IHT404

petite_angel

My brother, a non-uk domicile, passed away earlier this year.  His spouse is also a non-uk domicile.  He held assets not only in the UK but also the Isle of Man who will not release the assets until they have a UK Grant of Probate (although in this case a Grant of Letters of Administration as there is no Will). Having been through this process before I agreed to apply for this on my sister in law's behalf.

However, even though no inheritance tax will be due as everything will automatically pass to his spouse, I need to complete form IHT400 and associated documentation.

I understand that in the case of non-uk domiciled spouses the amount of spousal exemption is generally unlimited.

I am trying to complete form IHT404 as my brother owned a share of what was his childhood home along with myself and another brother (who is still living in the property). In section 1 I have deducted 10% of the value of his share. However, in section 4 it states that if the asset is passing to the deceased's spouse, you should deduct spouse exemption here and I have no clue what amount to put and would welcome some advice.

The whole process is turning out to be a bit of a minefield and I am sure as I work my way through the forms there will be many other questions!!  Any help would be greatly appreciated.

poseidon1

petite_angel said:

My brother, a non-uk domicile, passed away earlier this year.  His spouse is also a non-uk domicile.  He held assets not only in the UK but also the Isle of Man who will not release the assets until they have a UK Grant of Probate (although in this case a Grant of Letters of Administration as there is no Will). Having been through this process before I agreed to apply for this on my sister in law's behalf.

However, even though no inheritance tax will be due as everything will automatically pass to his spouse, I need to complete form IHT400 and associated documentation.

I understand that in the case of non-uk domiciled spouses the amount of spousal exemption is generally unlimited.

I am trying to complete form IHT404 as my brother owned a share of what was his childhood home along with myself and another brother (who is still living in the property). In section 1 I have deducted 10% of the value of his share. However, in section 4 it states that if the asset is passing to the deceased's spouse, you should deduct spouse exemption here and I have no clue what amount to put and would welcome some advice.

The whole process is turning out to be a bit of a minefield and I am sure as I work my way through the forms there will be many other questions!!  Any help would be greatly appreciated.

Are you sure neither your brother or sister in law had become ' deemed UK domiciled' under the 15 out of 20 years test? 

You mention a childhood home for the purposes of IHT404, which suggests a UK home rather than property overseas. If you all grew up here in the UK ( albeit born overseas) then depending on your ages now, deemed UK domicile status maybe in point in which case perhaps the IHT forms should be completed on the basis of UK domicile status for him. As for your sister in law, did she similarly grow up here in UK ?

See below a recent thread where this concept was discussed in the context of estate planning.

https://forums.moneysavingexpert.com/discussion/comment/81405550#Comment_81405550

However , even if  on all the facts your brother really is non dom for UK IHT purposes at death ,  do you really feel sufficiently qualified to handle the LOA process in this circumstance? 

For example are you aware that Non doms dying in the UK are not liable to IHT on foreign assets and such assets should not be reported on the IHT forms  ( IHT 417) since they are excluded assets for IHT purposes? For this purpose the Isle Of Man assets are foreign assets.

 Furthermore are you aware that non doms holding foreign currency accounts in the UK  ( eg euros, dollars etc), such accounts are also excluded assets and similarly non reportable  - see explanatory link below

https://forbesdawson.co.uk/articles/2017/02/03/not-all-u-k-bank-accounts-subject-to-inheritance-tax/

These are just a couple of the myriad instances where IHT reporting for non doms differ markedly from UK doms. As you say, the process can  indeed be a minefield for UK doms but even more so for Non doms and one where you should  perhaps consider enlisting the services of a professional.

petite_angel

Many thanks for your response. My sister in law has never lived in the UK save for when she attended University for a period of 3 years as an overseas student (1992-1995).  She is Malaysian.  My brother moved to Malaysia in 1995 and they married in 1998 and lived there ever since.

I mention "childhood home" because I am not sure what else to call it!!!  It is the home where we all lived as children and passed to us when our parents died.

