Inheritance Tax Planning for non-domiciliaries

Anyone who is not domiciled in the UK and who first became resident here between 6 April 1995 and 5 April 1996 becomes deemed domiciled for UK inheritance tax purposes (IHT) on 6 April 2011. At that point they are liable to IHT on their worldwide estate.

Clients who arrived before April 1995, but had extended periods of absence from the UK, may also be affected from 6 April 2011 if they have been resident in the UK for 17 (in whole or in part) of the previous 20 UK tax years.

For someone who remains not domiciled under general law (even if you now pay tax on worldwide income) it is possible to reduce the impact of this by planning before that date. UK inheritance tax is levied at a flat rate of 40% on chargeable assets in excess of the nil rate band (currently £325,000). Therefore taking steps before April 2011 can considerably reduce IHT in the long term.

This is particularly important for American expatriates since the one year repeal from estate tax in 2010 and the reintroduction (but with $5m unified credit allowance) this year. Some planning can take several months to implement and therefore an initial review should be carried out in the next few weeks.

If you think that you will shortly become deemed domiciled please ask your usual contact at Buzzacott to review your situation or contact any member of the Buzzacott Expatriate Tax Services Team on +44 (0)20 7556 1200 or email enquiries@buzzacott.co.uk