Recently, we dealt with a very complex area of international tax law.
We were working with a client who has Indian heritage but spends a lot of time in the UK. They also have assets in the UK, India, and Singapore.
As they spent more than 15 out of the last 20 tax years in the UK, they were deemed to be UK-domiciled.
However, they planned to leave the UK and did not want this status to affect their Inheritance Tax (IHT) obligations. However, non UK domicile status has come under extreme scrutiny by the government and it is not as simple as proclaiming your non UK domicile status.
To mitigate against this, the SMCO team conducted a ‘domicile review’ for the client and advised them on how to strengthen their non-UK domicile status and gave them guidance on what they needed to do to obtain an Indian domicile certificate.
This means they can prove that they are Indian domiciled and so their non-UK assets are no longer subject to IHT.
The key thing to remember in this scenario is that the UK charges IHT at 40 per cent on worldwide assets for domiciled individuals, whereas non-domiciled individuals only pay IHT on their UK assets.
How we helped the client
The 1956 Estate Duty Treaty benefits Indian-domiciled individuals when it comes to UK IHT.
India is one of the only countries that has an agreement like this with the UK.
Specifically, the treaty ensures that UK IHT does not apply to property outside Great Britain for those who, at their time of death, were domiciled in India, not in Great Britain.
This benefit is available even if UK laws consider the individual to be domiciled in the UK.
By taking advantage of this treaty, we were able to prevent the client from invertedly incurring IHT on their global assets.
If the client were to dispose of their international assets, to be domiciled in the UK would have made sense – the allowances, incentives and benefits would outweigh the pressure of IHT at this point.
But, for now, while they have worldwide assets and have not planned for IHT on their estate, it is best to remain a domicile of India alone.
Every situation is different, and the international taxes that apply to individuals can quickly change depending on personal circumstances.
As such, we always recommend discussing your liabilities with a qualified and experienced international tax adviser.
