an unexpected and unwelcome estate tax bill.

You can no longer ask HMRC for advice or a ruling on your domicile status in advance of when it becomes relevant for tax purposes - which might not be until after you have passed away.

In a domicile challenge HMRC may ask for extensive information such as:

• Date, place, and nationality at birth, parents’ names and marital status, and details of siblings.
• Details of your marriages/civil partnerships, divorce, and long-term cohabitation, and information on your children (names, dates of birth, nationalities, place of education, current locations, etc).
• List of all residences from birth, details of transfers of property, and summary of residences that have been available for your use.
• Information regarding any exercise of political rights in any territory; memberships of professional bodies; membership of clubs, societies, associations etc, and level of participation; details of religious, cultural, and social connections.
• Ability to speak, read and write the relevant languages.
• Details of any wills and the local law they are governed by; summary of any deeds and declarations, including those relating to dependents, and location of personal papers and items of financial or sentimental value.
• Summary of your professional and personal advisers, their services, and location.

Documentary evidence will be required including birth certificates, insurance policies, wills, and perhaps personal correspondence, photos, electronic records etc relating to your background, lifestyle, and intentions.

Your heirs and/or executor might find themselves having to gather this information to prove to HMRC that your estate should not be liable to UK inheritance tax.

UK inheritance tax (IHT)

It is important to understand that you are liable to pay UK inheritance tax on all of your assets worldwide if you are considered to be domiciled in the UK. Your domicile status is not the same as your tax residence.

If you are considered domiciled in the UK, then you will be liable for IHT at 40% on your worldwide assets after deduction of a £325,000 nil rate allowance. A further ‘family home allowance’ of £175,000 may also apply. If you are married or in a civil partnership, then you can usually pass any unused balance to the surviving partner giving a total allowance of up £1million. This will only apply where both partners are UK domiciles and if one of you is not UK domiciled then there may be an IHT liability. If you are uncertain about this, then it is important to seek advice.

If you are not UK domiciled at the time of your death, you will only be liable to UK IHT on assets situated in the UK, and only the value above the two allowances.

Please be aware that you may also be liable to pay IHT in your country of residence, depending on the local tax regime. 

Tax planning

We cannot stress enough the importance of taking professional, specialist advice here; advice that is very specific to your circumstances and intentions.  Couples need to carefully consider if the surviving spouse may be drawn to returning to the UK after the first spouse dies.

Whether or not you have UK domicile status, there are estate planning arrangements available to reduce your liabilities to inheritance and other taxes. An expert in this area will help you establish your domicile status, explain how inheritance tax interacts with the local inheritance tax in your country of residence, and advise on what steps you can take to minimise unnecessary taxes for your heirs.

Blevins Franks is highly experienced in this area and would be happy to review your situation and advise on the way forward.  With over 40 years of experience behind us, we provide a comprehensive domicile determination and estate planning service.

Contact us today for personalised advice.

Tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; individuals should seek personalised advice.

Jason Porter is a Director of specialist expat financial advisers Blevins Franks and head of the company’s European Emigration Advisory Service. Blevins Franks has been advising Britons moving and living in Europe for over 45 years.