Devolution of non domicile deceased's uK estate and IHT

I would be grateful for some comments on what is no doubt a simple point but which I need to be clearer about.

Deceased died in June and left widow and children; both H & W domicile of origin Iran, which I am confident will have been retained throughout life and applicable at death, so for IHT purposes non domiciled

H left moveable and immovable property in UK (England and Wales). About £800,000 here and unknown but probably substantial in Iran. There is no Will and there are in effect forced heirship rules in Iran; wife receives 1/8th in these circumstances. Boys receive twice girls’ share. I have the certificate of heirship and am familiar with getting it through letters of administration in UK.

IHT401 askes all the intrusive questions it does about who will inherit in Iran etc.

Happy to give them whatever information they want, but will I be able to proceed on the basis that the rules of intestacy apply to the E&W estate such that W can [be taken to] receive, by reason of being entitled in UK, £270k plus half of the remainder, total £535,000, all spouse exempt, leaving say £265,000 covered by NRB and thus pay no tax here?

If I can’t rest on that, would an instrument in writing from all the persons entitled to the overall estate under Iranian law, releasing the UK estate to the wife, be sufficient to achieve that outcome?

I apologise if I’m missing something fundamental which I should know; I’d be glad to have it pointed out, with the correct analysis, notwithstanding.

David Martin

David

Don’t forget the E&W intestacy rules will apply only to the immovables. The movables pass in accordance with the law of domicile. So the starting position is that W gets £270k + half balance of the property (under E&W law), and 1/8th of the moveables (under Iranian law). If that means less than £325k of the chargeable estate is under the NRB, then no IHT.

The RNRB also applies to non-doms, so consider that too. Note there may be tension if saying that was the main residence, but claiming non-dom status.

In terms of the application to the Probate Registry, rule 30.3.b NCPR 1987 may apply. I gather the Probate Registry allow this if over 50% of the E&W estate is immovables. You can then treat the deceased as UK dom and so dispense with proof of foreign law.

Christopher Salomons
Russell-Cooke LLP

I don’t think that this is relevant to your end solution, but the intestacy over the immovable will be governed by English law - may I assume that is where the immovable is situated, would it not? The intestacy over the movables in England would, from our domicile perspective,be governed by Iranian law, which might or might not “renvoi” to English law. How much is the immovable worth?

Peter Harris
Overseas Chambers

UK intestacy rules would only apply to immoveables by default but I see no reason why the family could not make a deed of variation to cover UK assets if necessary.

Andrew Goodman
Osborne Clarke LLP

I thought a foreign spouse was now restricted to an allowance of £325,000.00 increased from £55,000.00.

Claire Flood

Dear Christopher

That is very helpful indeed thank you very much. I do appreciate the distinction you make and particularly as I subsequently saw the point about immovables constituting the whole or substsnially the whole of the E&W estate and applying as if the person entitled under England and Wales law and domiciled in UK without the need for foreign law affidavit etc. I shall look carefully at the values etc and see if I can make an application for directions on that basis.

A good idea to remind me about the RNRB and the care needed re domicile, although we are not in a position to push that, the properties being investment properties.

It is also useful to have your comment about devolution of the movable property. I was aware of that, but not all that clear about the extent to which it affected the application for a grant as regards the person entitled to apply. It has since occurred to me that we might obtain a release by the other beneficiaries in Iran which will enable the the courts to consider the widow the sole beneficiary. We shall see when I ask the court.

I am much obliged to you.

Yours sincerely

David Martin
W Legal Ltd, solicitors.

Between spouses who are both non-dom, the full spouse exemption applies. A deed of variation over UK assets would seem the best and clearest way forward if consents can be obtained.

Haroon Rashid
I Will Solicitors Ltd

Haroon, thank you, that is reassuring and about the D/V, as you infer, it may seem a large step en famille but we’ll see; there quite a lot of IHT payable otherwise. I’m going to summarise where I have got to in an email to all was soon as I can with thanks to everyone for the help.

David Martin

Thank you, Claire. I asked HMRC about this and they said google IHTM11033, and the following appears:

“This restriction to the amount of the exemption does not apply if

· both the transferor and their spouse or civil partner are domiciled outside the UK, or

· the transferor is domiciled outside the UK but the spouse or civil partner is domiciled in the UK

So, as Haroon says succinctly and others say the same, if both spouses are domiciled in the same place abroad, for IHT purposes they are treated as they would be if both domiciled here, but only as to the UK estate.

Responding to all the helpful comments from Andrew Goodman, Peter Harris and Haroon Rashid and Claire Flood as well as Christopher Salomons’ comprehensive email early on, there seems to be a consensus that a d/v in favour of the wife, if manageable en famille, would be the way to minimize or eliminate an IHT charge. And responding to enquiry about figures, it is not an enormous estate but still; 10’s of thousands tax at stake, net of mortgage the immovable is about £700,000 and the cash in the UK bank is about £160,000.

I calculate roughly that if we use these figure and the spouse receives the £270k from the immovable estate, plus half the rest of immovable value, and £20k of the movable estate, there’s tax perhaps of c£45k-£50k; so a deed of variation in favour of the widow of the movable estate would cover it and be worth using, I could have got the calculation wrong I must say, but if the D/V effectively makes the whole estate the widow’s, it doesn’t matter of course.

On renvoi, I don’t think so… rather the contrary, I think , as I understand that Iranian law implicitly claims jurisdiction over worldwide estate.

I see a reference in Tristram in relation to an application for a grant to the immovable estate a reference to a release which I infer means a release by the children of their interest in the immovable estate and that this would enable the widow to apply alone and not need affidavits of foreign law etc. From a presentational point of view, (HMRC and family other than widow), that seems to me to be better all round – just a release of interest in the immovable estate will reduce the remainder of the estate sufficiently to be covered by the NRB and no tax would be payable yet there would not be any interference in the operation of the law of the domicile on the movable estate.

Thank you everyone for your help with this. May be there will be something interesting to report back on later and I shall do this if I can.

David Martin