IHT - non UK residents with UK assets

Trusts Discussion
1

A couple has approached me regarding IHT.

Their circumstances are as follows:

He is UK born and now lives in Australia. He has a UK passport and an Australian passport

She is Australian born and has an Australian passport.

They have a property (joint tenancy) in the UK and a UK bank account.

They have a Will in Australia for non-UK assets.

He has two adult daughters live in UK who are UK domicile. They want the property to go to the daughters on second death. The property is worth £1.3M

Their questions are:

• does he qualify for NRB and RNRB in the UK?

• does she qualify for NRB and RNRB in the UK?

• if he dies first, will she be able claim spousal exemption?

• if she dies first, will he be able claim spousal exemption?

• on second death, can the executors claim un-used NRB and RNRB of the first spouse.

• can they each claim annual exemption of £3,000.

• any other relevant points?

2

If H has retained his domicile within the UK, as his wife is non-UK-domiciled s.18(2) IHTA 1984 will apply to the effect that spousal exemption for UK IHT is limited to a lifetime allowance equivalent to the nil rate band (rather than the unlimited exemption where both spouses are domiciled within the UK, or both arte non-UK domiciled).

In reply to the specific questions:

Yes

Yes

Only to the extent permitted by s.18(2) IHTA 1984 (see above)

Yes

I believe so

CGT will also be an issue on the second death

Paul Saunders FCIB TEP

Independent Trust Consultant

Providing support and advice to fellow professionals

3

The key issue is the domicile status of H. What was his domicile of origin and on what grounds (if any) could he claim non-UK domicile status (presumably an Aussie (or technically a State therein) domicile of choice?

A multiplicity of factors would be examined by HMRC if Aussie domicile of choice claimed. Although by no means a deal breaker, possessing a UK Passport, UK bank account, UK property and family in UK certainly doesn’t help any such argument.

Malcolm Finney

4

Paul and Malcolm,
Thank you for your replies which have been really useful.
Regards,
Chetan