When a British expat remains UK domiciled, it can result in their estates being liable to UK Inheritance Tax (IHT) at 40%.
It is domicile, not residence, which determines whether you are liable to UK Inheritance tax. Living abroad does not necessarily protect you.
There are three main definitions of UK domicile:
Domicile of Origin: This is where an individual takes their father’s [or for an unmarried mother, the mother’s] domicile. This is not necessarily the country of birth!
Domicile of Choice: This is acquired by demonstrating moving permanently to another country.
Domicile of Dependence: This applies to women married before 1974 who acquire their husband’s domicile. Minors and other legal dependents are treated similarly.
A person who is deemed UK domiciled is liable to 40% IHT on their worldwide assets and since April 2017 this includes all UK residential property.
Domicile of Choice
To acquire a domicile of choice an individual must be physically present and tax resident in a new country and intend to live there permanently without any foreseeable reason to return to the UK. It is important to sever as many ties and connections with the UK even including deleting a clause in your Will wishing to be buried in the UK.
EU law allows expatriates resident in Cyprus to opt for the law of their country of nationality to apply on their death as opposed to following a forced local heirship regime where the majority of an estate must pass to the surviving spouse and children in specific defined proportions. This election in itself could possibly give HMRC in the UK the opportunity to challenge a claim that an individual was no longer UK domiciled.
For further information please see HMRC's Residence, Domicile and Remittance Basis Manual.
For further guidance and advice, please contact Wayne Barnett & his team by emailing info@maplebrookservices.com, calling 26 600780, or completing the contact form below.