sole benficiary foreign wife

de1amo

i have property and an estate that on my demise will make my foreign wife liable for death duties in the uk.--she has and never will live in the uk and has no connection to the uk for tax purposes--i will have a perpetuating pension and an estate that will go to her and i was wondering if their is anything i need to know about the way the tax man will few my bequest!--i am in thinking about writing my wills--one for here and another for my estate abroad.

KPR11

de1amo wrote: »

i have property and an estate that on my demise will make my foreign wife liable for death duties in the uk.--she has and never will live in the uk and has no connection to the uk for tax purposes--i will have a perpetuating pension and an estate that will go to her and i was wondering if their is anything i need to know about the way the tax man will few my bequest!--i am in thinking about writing my wills--one for here and another for my estate abroad.

I am not entirely sure I fully understand your question. I believe you are wondering whether she would be liable for any inheritance tax on your demise? If that is the case then, as your wife is a UK non-dom, the UK inheritance tax spouse exemption is capped at £55,000 (this is a lifetime cap). So any life time transfers above £55k will be potentially exempt transfers and thus exempt if you survive 7 years.

Also bear in mind that you have an annual exemption of £3,000 that you can carry forward one year after which point it's use it or lose it.

As for your death estate, this will depend on your remaining nil rate band at death (i.e. after taking in to consideration your lifetime transfers within 7 years of death)

Hope it helps

JamesU

KPR11 wrote: »

I am not entirely sure I fully understand your question. I believe you are wondering whether she would be liable for any inheritance tax on your demise? If that is the case then, as your wife is a UK non-dom, the UK inheritance tax spouse exemption is capped at £55,000 (this is a lifetime cap). So any life time transfers above £55k will be potentially exempt transfers and thus exempt if you survive 7 years.

Also bear in mind that you have an annual exemption of £3,000 that you can carry forward one year after which point it's use it or lose it.

As for your death estate, this will depend on your remaining nil rate band at death (i.e. after taking in to consideration your lifetime transfers within 7 years of death)

Hope it helps

Presumably, spouse exemption of £55K (lifetime cumulative) + nil rate band (currently £325K) = £380K in total which can be transferred on death to a non-dom spouse before inheritance tax is due if no transfers in the last 7 years?

JamesU

KPR11

JamesU wrote: »

Presumably, spouse exemption of £55K (lifetime cumulative) + nil rate band (currently £325K) = £380K in total which can be transferred on death to a non-dom spouse before inheritance tax is due if no transfers in the last 7 years?

JamesU

Absolutely, I was working on the assumption that the OP would want to take advantage of the Annual Exemptions of £3k - if making a substaintial gift. Thus if the non-dom spouse exemption has already been used in the lifetime then can not be used again in death even if the transfer was made more than 7 years ago IYSWIM?

JamesU

KPR11 wrote: »

Absolutely, I was working on the assumption that the OP would want to take advantage of the Annual Exemptions of £3k - if making a substaintial gift. Thus if the non-dom spouse exemption has already been used in the lifetime then can not be used again in death even if the transfer was made more than 7 years ago IYSWIM?

Yes. Not an expert in such matters, but when I spoke to a friend in this situation I was amazed at these tax laws as it is quite an imposition and a real disparity for a UK dom and non-dom married couple relative to having a UK domiciled married couple where there are no IHT implications on first death. Understand the government wants to avoid tax loopholes and wealth transfer out of the country tax free, particulary by the more wealthy. But even for a couple of "normal means" by UK standards if the house is in the name of the UK domiciled partner, it can be a real worry until the 17 year rule kicks in for the non-dom spouse if located in UK. Presumably De1amo faces this issue with his wife abroad.

I find the 7 year rule confusing myself though. I assumed that for transfers exceeding the spouse lifetime allowance, after the 7 year period of time it would be a PET anyway. But the HMRC were were quite sketchy on the phone regarding PETs over a 7 year period in this situation when the couple enquired. Hence the best option the couple could come up with at the time was for them to keep a record of any substantial transfers from the non-dom spouse to the UK dom spouse, and treat this as a loan until the 17 year period! Otherwise the non-dom spouse would contribute substantially to the estate (higher of the two earners) and then have the luxury of paying 40% tax on it if the UK dom spouse passed away first! Not the best way to have to think about finances in marriage, seems a bit ridiculous to me.

JamesU

jennifernil

Can you elaborate on this "17 year rule" please?

KPR11

jennifernil wrote: »

Can you elaborate on this "17 year rule" please?

