Foreign aspects
C A P I TA L TA X E S
IHT18
Inheritance tax
Contents
Introduction
1
Domicile
3
Taxable property
5
Settled property
6
Excluded and
exempt property
7
Double taxation
conventions (DTCs)
9
Further information
12
We have a full range of services
for people with disabilities,
including leaflets in Braille, audio
and large print. For details, please
ask your local Inland Revenue
office or Enquiry Centre.
This booklet explains how we charge inheritance tax
on your foreign assets if you are domiciled in the
United Kingdom (UK) or on your UK assets if you are
not domiciled in the UK. It also explains the arrangements
for relieving double taxation.
Introduction
Inheritance tax (IHT) is administered by Inland Revenue Capital
Taxes. We have three branches that deal with IHT and their
addresses are given below. If you write to Capital Taxes, please
quote our reference number. If you do not know it, you should give
the full name of the person who has died (‘the deceased’) and their
date of death.
Nottingham
Inland Revenue Capital Taxes
Ferrers House
PO Box 38
Nottingham
NG2 1BB
Edinburgh
Inland Revenue Capital Taxes
Meldrum House
15 Drumsheugh Gardens
Edinburgh
EH3 7U
Belfast
Inland Revenue Capital Taxes
Level 3, Dorchester House
52-58 Great Victoria Street
Belfast
BT2 7QL
You can also phone our Helpline on 0845 3020 900. Our advisers
deal with genuine queries on inheritance tax, they will not give
financial advice or any advice designed to avoid or reduce tax. Our
leaflet COP10 ‘Information and advice’ explains this further.
You can get forms and leaflets about inheritance tax free
• from the Internet at www.inlandrevenue.gov.uk
• by calling our Orderline on 0845 234 1000
• by fax on 0845 234 1010
• by e-mailing [email protected]
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Who is this
leaflet for?
Inheritance tax. Foreign aspects
This booklet is for anyone who is
• domiciled in the UK and owns foreign assets, or
• not domiciled in the UK but owns UK assets.
For inheritance tax purposes the Channel Islands and the
Isle of Man are outside the UK.
If you need to refer to the legislation on any particular point, we
have provided the appropriate references in the statute. All the
references are to Inheritance Tax Act 1984 (previously the Capital
Transfer Act 1984) unless otherwise indicated. References to
sections of FA refer to the Finance Act.
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Inheritance tax. Foreign aspects
Domicile
You or your personal representatives may be liable to inheritance
tax if you transfer anything of value, such as
• a lifetime gift, or
• the deemed transfer to your personal representatives
on your death.
Liability to UK inheritance tax depends on your domicile at the time
you make the transfer.
Domicile is a legal concept. It is not possible to list all the factors
that affect your domicile, but we have explained some of the main
points in this chapter.
You are domiciled in the country where you have your permanent
home. Domicile is different from nationality or residence. You can
only have one domicile at any given time.
Domicile of origin
You normally acquire a ‘domicile of origin’ from your father when
you are born. It need not be the country in which you are born. For
example, if you are born in France while your father is working
there, but his permanent home is in the UK, your domicile of origin
is in the UK.
Domicile of
dependency
Until you can legally change it (see paragraph below) your domicile
will be the same as the person on whom you are legally dependent.
If that person’s domicile changes, you automatically acquire the
same domicile, a ‘domicile of dependency’, in place of your domicile
of origin.
Domicile of choice
You can legally acquire a new domicile a ‘domicile of choice’ from
the age of 16. To do so, you must
• leave your current country of domicile and settle in another
country, and
• provide strong evidence that you intend to live there permanently
or indefinitely.
Living in another country for a long time, although an important
factor, does not prove you have acquired a new domicile.
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Married women
Inheritance tax. Foreign aspects
Before 1974, when you married you automatically acquired your
husband's domicile. After marriage this domicile would change
when your husband's domicile changed. If your marriage ended,
you kept your husband's domicile until you legally acquired a
new domicile.
