In the UK, it is your domicile, rather than your residence, which is taken into account for Inheritance Tax (IHT) purposes. So how does domicile affect inheritance tax in the UK?
Unlike residence, you can only have one domicile at a time. Your domicile is not necessarily the same country as your nationality or where you happen to be living but broadly, domicile can be summarised as your “permanent home”, subject to certain legal principles.
“Permanent home” means a place where you intend to reside indefinitely; that is, you do not have any plans to change your residence at some point in the future.
There are five different ways in which you can acquire your domicile and the starting point is your domicile of origin which is determined in various ways at birth.
- Domicile of origin.
- Domicile of dependency.
- Domicile of choice.
- Deemed domicile.
- Elected domicile.
Your domicile of origin can, however, be displaced in favour of a domicile of dependency or a domicile of choice.
If you are treated as UK domiciled, your worldwide estate will be subject to IHT.
If you are not UK domiciled, your UK assets only will be subject to IHT.
Individuals (whether domiciled in the UK or outside the UK) have an IHT Nil Rate Band (NRB) of £325,000. IHT is then charged at a rate of 40% on the value exceeding the NRB. Additional exemptions and reliefs, such as the Residence Nil Rate Band, may also apply.
Double Taxation
The UK has treaties with certain countries to prevent double taxation on estates. These treaties determine which country has taxing rights and how reliefs can be applied.
How can Moore Barlow help?
Seeking professional advice regarding domicile and IHT planning is crucial. If you have international ties and would like help with your IHT planning, please get in touch with one of our Private wealth lawyers.