Yes, I am aware foreign assets are excluded.  He did have bank accounts in the UK but they were in sterling.

At the moment I have completed forms IHT400, IHT401, IHT404, IHT406 but do I feel sufficiently qualified - I have no idea!!  I am trying to complete as much as I can and will then perhaps enlist a professional to check through the forms before submission.  However, am I wrong in assuming that no IHT will be payable as everything is being passed to my sister in law anyway?

poseidon1

With your brother dying both intestate and domiciled abroad ( Maylasia?), this introduces additional cross border jurisdictional complications.  

However you fail to mention where your brother was born, merely that he moved to Malaysia in 1995. If he was born here, then notwithstanding having moved away many years ago he may still retain a UK domicile of origin for IHT purposes. 

You also do not mention whether he had children , this is also  important in determining whether his widow is solely entitled to his estate and if she is whether it is on an IHT free basis. You should be aware that the  UK has for many years overtly discriminated against UK Doms leaving assets to Non dom spouses by limiting the exempt amount ( it used to be ridiculous £55k until increased to the current nil rate band in 2013).

 If he does indeed qualify as non dom ( maybe a Maylasian domiciliary of choice if not origin) then In this situation UK intestacy rules do not necessarily override the  rules applying  in his country of domicile.

If your brother is non Muslim I assume you aware  Maylasia's intestacy rules dictates who inherits his estate depending on whether he has children ( I note your parents have since deceased). If he has children then your sister in law is not the sole beneficiary, and it maybe incorrect your pursuing English LOAs on that basis.

In passing I would add that IOM under  Manx law has its own intestacy rules, and if his assets there are moveables ( ie not real estate) , the Manx system may well defer to your brother's country of domicile in determining who is entitled to his Manx assets on the island which could very well entail obtaining a Maylasian grant of probate  to be resealed for use in the IOM in order  to release those assets. In other words obtaining the UK LOA may not be a shortcut to bypassing obtaining Manx LOA. The article link below explains further

https://mannbenham.com/probate-in-the-isle-of-man/#:~:text=What if the deceased left,Probate and Grant of Administration.

In view of these complexities, it may make sense for you to consult a cross border estates specialist, before finalising and submitting the IHT forms you have prepared so far. Such specialists are not in abundance so best course of action would be  to source one from  the STEP directory. STEP is the Society of Trust and Estate Practitioners and represents your best chance to locate an appropriate specialist. Link to the directory below -


https://www.step.org/about-step/public?gad_source=1&gbraid=0AAAAADu2MSqq_GzZg2JTFstjLNYVF7nEO&gclid=Cj0KCQjwzYLABhD4ARIsALySuCTnY-SzIsQXS3dPvcFKUoC9xEB6RGqqDOyVMn9SrT6imzUlUAEK854aAvbJEALw_wcB

petite_angel

Thank you for your very detailed response and the links - this is becoming even more of a nightmare!

My brother was born in Australia and moved to the UK about a year later and I have put England on IHT401 as his domicile of origin (father's domicile).

There are no children so my sister in law will be the sole beneficiary.

It is actually the Company in the IOM who have insisted on a UK Grant of Probate before they will release any monies and they have specifically stated that they will only transfer monies into a UK bank account.  (Whether it is because he was a British citizen albeit non uk domiciled I don't know). I am not actually sure if they knew, until I contacted them following my brother's death,  that he was living in Malaysia!  It was a different company when he first invested and there were several company takeovers before his investment ended up with this company in the IOM.  The original company knew he was living in Malaysia,  but as far as I am aware, because he was in the process of moving house and they needed an address for correspondence, on their advice he gave his address as the childhood home in the UK as my other brother was and still is living there.  I guess because there was such little correspondence, he never bothered to update the address.

poseidon1

petite_angel said:

Thank you for your very detailed response and the links - this is becoming even more of a nightmare!

My brother was born in Australia and moved to the UK about a year later and I have put England on IHT401 as his domicile of origin (father's domicile).

There are no children so my sister in law will be the sole beneficiary.

