Inheritance tax planning and losing UK domicile - USERNAME: acer

Age 57 (male)

Left UK 2000. Notified revenue of permanently leaving the UK which they have accepted and my annual tax return has been accepted on that basis.

Visits to UK -- Most years (in last 4 years have missed 2 years) -- average about 70 days p.a. for the years that visits were made.

Lived in Vietnam since leaving the UK , 3 months after which I met and decided to live with my Vietnamese girlfriend who is now, de facto, my common law wife.

One of the key reasons for making a permanent home here is to live with my partner who likes to be close to her extended family and within her own culture, which I also prefer and it would be unlikely that this relationship would work out long term in the absence of that. I also prefer to live here, do not wish to return to the UK other than for visits, and in the event of separation from my partner by death or otherwise, I will remain here. I also wish to be buried here, for personal, family and religious reasons (I am now a practicing Buddhist) and in the event of death outside of Vietnam, my body will be returned here for a local funeral. I live here with what is effectively a retirement visa that I have to renew periodically. There is in practical terms no other longer term or more permanent option.

I have a large house in Vietnam in about 2 acres; also several farms; and some parcels of land for future development (all property bought in wife's name with lifetime leasebacks to me due to restrictions on foreign land ownership), cars, motorbikes etc.

I retain my original UK house that I lived in before I left (modest size/small garden) and use when I visit with my wife. It is not rented out as I do not want the hassle/or it spoiled. It is like a 'time warp' -- much as the day that I had had enough of life in the UK and walked out convinced of something better elsewhere. I have not sold it as it is convenient to stay there when I visit -- I have adult children and I want them to have it either before or when I die.

I do not move the contents to Vietnam because it is not worth the trouble. It has been fun to start again here -- with interesting local possessions that suit the climate, my new way of life and changed philosophy. My home is different (and much bigger), my furniture is bigger, suited for tropical living and a different way of life. I can afford to keep my UK home -- for me it does not make England my place of domicile - but maybe it does to the revenue?

My current photos and mementoes from the last 10 years of my new life and wife are with me -- the others are left behind -- apart from a few special family photos and small easily transportable selected objects.

Others that I am not bothered to have with me may well be things, especially photos, that my children would appreciate having. I don't think that my new wife wants to proudly display pictures of my old wife in our new home -- despite the revenue's guidance on domicile!

I have progressively sold off investment properties whilst away and only have one small one left.

Most cash is held out of the UK.

English children from former marriage are grown up and independent -- over 21 years old -- and living in the UK -- but not at my old home. We keep in contact. I seem them briefly when I am in the UK (they do not live near). Sometimes they stay with me for 2 or 3 weeks at a time in Vietnam.

Questions

If you need further information before you can answer the following questions, please tell me and I will endeavor to elaborate.

1. My UK assets are over the UK IHT allowance -- and will presumably be subject to IHT whatever. Are there any tax planning options to mitigate this?

2. Given the outline of my circumstances above, would I qualify as non UK domiciled for IHT?

3. If the answer to 2. above is no, what changes would I need to make to qualify?

4. What is the IHT position concerning the value of the real estate in Vietnam, including my home, which is in my wife's ownership, paid for by me, with a lifetime lease to me? Any capital transfer or other tax issues?

5. How much can I leave to my Vietnamese wife in my will, free of IHT?

6. Can you offer any other observations on tax liabilities and opportunities to mitigate or avoid tax?

Answer:

1. My UK assets are over the UK IHT allowance -- and will presumably be subject to IHT whatever. Are there any tax planning options to mitigate this?

You could ensure that you make the most of your wife's NRB if possible ( I assume you are married) . This would give you an additional tax exemption of £325K. Other options could include gifting assets as potentially exempt transfers ('PET's)to a trust (to make use of the £325K exemption). Providing you survived for 7 years they would then be exempt from your estate. You could also look to gift assets directly you your children as PETs.

Other options could be to hold within an offshore company/trust if you were non domiciled or raise debt over the UK property.

2. Given the outline of my circumstances above, would I qualify as non UK domiciled for IHT?

Clearly its a question of fact but I would say no, due to the UK property, possessions and extent of visits.

3. If the answer to 2. above is no, what changes would I need to make to qualify?

I think it looks pretty clear from the above that you show good intention to remain in Vietnam, however the existence of the UK property could be a significant issue. Where you have more than one residence he courts look at your sole or chief residence. As was stated in a court case:

"... a person who retains a residence in his domicile of origin can acquire a domicile of choice in a ew country only if the residence established in that country is his chief residence...'

Although you may well have a good grounds for arguing that Vietnam was your chief residence, in terms of HMRC having the UK visits and average visits of 70 would be likely to lead to a detailed enquiry of the position.

If you could gift the UK property (which would also reduce your UK estate) this could be advantageous. It would however need to be a genuine gift and you would ideally not occupy it aside from infrequent, minor occupation.

4. What is the IHT position concerning the value of the real estate in Vietnam, including my home, which is in my wife's ownership, paid for by me, with a lifetime lease to me? Any capital transfer or other tax issues? If you were non domiciled then this would be outside the scope of IHT. If you were UK domiciled unless you could be said to hold the beneficial interest it would just be the value of the lease could be classed as part of your estate.

5. How much can I leave to my Vietnamese wife in my will, free of IHT?

Again it depend on your domicile position. If you are non domiciled then there is no limit to the tax free interspouse transfer provided you are married. However if you are UK domiciled this is restricted to £55K as she would be non domiciled. Above this would be subject to IHT, subject to the nil rate band etc.

6. Can you offer any other observations on tax liabilities and opportunities to mitigate or avoid tax?

You definitely need to get this looked at in detail. As you're non resident CGT would not be an issue. Income tax should only be an issue for UK rental income and other UK source income. It is therefore mainly IHT that is in point. Your domicile status is crucial to this and using a trust could be a useful exercise to test your domicile status during your lifetime.

See:

//www.wealthprotectionreport.co.uk/members/Establishing_an_overseas_domicile_of_choice_in_2010.cfm

//www.wealthprotectionreport.co.uk/members/New_HMRC_approach_to_domicile_enquiries_for_inheritance_tax_purposes.cfm

About the Author

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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