Inheritance tax for non-resident and non UK domiciliary
Question:
I have a question on inheritance tax and for non-residents and non UK domiciliaries.
I live in the UK and work here. I have lived here for over 15 years and have no plans to move abroad in the near future - although I may well do so in the longer term.
My parents live overseas and have never lived in the UK, they just visit here for a few weeks each year (and I also visit them regularly).
They have an estate that is considerably higher than the UK inheritance tax threshold. They live in Malta which does not charge tax on inheritances.
I want to know what the UK tax position in terms of any assets we inherit from my parents (when the time eventually comes). Although they live in a country with no inheritance tax, I clearly live in a country that does. So what happens in terms of inheritance tax for me? Does it matter whether I inherit UK or overseas assets?
Answer:
Your residence/domicile position is irrelevant in terms of UK Inheritance tax ('IHT'). The key issue is in terms of your parents. Their non-residence status is not of significant importance for inheritance tax purposes, but there domicile status is crucial, as is where their assets are situated.
A non UK domiciliary is only subject to UK IHT on their UK estate. Therefore providing they do not have any UK assets, or if they do providing they are covered by the IHT nil rate band, there would be no UK IHT charge.
If this was the case, you as the beneficiary would not be charged to UK IHT, as any liability is calculated by reference to the position of your parents.
There would be no other form of UK taxation on the inheritance (eg income tax or capital gains tax). If you inherited assets eg property/investments from your parents, you would inherit these at the market value at the date of their death. As you are UK resident, any future disposal of these assets would then be charged to CGT, but only on the uplift in value from the date of death.
About the Author
The Author of this article/answer is our site Editor, Lee Hadnum. Lee is a rarity among tax advisers having both legal and chartered accountant qualifications. After qualifying a prize winner in the Institute of Chartered Accountants exams, he also went on to become a chartered tax adviser (CTA).
He worked in Ernst & Youngs Entrepreneurial Services department for a number of years before setting up his own tax planning practice. He is now a full time tax author.
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