If a non-dom has been resident and/or ordinarily resident within the UK for income tax purposes for 17 of the last 20 years then that individual is "deemed to be domiciled" in the UK for inheritance tax purposes

KPR11

JamesU wrote: »

Yes. Not an expert in such matters, but when I spoke to a friend in this situation I was amazed at these tax laws as it is quite an imposition and a real disparity for a UK dom and non-dom married couple relative to having a UK domiciled married couple where there are no IHT implications on first death. Understand the government wants to avoid tax loopholes and wealth transfer out of the country tax free, particulary by the more wealthy. But even for a couple of "normal means" by UK standards if the house is in the name of the UK domiciled partner, it can be a real worry until the 17 year rule kicks in for the non-dom spouse if located in UK. Presumably De1amo faces this issue with his wife abroad.

It is precisely to prevent asset / wealth being taken out of the UK tax net.

Please refer to my post above regarding the 17 year rule - the individual must be resident in the uk for 17 out of the last 20 tax years, so OP may not face that issue.

Secondly, HMRC can be a pain in the backside as they can be very reluctant to apply the "deemed domicile" rule if it works against them.

JamesU wrote: »

I find the 7 year rule confusing myself though. I assumed that for transfers exceeding the spouse lifetime allowance, after the 7 year period of time it would be a PET anyway. But the HMRC were were quite sketchy on the phone regarding PETs over a 7 year period in this situation when the couple enquired. Hence the best option the couple could come up with at the time was for them to keep a record of any substantial transfers from the non-dom spouse to the UK dom spouse, and treat this as a loan until the 17 year period! Otherwise the non-dom spouse would contribute substantially to the estate (higher of the two earners) and then have the luxury of paying 40% tax on it if the UK dom spouse passed away first! Not the best way to have to think about finances in marriage, seems a bit ridiculous to me.

JamesU

Absolutely! There is a lot of uncertainty about it and my understanding of the leg is that you can only apply it once but I could be wrong. As it is under self assessment I have had clients who have ignored the initial use of £55k once the PET has become an exempt transfer (i.e. after 7 years) and use the £55k exemption against a new gift - I don't recommend that but it's self assessment and ultimately it's the clients return.

Loan is quite clever

JamesU

KPR11 wrote: »

Secondly, HMRC can be a pain in the backside as they can be very reluctant to apply the "deemed domicile" rule if it works against them.

If a non-dom spouse has been living and/or working in the UK for 17 out of the last 20 years, do you happen to know on what grounds the HMRC can still argue against deemed domicile?

KPR11 wrote: »

Absolutely! There is a lot of uncertainty about it and my understanding of the leg is that you can only apply it once but I could be wrong.

Presumably the general intention is that the non-dom spouse allowance should only be applied once. But for sure this seems to be at odds and in contradiction with the PET rules. Otherwise, at least in principle, perhaps it might be possible to transfer the sum of £55K + nil rate band worth of assets to a non-dom spouse every 7 years without IHT liability on the estate?

Very interesting discussion.

But must bear in mind OP's intial questions and circumstances! Guess for De1amo's queries to be addressed properly need to clarify his domicile status (where born/domicile of origin, father's domicile, how long worked in UK/deemed domicile etc) and his intentions to stay in the UK or move abroad permanently. But a specialised area and a bit of a minefield all the same I guess.


JamesU

de1amo

i think i understand the situ--does raise how my 'widdows' pension would be taxed --she is 10 years younger than me and given the stastitics see will live a good few years more than me.

i am registered and pay normal taxes in the uk on my pension-i have done my 30years of ni payments-although i was early retired in life-i will always keep a home in the uk.

KPR11

JamesU wrote: »

If a non-dom spouse has been living and/or working in the UK for 17 out of the last 20 years, do you happen to know on what grounds the HMRC can still argue against deemed domicile?

Just being themselves. In my experience they shift the burden of proving the case that they aren't deemed domicile when the individuals are being taxed and if it works in the taxpayers favour, HMRC want you to prove that the spouse has indeed been here for at least 17 years - why not just use the same system for both - which isn't the main issue. The main issue is that a lot of these guys who are handling the case don't really understand the rules and you end up going from pillar to post.

JamesU wrote: »

Presumably the general intention is that the non-dom spouse allowance should only be applied once. But for sure this seems to be at odds and in contradiction with the PET rules. Otherwise, at least in principle, perhaps it might be possible to transfer the sum of £55K + nil rate band worth of assets to a non-dom spouse every 7 years without IHT liability on the estate?

Agreed.

I can understand it being an issue if the transfers in excess of £55k were CLTs but this one is just beyond me.

As far as my understanding goes it is an aggressive stance but you absolutely can transfer £55k + NRB - Not something I would formally advise my clients though, I try and avoid being unnecessarily aggressive.