Inheritance Tax on assets in India

Dear Members

I have clients who have approximately £1million of assets in the UK. They also have assets in India.

They are medics and working and paying tax in the UK for the last 9 years.

Their intention is to go back and live in India when they retire.

My understanding is that they will be deemed domiciled in England and Wales when they have been paying tax for 15 years.

Once they are deemed domiciled then if they die HMRC would look to their worldwide assets as far as inheritance tax is concerned.

I have seen certain articles suggesting that clients in this position need to place the Indian assets in an offshore bond and then they will not form part of the assets for inheritance tax purposes…

I have also heard mention of a 1956 Double Taxation Treaty but I am unsure if that applies to income tax only.

Finally the clients have discussed with other colleagues and have been advised that they should make " a statement of domicile" . I cannot see how a statement would have an effect when the clients are working and paying tax.

Thank you for reading and any advise you are able to give to me


Hi Collette

I think the following link gives some direction to what your clients are seeking to achieve.

I hope this helps.

A non-UK domicile who is resident in the UK for 15 out of the last 20 tax years will be treated as being deemed domicile in the UK. From the following tax year, they will pay income tax, capital gains tax and inheritance tax in the UK, in the same way as a UK domicile.

If they invest their overseas investments in an offshore investment bond before becoming
deemed UK domiciled, any capital gain realised on the disposal of the existing investments will not be
assessable in the UK.
Once the investment bond has been taken out, the funds will benefit from gross roll-up, meaning that
they can continue to manage the investments actively, as before, without having to be concerned
about the tax consequences.
There will be no UK tax liabilities until a chargeable event occurs.
In addition, while they are UK resident, they could take partial withdrawals within the 5% tax-deferred
facility with no immediate UK tax liabilities provided that the proceeds are not remitted into the UK.

IHT is levied on the worldwide assets of UK domiciled individuals and those who are deemed domiciled.
The simple way to avoid it applying to non-UK assets, before moving from a non-UK domicile to a deemed domicile status, is to transfer the assets to an Excluded Property Trust.
If assets are settled into this Trust before becoming deemed domicile the assets within the Trust will be classed as excluded property, even after the individual becomes deemed domiciled. Excluded property is exempt from UK inheritance tax and by using a discretionary trust the settlor can be a potential beneficiary of the trust.
The creation of the trust will not be regarded as a gift with reservation.

Double Taxation Relief helps to prevent an individual being taxed by two countries on the same income, gains or assets. If the country where the person was living charges IHT on the
same property or gift the UK is taxing, they might be able to avoid or reclaim the tax through this double taxation agreement.

A statement of domicile may also be referred to as “domicile of choice”, however this can be the most difficult to demonstrate and simplistically is based on two key elements:
(a) Physical presence in the territory concerned, and
(b) Intention to remain there permanently or indefinitely.

It may be worthwhile referring to: Guidance note for residence, domicile and the remittance basis: RDR1 - GOV.UK

Hi Collette,
I assume that your client is currently Indian domiciled. UK deemed domicile rules do not apply to India (also France, Italy, and Pakistan) RDRM20040 - Domicile: Introduction and Background: 'Deemed domicile' for Inheritance Tax Purposes - HMRC internal manual - GOV.UK

The Indian rules operate so that someone domiciled in India, but who falls into the UK inheritance tax net by virtue of the deemed domicile rules, will not pay UK inheritance tax on assets located outside of the UK, so long as those assets pass under the terms of a non-UK will.

So, your Indian-domiciled client needs to ensure that the assets located outside England pass under a non-UK will.

Kim Jarvis