HM Revenue & Customs (HMRC) recently updated its guidance regarding its Inheritance Tax (IHT) ‘deemed domicile’ rules from 6 April 2017.
The updated guidance includes changes to the number of years of residence needed in the UK for deemed domicile to apply – something which individual taxpayers need to be aware of.
What do the changes mean?
Before 6 April 2017, an individual was ‘UK domiciled’ if they were a resident in the UK for 17 of the 20 years of assessment ending with the year in which the appropriate time period fell. However, from 6 April last year, an individual is now deemed domiciled if they were a resident in the UK for 15 of these 20 years.
Under the new rules, the individual can be treated as UK domiciled even if they are not a resident in the UK at the relevant time. However, if they left the UK before 6 April 2017 and do not return, the new rules do not apply.
New category introduced
The changes also introduced a new category, that of a ‘formerly domiciled resident’. This applies to an individual who was born in the UK with a UK domicile of origin, but who has since acquired another non-UK domicile of choice. Such an individual is resident in the UK and was a resident in the UK during at least one of the two previous tax years.
However, if someone is a formerly domiciled resident, property they settled on trust when they were not domiciled in the UK cannot be excluded property for the purposes of IHT.
This does not apply if someone is only ‘deemed domiciled’ under the new rules.
According to HMRC’s guidance, the new trust protection ensures that an IHT trust charge does not arise when someone is no longer a resident in the UK, or a formerly domiciled resident.
For more information about MD Consulting’s Inheritance Tax planning services and how we can help you, please contact us.