From 1 January 1974 your domicile is not necessarily the same as
your husband's domicile. We decide it by the same factors as for any
other individual who is able to have an independent domicile. But,
if you were married before 1974 and had acquired your husband's
domicile, you retain this after 1 January 1974 until you legally
acquire a new domicile.
Deemed domicile
For inheritance tax purposes, there is a concept of ‘deemed
domicile’. This means even if you are not domiciled in the UK under
general law we will treat you as domiciled in the UK at the time of
a transfer if
• you were domiciled in the UK within the three years immediately
before the transfer, or
• you were ‘resident’ in the UK in at least 17 of the 20 income
tax years of assessment ending with the year in which you make
a transfer.
‘Resident’ has the same meaning as for income tax purposes. The
rules for determining residence are set out in our booklet IR20
‘Residents and non-residents. Liability to tax in the United Kingdom’.
You can get a copy of this from any Inland Revenue Enquiry Centre.
The deemed domicile rules do not affect your domicile on death if
there was a death duties double taxation agreement or Convention
in place before 1975 and it continues to apply (s.267(2)). Nor do
these rules apply for the purpose of determining the domicile of
a settlor who made a settlement before 10 December 1974.
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Inheritance tax. Foreign aspects
Taxable property
If the value of your gift is or the assets in your estate are above the
threshold, then you may be liable to inheritance tax.
Which assets are
taxable in the UK?
Generally, if you are domiciled, or deemed to be domiciled, in the
UK, inheritance tax applies to your assets wherever they are
situated.
If you are domiciled abroad, inheritance tax applies only to your UK
assets (s.6(1)). However, if you are domiciled abroad there is no
charge on excluded assets and we may remove certain other types
of UK assets from the tax charge (you can find more information on
pages 7 and 8).
How do I know
where the assets
are situated?
This is decided according to general law, but subject to any special
provisions in a double taxation agreement. The normal rules for the
more common types of asset are that
• rights or interests in or over immovable property (such as land and
houses) and chattels (household and personal goods, paintings
etc.) are situated where the property is located
• coins and bank notes are situated wherever they happen to be
at the time of the transfer
• registered shares or securities are situated where they
are registered
• bearer securities are situated where the certificate of title
is located at the time of the transfer
• goodwill is situated where the business, to which it is attached,
is carried on
• an interest in a partnership is situated in the country whose law
governs the partnership agreement
• debts are situated where the debtor resides
• bank accounts are situated at the branch where the account
is kept.
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Inheritance tax. Foreign aspects
Settled property
Inheritance tax applies to settled property in the UK. It does not
apply to settled property outside the UK, unless the settlor was
domiciled, or deemed to be domiciled, in the UK when the property
was settled (s.48(3)).
The deemed domicile rules do not apply to a taxable reversionary
interest in settled property. Inheritance tax is not due if the
reversionary interest is situated outside the UK, and the person
beneficially entitled to it is domiciled outside the UK (s.48(3)(b)).
You can find more information in our leaflet IHT 16 ‘Inheritance tax.
Settled property ’.
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Inheritance tax. Foreign aspects
Excluded and exempt property
If you are not domiciled in the UK, we may treat the following types
of asset as excluded property and no inheritance tax is chargeable.
Government
securities
Certain British Government securities (also known as FOTRA
securities) first issued before 30 April 1996 are exempt from tax
if you are neither domiciled nor ordinarily resident in the UK (s.6(2)).
If the securities are settled property they are excluded property if
• the individual beneficiary entitled to an interest in possession in
them is neither domiciled nor ordinarily resident in the UK, or
• if there is no interest in possession, all past, present and future
potential beneficiaries are neither domiciled nor ordinarily
resident in the UK.
For these purposes, domicile means domicile only under general
law. The deemed domicile provisions do not apply.
For FOTRA securities first issued after 29 April 1996 new conditions
apply which mean that your domicile is not relevant. You only
need to be not ordinarily resident in the UK to benefit from
the exemption.
