Ensuring Benefit from Available Double Tax Relief
Individuals domiciled in India, Pakistan, France and Italy need to undertake
careful planning to take advantage of the operation of double tax treaties
between the UK and their country of domicile.
Anyone domiciled in the UK at the date of their death pays UK inheritance tax
on all their assets, regardless of where they are situated. Non-UK domiciles
only pay UK inheritance tax on those assets located here.
The deemed domicile rules in the UK operate so that anyone who has been tax
resident in the UK in no fewer than 17 of the 20 years of assessment ending in
the year in which the death takes place, is deemed to be domiciled in the UK for
inheritance tax purposes. The effect is to bring long-term residents who remain
non-UK domiciled for general purposes into the UK tax net for inheritance tax
Where an individual is domiciled in India, Pakistan, France or Italy, the UK
has entered into tax treaties which result in those domiciliaries being
protected from the deemed domicile rules. Under proper advice, the protection
can result in significant inheritance tax savings.
India & Pakistan
The Indian rules operate so that someone domiciled in India, but who falls
into the UK inheritance tax net by virtue of the deemed domicile rules, will not
pay UK inheritance tax on assets located outside of Great Britain, so long as
those assets pass under the terms of a will regulated by the law of somewhere
other than Great Britain.
To ensure that these rules are complied with, it is vital that
Indian-domiciled individuals carry out an audit of their assets and ensure that
those located outside England pass under a testamentary instrument governed by
non-English law. This kind of audit requires great care, as it is all too easy
to revoke one will by the execution of another. Specialist advice may be
required in each jurisdiction.
The UK treaty with Pakistan operates in a similar way, and care is needed in
the preparation of all wills for individuals wishing to rely on it.
Italy & France
The situation created by the UK/Italian double tax treaty is less favourable
than the Indian position, but worth bearing in mind.
On the face of it, anyone who considers themselves domiciled in Italy could
be protected from the deemed domicile rules in the UK, thus be able to pass
their free estate located outside of the UK, free of UK inheritance tax
regardless of the number of years they had resided in the UK. However, the
Italian double tax treaty has a peculiarity which deals with individuals who
have strong ties to the UK and try to rely on the double tax treaty to protect
themselves from UK inheritance tax. In these cases, Italian law may treat the
individual as a UK domicile, and this will prevent the individual being
protected from UK inheritance tax on their worldwide estate.
Factors to be considered when reviewing the ties an individual had with the
UK include permanent residence at death, personal and economic ties, usual
living place, and citizenship. French rules are increasingly difficult to fall
in with, and need to be reviewed for each individual. It is therefore vital that
planning is undertaken during one’s lifetime in order to build up a picture of
domicile and ties to different jurisdictions.
If you would like your situation reviewed, please contact our
Department in London.