ESC

Click the "allow" button if you want to receive important news and updates from immigrationboards.com


Immigrationboards.com: Immigration, work visa and work permit discussion board

Welcome to immigrationboards.com!

Login Register Do not show

The Life in the UK test and Inheritance Tax !!

General UK immigration & work permits; don't post job search or family related topics!

Please use this section of the board if there is no specific section for your query.

Moderators: Casa, push, JAJ, ca.funke, Amber, zimba, vinny, Obie, EUsmileWEallsmile, batleykhan, meself2, geriatrix, John, ChetanOjha, archigabe, Administrator

Locked
quixote44
Newly Registered
Posts: 18
Joined: Wed Apr 05, 2006 3:50 pm

The Life in the UK test and Inheritance Tax !!

Post by quixote44 » Mon Jan 15, 2007 4:37 pm

I'm a born and bred Brit married to a Brazilian, both resident in the UK. Legally my "domicile" is the UK, and that of my wife will be Brazil. I have discovered that because her domicile is not the UK then in the event of my death my "estate", which would pass to her, will be subject to inheritance tax which it wouldn't be if she were UK domiciled !! (except for a £55,000) allowance.

I understand that one of the necessary steps for her to get UK domicile is to get a UK passport / citizenship. She is studying English now and really wants to proceed down that path, but she is in the last few months of pregnancy and our baby will certainly delay significantly the day when she can pass the Life in the UK test. This delay could end up being very expensive, if were to die before the vague concept of her UK domicile is resolved.

This seems exceedingly unjust, this life in the UK test has very serious implications .... I doubt I'll die from worrying about it but I'd welcome any advice on how to plan around this !

John
Moderator
Posts: 12320
Joined: Wed Nov 10, 2004 2:54 pm
Location: Birmingham, England

Post by John » Mon Jan 15, 2007 4:46 pm

I understand that one of the necessary steps for her to get UK domicile is to get a UK passport / citizenship.
Even that is not totally conclusive, especially if Brazilian citizenship is retained.

Domicile is really a lot to do with intention. Do the two of you intend to move (back for your wife) to Brazil, for example on retirement?
John

quixote44
Newly Registered
Posts: 18
Joined: Wed Apr 05, 2006 3:50 pm

Post by quixote44 » Mon Jan 15, 2007 5:05 pm

She has no intention of returning to Brazil, even in the event of my death as she will have children here (neither of us want them to grow up or live there). She will ditch her Brazilian passport as soon as she can but the Life in the UK test will, I think, cause her to need at least one extra FLR where as previously she could have applied for the ILR then get the passport a year later. But how does one prove that, or have any confidence that the tax authority would treat her as domiciled in the UK in the event of my death ?

John
Moderator
Posts: 12320
Joined: Wed Nov 10, 2004 2:54 pm
Location: Birmingham, England

Post by John » Mon Jan 15, 2007 6:03 pm

But how does one prove that, or have any confidence that the tax authority would treat her as domiciled in the UK in the event of my death?
Does she work? If so contact her tax office and ask for a form DOM 1.

The Citizenship Test ... when does the current 2-year spouse visa expire? And how is her English? And has she started studying for the test?
John

tvt
Senior Member
Posts: 526
Joined: Mon Jul 15, 2002 1:01 am
Location: London

Post by tvt » Mon Jan 15, 2007 9:34 pm

As far as I can remember you automatically become domiciled in the UK for IHT purposes after being resident here for 17 years in the last 20 years. However, becoming UK domiciled is not such a great status and many Britons seek to avoid it in all costs. For example, if you are domiciled here IHT is payable on the value of your worldwide estate. By contrast, as a non-UK domiciled tax is only payable on your UK estate.

You could still exploit your lack of UK domicile and avoid IHT by using offshore trusts to shelter your UK assets. Consult your tax adviser if you want to know more.
-----------------------------------
<<<N. N. - G. N.>>>

Mafia
Junior Member
Posts: 55
Joined: Sat Apr 29, 2006 6:21 pm
Location: In hiding mostly ...

