Liv­ing abroad isn’t out of reach of long arm of the tax­man

Yorkshire Post - Property - - PROPERTY - Robert Peel

A SUB­STAN­TIAL num­ber of Bri­tons own a home over­seas and it is im­por­tant to bear in mind the UK in­her­i­tance tax and ad­min­is­tra­tive con­se­quences of own­ing prop­erty off­shore.

The first point to bear in mind is that re­tir­ing abroad may not ac­tu­ally help you avoid in­her­i­tance tax in the UK when you die. Our tax authorities may still seek to charge in­her­i­tance tax on your es­tate de­spite the fact that you are no longer liv­ing in the UK. When de­cid­ing whether your es­tate is li­able to in­her­i­tance tax, the UK tax authorities do not look at phys­i­cal res­i­dence in the UK but con­sider a strange con­cept re­ferred to as domi­cile.

If the tax authorities deem you to have a UK domi­cile, they will de­mand in­her­i­tance tax on your world­wide as­sets and not just on your UK-based as­sets. Domi­cile for UK in­her­i­tance tax pur­poses is very hard to change and most Bri­tons own­ing over­seas prop­er­ties will prob­a­bly have re­tained their UK domi­cile, even those who have re­tired abroad and thought that they had avoided the UK tax authorities. The re­verse ap­plies to for­eign na­tion­als who ar­rive in the UK and if you have been res­i­dent in the UK for 17 out of the pre­vi­ous 20 years you will be deemed to have ac­quired a UK domi­cile of choice and there­fore will be li­able to pay UK in­her­i­tance tax on your world­wide as­sets.

Most UK tax­pay­ers ac­quire a UK domi­cile at birth, known as their “Domi­cile of Ori­gin”. In or­der to change this to a “Domi­cile of Choice” you must con­vince the UK authorities that you have aban­doned your domi­cile of ori­gin and have ac­quired a domi­cile of choice in an­other coun­try. To do this there are two steps that need to be fol­lowed. First of all, you need to for­mally no­tify and agree your de­ci­sion with the UK authorities. Se­condly, you need to sever all ties with the UK by clos­ing all Bri­tish bank ac­counts, sell­ing any UK prop­erty and even mak­ing fu­neral ar­range­ments abroad. The Rev­enue can and have suc­cess­fully ar­gued in the past that you have re­tained your UK Domi­cile of Ori­gin if your in­ten­tion is to re­turn to the UK at any point in the fu­ture even if that is for burial in the UK.

Maybe all you want is to ac­quire an off­shore prop­erty for fam­ily hol­i­days. Even then, you still need to con­sider wills and in­her­i­tance tax, both in the UK and in the over­seas coun­try. If you have an off­shore prop­erty you may need a lo­cally drafted will.

Some coun­tries have dif­fer­ent in­her­i­tance laws and you will need to take ad­vice lo­cally about what can and can­not be left to your fam­ily. If you do not have a lo­cal will it can make the ad­min­is­tra­tion of the es­tate ex­tremely ex­pen­sive and time con­sum­ing and may in­volve your ex­ecu­tors get­ting UK wills and doc­u­ments trans­lated and may even mean them trav­el­ling to the for­eign coun­try to swear doc­u­ments be­fore a lo­cal no­tary. Also bear in mind that if you have a for­eign will you will need to up­date your UK ver­sion to en­sure that the ex­e­cu­tion of a for­eign Will has not in­val­i­dated your UK one.

Fi­nally, do bear in mind that that there may be in­her­i­tance tax or an equiv­a­lent thereof to pay lo­cally on a for­eign prop­erty and this for­eign tax may or may not be avail­able to set off against any UK in­her­i­tance tax li­a­bil­ity so your fam­ily could be faced with a dou­ble tax charge. Whether you in­tend to re­main UK domi­ciled or want to sever all ties with the UK it is im­por­tant to ob­tain spe­cial­ist ad­vice in both the UK and lo­cally about the con­se­quences of buy­ing and own­ing prop­erty abroad from both a will and tax per­spec­tive.

The con­se­quences of not tak­ing ad­vice could have se­ri­ous im­pli­ca­tions and it may also be that lo­cal suc­ces­sion laws could mean that you can­not leave the prop­erty to your fam­ily as you wish and there may be forced suc­ces­sion rules that ap­ply so that you have no choice as to who in­her­its the prop­erty from your es­tate.

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