It is actually the Company in the IOM who have insisted on a UK Grant of Probate before they will release any monies and they have specifically stated that they will only transfer monies into a UK bank account.  (Whether it is because he was a British citizen albeit non uk domiciled I don't know). I am not actually sure if they knew, until I contacted them following my brother's death,  that he was living in Malaysia!  It was a different company when he first invested and there were several company takeovers before his investment ended up with this company in the IOM.  The original company knew he was living in Malaysia,  but as far as I am aware, because he was in the process of moving house and they needed an address for correspondence, on their advice he gave his address as the childhood home in the UK as my other brother was and still is living there.  I guess because there was such little correspondence, he never bothered to update the address.

I think you now realise the  significance of strict accuracy  in relaying important details in non dom matters, such as the fact that until your brother left in 1995, to all intent and purposes he held a UK domicile of origin via his father and his subsequent early life spent exclusively in the UK. Can I assume he also held a British passport at all material times  including whilst living in Maylasia ?

It was particularly unhelpful you commenced  this thread with the unqualified statement that your brother was non UK dom,  but it seems what you actually meant was he had ceased to be resident in UK since 1995.

In the language of UK tax  'residence' and 'domicile' are two different things a distinction the majority of the general public are unaware, your not knowing this has  meant you really were not properly prepared for the task you set yourself.

In any event, on the basis that in the absence of there being specific evidence of your Brother  renouncing  his UK domicile of origin, at death his entire worldwide estate is reportable for IHT purposes ( including any assets owned in Malaysia as well as the IOM). 

Since his widow is clearly and unambiguously non UK dom, he is limited to his NRB of £325k in terms of what he can leave her IHT free ( the discriminatory UK rule I referred to in my previous post).  If his worldwide assets exceed that limit there is a potential 40% UK IHT liabilty on the excess.

However,  if you read the thread I forwarded to you, you will note that your brother's widow does have the option to elect to be treated as UK domiciled in order to benefit from the unlimited IHT exemption otherwise afforded to a surviving  spouse.

Having reached this point, and assuming your brother's worldwide estate does exceed his NRB , I thing you may agree you really need expert help to navigate this matter to a positive conclusion, especially with regard to your sister in law considering the benefits (and disadvantages) of making the UK Dom election.

Its unfortunate that most British citizens marrying non UK nationals are wholly unaware of these fiendishly complex rules affecting their estates on death, especially with regard to the unequal treatment accorded to the non dom surviving spouse.

 Hopefully, you can find a suitable lawyer to help take things forward, but in the meantime you should proceed to quantify  your brother's  worldwide estate ( less debts), to ensure the adviser has a proper overview of your brother's affairs in order to advise appropriately.

petite_angel

It wasn't a totally unqualified statement - initially I thought the same as you, that he was still a UK domicile but residing in Malaysia.  It was only when I contacted the Probate helpline via both webchat and email that they stated he would be considered non uk domiciled and I have completed the forms on that basis.

poseidon1

petite_angel said:

It wasn't a totally unqualified statement - initially I thought the same as you, that he was still a UK domicile but residing in Malaysia.  It was only when I contacted the Probate helpline via both webchat and email that they stated he would be considered non uk domiciled and I have completed the forms on that basis.

The probate helpline have neither the knowledge, power or authority to give a ruling on a person's domicile for IHT purposes, that is the sole preserve of HMRC's IHT division.  A blog by a barrister on this subject below briefly outlines the specifics of the issues which determine a person's domicile.

https://www.parksquarebarristers.co.uk/domicile-issues-contentious-probate-cases/#:~:text=Rather, it depends upon the,2018 – further details to follow.

If it were correct that your brother had made a positive effort during his lifetime to relinquish his legal UK domicile of origin in favour of acquiring a Maylasian domicile of choice (something the Probate helpline cannot possibly know ), then he is intestate by virtue of Maylasian law and UK intestacy law would only extend to his share of your parent's family home. 

However since you seem intent on  progressing this matter  ( despite the stated complexities ) without benefit of consulting a specialist there is nothing more for me to add.