From 6 April 1998 the new conditions apply to all British
1
Government Securities, except 3/2% War Loan 1952 or later. This also
applies to securities that are settled property.
Authorised unit
trusts and
open-ended
investment
companies
Holdings in Authorised unit trusts (AUTs) and Open-ended
investment companies (OEICs) are excluded property if held by an
individual not domiciled in the UK (s.6(1A)) or if held in a trust made
by a settlor not domiciled or not deemed domiciled in the UK when
making the trust (s.48(3A)).
The Channel Islands
or Isle of Man
If you are domiciled in the Channel Islands or the Isle of Man and
hold National Savings Certificates and certain other forms of small
savings, they are excluded property (s.6(3)). The deemed domicile
provisions do not apply.
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Inheritance tax. Foreign aspects
Visiting forces
and staff of allied
headquarters
Emoluments and tangible movable property of members of visiting
forces (other than British citizens, British Dependent Territories
citizens or British Overseas citizens) and certain staff of allied
headquarters are excluded property (s.155). For inheritance tax
purposes, we will not take periods spent on duty in the UK into
account in deciding whether a transferor is resident, domiciled
or deemed to be domiciled here.
Overseas pensions
There are special rules about pensions paid to former employees
of former colonial governments’ (s.153). On the death of a former
employee any pension payable under Section 273 of the
Government of India Act 1935, or an equivalent scheme under
Section 2 of the Overseas Pensions Act 1973, is exempt.
We treat certain other pension payments and gratuities as being
paid abroad and there is no inheritance tax due on the estate of
a deceased pensioner who dies whilst domiciled abroad.
Foreign currency
bank accounts
We exclude balances on non-sterling accounts with a ‘bank’ or the
Post Office from inheritance tax on death (s.157) if they are held by
• an individual not domiciled, resident or ordinarily resident in the
UK, or
• trustees not domiciled, resident or ordinarily resident in the UK
on behalf of an individual with an interest in possession in the
account, if the settlor was not domiciled in the UK when the
settlement was made.
Bank has the same meaning given in s.840A of the Taxes Act 1988
(inserted by Schedule 37 para 1 FA 1996). It includes the Bank
of England and any institution authorised under the Banking
Act 1987.
Settled property
8
Settled property situated outside the UK is excluded property if the
settlor was domiciled outside the UK at the time the property was
settled. Reversionary interests are also generally excluded property.
IHT18
Inheritance tax. Foreign aspects
Double taxation conventions (DTCs)
What are DTCs for?
DTCs are treaties (agreements) which help prevent you being taxed
by two countries if both countries have the right to tax the same
property when a death occurs or a gift is made. The UK has a
number of bilateral DTCs for taxes on estates, gifts and inheritances.
How do they work?
For the purpose of the agreement, DTCs allow
• the country in which the transferor is (or in the case of a death,
was) domiciled to tax all property wherever it is, and
• the other country to tax only specified types of property, such
as immovable property, in its territory.
If you still suffer double taxation, there are rules for deciding which
country gives credit for the other’s tax. Where, exceptionally, the
relief given by a DTC would be less than that given by ‘unilateral
relief’ (you can find more information on pages 10 and 11) we give
you the benefit of unilateral relief.
Countries with
which the UK
has a DTC
The following DTCs were signed after the introduction of capital
transfer tax in 1975, and continue to apply to inheritance tax.
Country
Republic of Ireland
South Africa
USA
Netherlands
(amended)
Sweden
(amended)
Switzerland
Date of entry
into force
2 October 1978
6 May 1979
11 November 1979
16 June 1980
3 June 1996
19 June 1981
14 July 1989
7 March 1995
Statutory
Instrument No.
1978 No. 1107
1979 No. 576
1979 No. 1454
1980 No. 706
1996 No. 730
1981 No. 840
1989 No. 986
1994 No. 3214
Treaties with France, Italy, India and Pakistan were in place before
1975 during the estate duty era and have different rules to
eliminate double taxation.