Post by Mafia » Mon Jan 15, 2007 9:55 pm

In order to formulate an appropriate response to your query regarding possible Inheritance Tax liability on your estate in the event of your death, could you please clarify the following?

a) How old are you and your wife?

b) What is the likelihood of your death in the near future? Is this a hypothetical scenario or perhaps this is quite imminent? I sincerely apologise if you find this intrusive but this is a quite a fundamental question which will determine possible solution(s).

c) Will you be naming any other beneficiaries in your will (if you have one) apart from your wife?

Mafia :twisted:
Providing alternative opinions ... for better decisions.

Mafia
Junior Member
Posts: 55
Joined: Sat Apr 29, 2006 6:21 pm
Location: In hiding mostly ...

Post by Mafia » Mon Jan 15, 2007 9:59 pm

tvt wrote:However, becoming UK domiciled is not such a great status and many Britons seek to avoid it in all costs.
I would beg to differ and say that this is not necessarily the case. Admittedly most people would benefit from their non-domiciled status but it really depends on individual circumstances. Some people do benefit by having a domiciled status.

The Mafia … :twisted:
Providing alternative opinions ... for better decisions.

nonothing
Member
Posts: 217
Joined: Wed Apr 12, 2006 11:04 pm

Post by nonothing » Mon Jan 15, 2007 10:58 pm

from my experience a week's preparation is enough to pass life in the uk test. apparently it's a bit tougher for a mom-to-be. but i think she might just manage it.

quixote44
Newly Registered
Posts: 18
Joined: Wed Apr 05, 2006 3:50 pm

Post by quixote44 » Tue Jan 16, 2007 9:34 am

My wife is learning English, she isn't at he point where studying for the Life in the UK test would be worthwhile. She got the first FLR (after our marriage) in August and in the normal run of things would apply for ILR in August 2008 but because of the test I think we'll need another FLR (another 2 years) to take us to 2010.

We don't have offshore assets, so making use of her non UK domicile isn't possible.

To answer Mafias questions: I'm a few years older than my wife and male so I'm likely to die first, but there is no reason to think that will be anytime soon ! After our marriage I sorted out a Will, to leave everything to my wife ... so there would be no other beneficiaries.

John
Moderator
Posts: 12320
Joined: Wed Nov 10, 2004 2:54 pm
Location: Birmingham, England

Post by John » Tue Jan 16, 2007 9:37 am

My wife is learning English, she isn't at he point where studying for the Life in the UK test would be worthwhile.
In which case she needs to go down the alternative route and attempt to get a completion certificate from a combined ESOL/Citizenship course. Try and find out if there is such a course near to where you live, and if so, think about enrolling her onto it.
John

Dawie
Diamond Member
Posts: 1699
Joined: Mon Jan 16, 2006 1:54 pm
Location: Down the corridor, two doors to the left

Post by Dawie » Tue Jan 16, 2007 12:15 pm

Being domiciled in the UK has got nothing to do with being a British citizen. It is possible to be a British citizen and not be domiciled in the UK, and likewise it is possible to have your domicle in the UK and not be a British citizen.

Your Brazilian wife's domicile is clearly in the UK despite her being a Brazilian citizen.

I suggest you read this:

http://www.hmrc.gov.uk/cnr/residencedomicile.htm

You don't need to do anything, your wife is ALREADY domiciled in the UK. So stop worrying.
In a few years time we'll look back on immigration control like we look back on American prohibition in the thirties - futile and counter-productive.

quixote44
Newly Registered
Posts: 18
Joined: Wed Apr 05, 2006 3:50 pm

Post by quixote44 » Tue Jan 16, 2007 2:50 pm

Thanks !

I'm still bitter about the "imposition" of the Life in the UK test .... which will almost certainly cost us the price of an FLR extra.

The ESOL/Citizenship course is an interesting option I haven't considered. I guess we will simply have to find someone to look after our baby part time for the 9 or 10 weeks it will take to do the course. She is currently studying English at a college (which doesn't offer the special certificates) but she'll have to give up at Easter as the baby gets ready to enter the world. Oh well .... life would be boring if it was too easy !!

Mafia
Junior Member
Posts: 55
Joined: Sat Apr 29, 2006 6:21 pm
Location: In hiding mostly ...

