30th September 2015 at 3:16pm
In our internationally mobile society, it’s becoming increasingly likely that people may hold assets in more than one country. So in keeping with our moving and working abroad series, we thought we’d now cover how your UK assets will be treated in the event of your death overseas.
A question of origin
Simply, it all comes down to what’s known as your ‘domicile’, this can dictate the tax treatment of your worldwide assets. It’s a complex area so we thought it useful to pull together this short Q&A to cover some of the finer points for you.
What is a domicile?
Your domicile’s usually the country your father considered his permanent home when you were born. However it may have changed if you moved abroad and you don’t intend to return.
How does my domicile affect tax?
If you’re considered to be UK domiciled, all your worldwide assets will be subject to UK Inheritance Tax (IHT) and all the normal UK exemptions such as the nil rate band, currently £325,000, are available. However, the tax due could be offset through any relevant double taxation agreement in place between the UK and your new country of residence.
What’s double taxation, sounds costly?
It’s not, the purpose of the double taxation agreement is exactly as it says, to ensure you don’t pay tax twice. The agreement outlines which country will apply tax in certain situations. So if UK IHT is applied, there should be no further tax due in your country of residence. If not UK domiciled only your UK assets will be liable to UK tax. Again these assets can still benefit from all the normal UK exemptions.
Under UK law, individuals will generally, but not necessarily, be domiciled in the country where they have their permanent home. It’s separate from nationality or residence, and it is only possible to have one domicile at any given time.
Can I change my domicile?
Yes, an individual can change their UK domicile status and adopt a domicile of choice. To do so, they must leave the UK and settle in another country. Strong evidence will be required of an intention to live there permanently or indefinitely. Living in another country for a long time, although an important factor, is not enough in itself to prove a new domicile.
I live overseas but still come back to the UK regularly – could I be considered UK resident?
In short yes, but the rules are complicated. In simple terms, you need to be aware of your connections to the UK and how often you come over. If you’re unsure then you can get some government guidance on tax on foreign income here
Hopefully we’ve managed to give you some pointers, but as we mentioned earlier it’s a complex area, so if you believe it will apply to you then it’s important to take legal advice in both the UK and your country of residence.
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This information is based on our understanding of taxation legislation and regulations in September 2015. The legislation and regulations can change. Your personal circumstances also have an impact on tax treatment.