Writing for Taxation magazine’s readers’ forum, BKL tax adviser Terry Jordan responds to a reader’s query on the inheritance tax liability of a UK citizen who resided abroad.
Peter H. writes: Our former client moved abroad more than ten years ago. He sold everything he had in this country, including the shares in his business. He was unmarried and moved to South America.He bought a farm in Chile and got on with his life there. Of course, he left relatives in the UK and kept in touch with them by mail, phone or email, but that was all. We know that it was his intention to spend the rest of his life overseas. We suppose that in the overall scheme of things he might have returned to the UK for family births, deaths and marriages, for example, but that would be all.
Recently, our client fell seriously ill. As a matter of urgency, he was brought back to the UK for treatment – he was too weak to protest. He also brought with him about £500,000, which was put into a newly opened bank account. We assume that this was for health treatment costs although, in the event, he was admitted to an NHS hospital. Last-resort cancer treatment can be expensive and the costs inevitably need to be met privately. His family would have known this as well. Our client saw a UK cancer consultant, but was told that nothing could be done. He stayed with his brother during this time.
Within about six weeks of arriving in the UK, he died. In that short time he made a will which, among other things, stipulated that his ashes were to be placed in the family grave which is in the UK. All of this was done without advice (possibly understandably in the circumstances) and we are now consulted about the potential inheritance tax liability.
We should be very grateful if Taxation readers could advise on whether the estate is liable to UK inheritance tax. Alternatively, would it be possible to advance arguments that he outside of the scope of this charge.
Query 19,099 – Peter H.
Reply by Terry ‘Lacuna’ Jordan, BKL
The key question is where the former client was domiciled (either at general law or under the deeming provisions) for inheritance tax purposes when he died. If he was domiciled outside the UK non-UK assets would be ‘excluded property’ and outside the scope of inheritance tax under IHTA 1984, s 6 (1).
It is implicit that the deceased was born in the UK with a UK domicile of origin. But this could have been supplanted by the acquisition of a domicile of choice in another territory by the combination of physical presence there and the current intention to remain permanently.
Reference could usefully be made to the recent cases involving Frederick, George, Cordelia and Arabella Henderson v HMRC [2017] UKFTT 556 (TC). There, the issue was whether their paternal grandfather, Ian Henderson, had acquired a domicile of choice outside the UK and communicated it to their father, Nicholas Henderson, as his domicile of origin and then to them as their domiciles of origin. Their appeals were dismissed.
However, from the facts described it would be reasonable to conclude that the client had acquired a domicile of choice in Chile so the question is then whether he abandoned that non-UK domicile when he returned here for treatment.
The request for his ashes to be interred in the family grave is unfortunate: it has been rumoured that Richard Burton’s request for burial of his body in a red suit, together with a copy of Dylan Thomas’s poems, scuppered his plans to avoid UK inheritance tax even though he had lived in Switzerland for the last 26 years of his life. Nevertheless, it would be reasonable to conclude that he had not abandoned his non-UK domicile of choice.
As a ‘returner’, under the provisions effective from 6 April 2017, the former client would have been deemed domiciled in the UK from the second year of tax residence, but did not live long enough for that to be an issue. With the benefit of hindsight, it is unfortunate that the money was placed in a sterling account because foreign currency accounts of non-UK domiciled non-residents are left out of account (as distinct from being excluded property) by virtue of IHTA 1984, s 157.
Because, apparently, he had never been married there is no possibility of transferred nil-rate band from a late spouse so there will, in any event, be inheritance tax on at least £175,000.
The article is also available to subscribers on the Taxation website.