Changes To UK?s Domicile Rules Could Affect You In Portugal

HM Revenue & Customs is making changes to the domicile rules. Whether you are leaving the UK or returning to live there again, you need to understand the implications of the reforms for your inheritance tax planning.

HM Revenue & Customs is making changes to the domicile rules. Whether you are leaving the UK or returning to live there again, you need to understand the implications of the reforms for your inheritance tax planning.

HM Revenue & Customs is making changes to the domicile rules. Following a period of consultation we now have a good idea of what the position will be from April 2017, although this is still not set in stone until the legislation has received Royal Assent.

Whether you are leaving the UK or returning to live there again, you need to understand the implications of the reforms for your inheritance tax planning and seek advice on how to best structure your assets.

Your domicile status is the key factor in determining if you are liable to UK inheritance tax on your worldwide assets (assets in the UK are always liable). If you are a UK domicile, or you are deemed domicile under HMRC rules, your estate is liable to tax at 40%, above the tax-free allowance of £325,000.

Leaving the UK

The deemed UK domicile period will be extended from three years to five years.

This means that even if you adopt a domicile of choice in Portugal, you will be deemed to be UK domiciled for at least five years after leaving the UK. It will therefore take you longer to escape UK inheritance tax.

Returning to the UK

If you return to the UK for anything more than one year, if you had a UK domicile of origin you will be deemed to be UK domiciled again for inheritance tax purposes. This applies even if you had established a domicile of choice in Portugal.

Note that if you had settled a trust while you were non-UK domiciled, the excluded property rules will not apply if you resume residence in the UK. The trust will be treated as a UK domiciled trust and the assets liable for inheritance tax.

If you are thinking about resuming UK residence, you should review your position prior to returning. Seek advice as soon as you decide to move so any restructuring of assets can be done tax-efficiently.

Enveloped UK residential property

If you have a UK residential property which is ‘enveloped’ in a corporate structure, it will become liable to UK inheritance tax from 6th April 2017.

There will be no tax relief on ‘de-enveloping’ such properties, so when weighing up the pros and cons of keeping the structure, you need to consider all of the costs involved in de-enveloping.

The above is not yet final, but is likely to be the position from next April.

Domicile is a complex area of law, particularly for inheritance tax purposes. If you get it wrong, your heirs could be faced with a large and unexpected tax bill. You need specialist, professional advice to determine the best solution for you and your family.

Any questions? Ask our financial advisers for help.

Tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; an individual is advised to seek personalised advice.