Taxing time for an expat A
Confusing rules over domicile status cause concerns over inheritance
Financial worries or just looking for better value for money? Consumer champion Fergus Muirhead can help
QI RECEIVE the occasional copy of your newspaper from my adult daughter, who lives in the UK at the moment, and always read your column with great interest. I have recently been warned by my Australian financial advisor that I may still be considered as domiciled in the UK by birth for inheritance tax purposes. This is although I moved permanently from the UK to Australia in 2001, and now live and am retired in South East Asia. I have lived here for nine years, I am married to a local lady. We have two children, we own property here, and I intend to spend the rest of my life and be buried here. Can you advise how I would be able to confirm in advance that this is my domicile of choice to avoid any inheritance tax confusion or difficulties for my two non-dependent adult children from a previous marriage when I pass away? I have very few assets in the UK (two small bank accounts in Sterling with minimal deposits) but worry that my kids might end up having to pay inheritance tax on my Australian pension fund payout. Many thanks for your help. I can’t find a definitive answer to this question anywhere online or otherwise. THE question of domicile and residence is a very involved one – and one which is almost impossible to get a straight answer to from any accountant or tax expert that you speak to.
In very broad terms, residence is about where you live at the moment. If you are a UK resident, then you will pay income tax in the UK and my understanding (I say my understanding because I am not a tax expert and anything that you do regarding domicile and residence should be checked with an appropriately qualified individual) is that you will be treated as a UK resident for tax purposes if you spend more than 183 days in the country during the tax year.
If you work overseas during the tax year, then the amount of time you spend in the UK during the tax year will be limited.
Domicile is not about where you live and work but about where you consider to be home. For most people it is their country of birth and it is not as easy to change as your residence.
Domicile is particularly important,
as the question suggests, because for someone domiciled in the UK their worldwide assets on death can be assessed for inheritance tax, meaning Gordon’s children could face a large tax bill on his death, even though he has not had any real connection with the UK for nearly 20 years.
When I spoke to HMRC they told me that they will treat you as being domiciled in the UK if you either have lived in the UK for 15 of the last 20 years or have had your permanent home in the UK at any time in the last three years of your life.
In your case, the first will certainly not apply and although you say you have no intention of living in the UK again, the reality is that you won’t know whether you will live in the UK for any of the last three years of your life.
And this is the problem with some of these issues. It’s difficult to get a definitive answer from anyone while you are still alive because no one is prepared to commit to what will happen between now and the time of your death, and no-one is prepared to commit to taking a view on how HMRC will view a set of circumstances until these circumstances have come to pass.
There was general agreement with everyone I spoke to about your case that it does make sense to distance yourself as far as possible from any connections with the UK.
So it would probably make sense to close the bank accounts you have over here and deposit the money elsewhere.
It may be possible to buy some sort of declaration that definitely changes your country of domicile but before committing to large sums of money on this, be sure that it was put together in a format that HMRC would approve of.