Post by Mafia » Wed Jan 17, 2007 12:53 am

Dawie wrote:You don't need to do anything, your wife is ALREADY domiciled in the UK. So stop worrying.
I worry about conclusion like this. It is far too simplistic! I suspect if it is that easy, most tax advisors especially Inheritance Tax (IHT) specialists, would have retrained as plumbers by now. When I last spoke to my own accountant and tax advisor late last week, he was still in business.

The issue of domicile is a complex one which would require consideration of a lot of factors. My response below, which is on the basis on the limited information which you have provided, is not intended to be a comprehensive discussion of all relevant issues or options. Other aspects of taxation such as income tax or capital gains tax have been ignored. In this respect, you are strongly advised to obtain proper advice from qualified professionals before taking or not taking decisions. Where reference is made to your “death”, this is purely hypothetical for illustration purposes only.

Let’s kick-off with some good news. Er, no, I’m not referring to the departure of Jade Goody’s mother from Celebrity Big Brother. Although the limit for non-domiciled spouse is £55,000, the tax-free limit can be stretched to £340,000 by utilising the nil rate band (NRB) of £285,000. The key here is to ensure that the non-domiciled spouse is the sole beneficiary under the will. Any amount above £340,000 would then be taxed at 40%.

There are a number of ways, but not limited to the following, in which the domicile of an individual is determined. Your wife’s domicile of origin is presumably Brazil. This is acquired from her father when she was born. It is probably a no-go area. Your best line of argument is to claim that she is now domiciled in UK by virtue of her dependency on you (i.e. domicile of dependency) AND her choice (i.e. domicile of choice). In addition, if your wife has been in resident in the UK for at least 17 of the 20 tax years preceding the transfer, she will be deemed to be domiciled in the UK for IHT purposes.

It has been suggested that you complete a form DOM1. I’m not sure this would lead to anywhere as HRMC will not normally give a ruling unless there has been a chargeable transfer or IHT100 form or similar filed. In fact, the HRMC’s own guide, IR20, made it clear that “We will consider the question of your domicile only where this will affect your current tax liability.” See paragraph 4.9 IR20.

The recent high profile case of Gaines-Cooper reaffirms this fairly well established point that domicile is a legal status which is demonstrated by a person’s intention. If your wife wants, she can declare her intention to stay in the UK on a permanent and indefinite basis and claim UK domicile immediately. She needs to make a written declaration of intention upon obtain some written advice accordingly.

At this point, we pause for a break (and make a cup of tea?) and ask this fundamental question. Is it absolutely necessary to make your wife domiciled in UK immediately? If you and your wife ever want to retire abroad, your wife could then be subjected to UK IHT (and possibly other taxes) unnecessarily. Most people actually want to be non-domiciled in UK for tax purposes! I fully understand that you don’t want to expose your wife to potential IHT liabilities. You can easily do so, without affecting her valuable non UK domicile status, by simply taking out inheritance tax insurance. The policy will pay enough to pay the tax bill. The value of the premium is obviously dependant on the value of your assets but can be surprisingly affordable. If you do want to go down this route, remember that the inheritance tax insurance should be written in trust since by not doing so would simply add in the proceeds of the policy to your estate and make the inheritance tax bill even bigger.

If you die testate (i.e. with a valid will), your wife, being the sole beneficiary of the estate, so as to take advantage of the NRB+£55k limit as a non domiciled spouse, could execute a Deed of Variation up to two years following your death to change how the assets are shared. Your spouse owns all of her own estate together with that inherited from you, but has only one nil rate band to use on her own death. If she happens to be UK domiciled by then, she could change your will by deed of variation so that assets up to say the NRB limit are passed on to your children tax free.

Other popular ways to minimise the value of your estate include the use of loan trusts which effectively freezes the value of your assets and allowing growth and income to accumulate outside the estate.

I’m going to call my tax advisor in the morning to see if he has now retrained as a plumber to fix the low water pressure in my bathroom …

The Mafia … :twisted:
Providing alternative opinions ... for better decisions.

quixote44
Newly Registered
Posts: 18
Joined: Wed Apr 05, 2006 3:50 pm

Post by quixote44 » Wed Jan 17, 2007 12:49 pm

Thank you very much for all the advice and ruminations, especially Mafia ...... I shall seek out a suitable professional and consult.

Locked
cron