Writing for Taxation magazine’s Readers’ Forum, BKL private client tax specialist Terry Jordan answers a fellow professional’s query about responsibilities on behalf of former clients.
The tax query
‘Last year, a husband and wife client moved back abroad in tax year 2022-23. They are both Norwegian domiciled and they have moved to a town in Sweden close to the border (to avoid the Norwegian wealth tax – policy makers please note). They are in their late sixties and are semi-retired. They are still partly active in the oil industry.
They were resident in the UK for 20 years and hence deemed domiciled with a five-year inheritance tax run off period. While in this country, they ran consultancy businesses which have now ceased. They have no residual UK assets.
They ceased being clients after I submitted the 2022-23 tax returns. I am still in contact with them on a personal basis.
My question is: if either or both of them die in the five-year inheritance tax period, do I have any responsibility to inform HMRC? It seems to me that HMRC has no other way of knowing of their death unless the Swedish tax authorities tell them. Is this correct?
My own reasoning suggests that I have no responsibility and that it is up to HMRC to police its own rules.’ Query 20,384 – Ex Parrot.
Terry Jordan’s reply: Consider the proposed changes to the deemed domicile rules.
‘Ex Parrot says that his clients were domiciled outside the UK at general law and had been UK resident for taxation purposes for 20 years until they left the UK in the 2022-23 tax year. Accordingly, they were deemed domiciled within the UK for all taxation purposes (apparently with effect from 6 April 2018 as they had not been resident for fifteen years when the rules changed on 6 April 2017). Even if they had acquired domiciles of choice within the UK, they would have abandoned them on leaving and their domiciles of origin would have revived.
Ex Parrot refers to a five-year period of exposure to inheritance tax. As reported in Taxation (19 October 2017), at the STEP Annual Conference, Emma Chamberlain OBE of counsel pointed out that there are two limbs to the deemed domicile provisions in IHTA 1984, s 267. Limb two requires a person to be resident for at least one of the four tax years ending with the relevant tax year. The effect of limb two is that a person can lose their deemed domicile after three full consecutive tax years abroad as long as they do not return to the UK within six years and do not die in the third year. In the present case the clients should lose their deemed domiciles on 6 April 2026.
What are Ex Parrot’s responsibilities, having ceased to act for them, if one or both ex-clients die while deemed domiciled in the UK? I think the short answer is none. He does not fall within any of the categories of persons required to deliver accounts under s 216. Further, I cannot see that the Professional Conduct in Relation to Taxation (PCRT) imposes any obligation, and it would arguably be a breach of confidentiality to inform HMRC.
Under the current proposals domicile will cease to be relevant for tax purposes from 6 April 2025 to be replaced by a residence test. It is proposed that, once resident for ten years in the UK, it will be necessary to be non-resident for ten years to avoid inheritance tax on worldwide assets so unless transitional provisions are introduced for people in the clients’ situation they may be exposed for longer than under the current rules. More details are anticipated as part of the Budget on 30 October this year.’
The full article was published in Taxation magazine (issue 4952) and is available to subscribers here on the Taxation website.
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