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Inheritance tax. Foreign aspects
You should consult the relevant DTC whenever necessary. You can
get them in the form of Statutory from
• any Stationery Office Bookshop or accredited agent, or
• Stationery Office Publications Centre
PO Box 276
London
SW8 5DT.
What if there is no
double taxation
agreement?
If a transfer is liable to inheritance tax and also to a similar tax
imposed by another country with which the UK does not have
an agreement, you may be able to get relief under unilateral relief
provisions (s.159).
What is ‘unilateral
relief ’ and how
does it work?
We give credit against inheritance tax for the tax charged by
another country on assets situated in that country. For this purpose,
UK law determines the location of the asset. If the tax that is
charged on the asset by the other country exceeds inheritance tax
on that asset, we limit the credit to the amount of inheritance tax.
We also give credit where both the UK and another country impose
tax on assets that are situated
• in a third country, or
• both in the UK under UK law and in the other country under that
country’s law.
In these cases the credit is a proportion of the tax. The proportionate
credit is computed by the formula
A
x
(A + B)
C
A is the inheritance tax, B is the overseas tax and C is whichever
of A or B is smaller.
If the UK and two or more other countries tax the same asset the
above applies but with modifications (s.159(4)).
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IHT18
Examples of
unilateral relief
calculations
Inheritance tax. Foreign aspects
Example 1
Ann is domiciled in Ruritania, but is also treated as domiciled in the
UK. She makes a gift of property situated in Utopia.
UK inheritance tax (A)
£3,000
Ruritanian inheritance tax (B)
£1,000
C is the smaller of A and B
£1,000
Credit against UK inheritance tax is
£3,000
x £1,000
(£3,000 + £1,000)
Net UK tax
£750
£2,250
Example 2
Tom is domiciled in Utopia but holds shares in a Ruritanian
company, which maintains a duplicate share register in the UK.
Under UK law we regard the shares as situated in the UK, but
Ruritanian law regards them as situated in Ruritania. Tom dies
(but his estate is not liable to Utopian tax).
UK inheritance tax (A)
£1,000
Ruritanian inheritance tax (B)
£4,000
C is the smaller of A and B
£1,000
Credit against UK inheritance tax is
£1,000
x £1,000
(£1,000 + £4,000)
£200
Net UK tax
£800
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Further information
We produce a wide range of leaflets. Some we have mentioned
which you might find useful are
COP10
IHT16
IR120
COP1
Information and advice
Inheritance tax. Settled property
Residents and non-residents. Liability to pay tax
United Kingdom
Putting things right. How to complain.
You can get a copy of the leaflet IHT16 ‘Inheritance tax. Settled
property’ from Inland Revenue Capital Taxes whose addresses are
on page 1. Our offices are open from 9.00am to 5.00pm Monday
to Friday.
Our leaflets are available at www.inlandrevenue.gov.uk and from
any Inland Revenue Enquiry Centre. Most are open to the public
from 8.30am to 5.00pm, Monday to Friday. Addresses are in your
local phone book under ‘Inland Revenue’ and at
www.inlandrevenue.gov.uk/local
You can get most of our leaflets from our Orderline, by
• phone or textphone (for Minicom users) on 0845 9000 404
from 8.00am to 10.00pm, every day except Christmas Day,
Boxing Day and New Year’s Day
• fax on 0845 9000 604
• completing the on-line order form at
www.inlandrevenue.gov.uk/contactus/staustellform.htm
• writing to
PO Box 37
St Austell
Cornwall
PL25 5YN.
Orderline calls are charged at local rates.
Please note that the Orderline does not supply IHT leaflets.
Your library or Citizens Advice Bureau may also have copies of some
of our leaflets, but may not have them all.
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These notes are for guidance only and
reflect the position at the time of writing.
They do not affect any right of appeal.
Issued by
Inland Revenue Marketing and Communications
April 2004 © Crown Copyright 2004
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