Inheritance Tax Planning

sneekymum

Yes - that's a good way to be...

That article needs updating - the threshold's £275K this year and due to rise to £285K in 2006-07 and £300K in 2007-08.

jennifernil

My husband is Norwegian and came here to work in 1970 after we were married. In 1975 he took a job with a Norwegian firm in UK, and for tax purposes was told by the Inland Revenue he had to decide whether to retain his domicile of birth or choose to be domiciled in UK. On inquiring further he was told by IR that it would be advantageous for him to remain domiciled in Norway, so he chose that option. This is going back a long way now, but I think he may have paid a little less tax for about 3 years until this concession was done away with. He is still with the same employer but over the years the company has been divided and lots of things changed. The division he works for is now registered(?) in the Netherlands and he is a member of its UK pension scheme.
Recently I discovered that under the inheritance tax rules a transfer between spouses when the surviving spouse is not UK domiciled is not exempt, but limited to £55000.
Some questions ,if anyone can help.......
Is that just £55000, or the nil rate band (£275000??) plus the £55000, before tax kicks in?
Can he now change his country of domicile as we intend to remain in UK on retirement?
How does he go about it if he can?

sneekymum

No that's just £55,000. -

You may need urgent expert help -

Are assets such as your house already in joint names? Is your life insurance policy and pension plan written in trust? Are your savings and investments in joint names? Are there any other assets or property that are in your name only?

Assets in joint names may be transferred automatically and may not form part of your estate - but this is not always the case. Putting things in joint names may come under the seven year rules. In particular the practice of writing insurance and pensions in trust to a beneficiary (and outside the deceased's estate) is quite recent and may not be in force on your arrangements.

I'm no expert in this - just have an avid interest - and I can spot when I'm out of my depth too....

"Can he now change his country of domicile as we intend to remain in UK on retirement?
How does he go about it if he can?"

Don't know - but another consideration is "Does Norway have IHT too?"...

oceanblue_3

It is important for you to remember that an individual's residence status for income tax purposes is irrelevant when considering IHT - the concept of domicile is the determining factor.

There are four possibilities:

1) Domicile of Origin, which is acquired at birth

2) Domicile of Choice, which your husband could have selected

3) Domicile of Dependence, concerning minors

4) Deemed Domicile - for IHT purposes only......if an individual has been resident in the UK for 17 out of the past 20 tax years, s/he is deemed to be UK domiciled for IHT purposes, although still non-domiciled for Income Tax and Capital Gains Tax purposes.

I would say that, for IHT purposes, your Norwegian husband is domiciled in the UK.

An interesting point that requires investigation is your own domicile! The law states that if a couple married prior to 01/01/1974, then the married woman automatically acquires her husband's domicile. This state remains until she legally acquires a new domicile. I should imagine that you would be placed in 4), where your "deemed domicile" is the UK.

sneekymum

jennifernil's post prompted me to email my sister who's lived in Cape Town for twenty years. I don't know - could this £55K limit apply to her? She has a South African husband.

telly-addict

I would agree that due to your husband being resident in the UK for at least 17 of the last 20 tax years he is deemed UK domiciled for IHT.

Assuming you have been here too, it must be the case that you have also become deemed domiciled in the UK. If you had married after 1974 you would have retained your domicile of origin in the UK.

So I would say that the £55,000 limit on exempt transfers from UK domiciled to non-UK domiciled spouses does not apply.

telly-addict

jennifernil wrote:

Recently I discovered that under the inheritance tax rules a transfer between spouses when the surviving spouse is not UK domiciled is not exempt, but limited to £55000.
Some questions ,if anyone can help.......
Is that just £55000, or the nil rate band (£275000??) plus the £55000, before tax kicks in?
QUOTE]

I have to disagree with sneekymum here, if you have a UK dom person that has just died, with a non-dom spouse, the UK dom still has a nil rate band that can be used. They have only lost the 'spouse exemption' that would be unlimited if they were both UK domiciled, and which is limited to £55k in those circumstances.

sneekymum

When does the £55K limit apply then? I'm I right to be condcerned about my sister?

telly-addict

sneekymum wrote:

jennifernil's post prompted me to email my sister who's lived in Cape Town for twenty years. I don't know - could this £55K limit apply to her? She has a South African husband.

Does she have any UK sited assets that could fall into the IHT net? It is quite likely that she could be considered domiciled in South Africa now, and as such only her UK assets would be chargeable to UK IHT.

Here's the IR booklet on Inheritance Tax, foreign aspects - some good info on domicile:

http://www.hmrc.gov.uk/leaflets/iht18.htm

telly-addict

sneekymum wrote:

When does the £55K limit apply then? I'm I right to be condcerned about my sister?

It applies to people that have spouses not domiciled in the UK. All gifts, lifetime and on death, between 2 UK domiciled spouses are exempt from IHT.

There is a lifetime limit of £55,000 on these exempt gifts from a UK domiciled spouse to a non-UK domiciled spouse. Any gifts in excess of these limits will be treated as potentially exempt transfers in the same way as a gift to someone else, unless they are automatically chargeable lifetime transfers (usually gifts to a discretionary trust).