Last Will & Testament

[Tammi]

I am intending to make a new Will for estate outside of Thailand. Present Will is in the Channel Isles. Is it important to have it in the Channel Isles?

Sorry if this is the wrong forum for this topic BUT I am comfortable with the knowledgeable folks who follow the Pattaya Forum!

[Mobi]

Tammi, this may depend on whether you are domiciled or non domiciled in the UK.

Being non- domiciled is not the same as being non resident for tax purposes.

If you are non resident but domiciled in the UK, you will avoid tax on your offshore income, but your world wide estate will come into the UK Inheritance tax net.

If you are non resident and non domiciled, you world wide estate will escape inheritance tax duties.

The eligibility rules for being non domiciled are harder, and not the same as those for being non resident.

If you are non resident and 'non dom', then that might explain your will being made 'offshore'. Otherwise I see no reason for it.

Let me know if you need further information on the subject of "Non doms".

Edited October 20, 2007 by Mobi

[Tammi]

Tammi, this may depend on whether you are domiciled or non domiciled in the UK.

Being non- domiciled is not the same as being non resident for tax purposes.

If you are non resident but domiciled in the UK, you will avoid tax on your offshore income, but your world wide estate will come into the UK Inheritance tax net.

If you are non resident and non domiciled, you world wide estate will escape inheritance tax duties.

The eligibility rules for being non domiciled are harder, and not the same as those for being non resident.

If you are non resident and 'non dom', then that might explain your will being made 'offshore'. Otherwise I see no reason for it.

Let me know if you need further information on the subject of "Non doms".

Dear Mobi,

Many thanks for your reply.

I have a letter from UK Inland Revenue dated 1983 stating that "can be regarded as both not resident/not ordinarily resident -----this situation will continue for as long as (you) remain in full time employment overseas with no UK duties and visits to this country do not amount to 6 months in any one tax year or 3 months or more per annum on average." That, I think, takes care of the non resident bit.

Re domicile: My domicile of choice is Thailand. I have had a condo here since the 80s. Have never worked in Thailand. I have rarely been in the UK since the early 70s and then only for very short times such as for funerals and marriages.

So I think I am non domiciled and non resident in the UK. So I should probably keep my Will offshore.

If there is anything left to give to my nearest and dearest in the UK will they have to pay tax on what they get?

[Mobi]

It sound very much that you are also non domiciled.

However you must actively get your non 'dom status' agreed with the revenue, as you would not wish your heirs to do this after your demise. In your case it will be quite straight forward, but you must do it.

Read the following:

UK Domicile

Q1.I am not resident in the UK for tax purposes and haven't been so for many years so surely I am not domiciled in the UK?

No, domicile and tax residency are 2 entirely different things. A person can be tax resident somewhere completely different to his place of domicile. The simplest explanation of domicile is that it is the place with which you have the closest connection and that will nearly always be your place of nationality or birth until concrete steps are taken to change that. If you are a British national born in the UK you will almost certainly still be domiciled there even if you haven't lived in the UK for many years.

Q2.I am married to a foreign national. Does this make any difference?

Yes it makes a great deal of difference. Normally transfers between a husband and wife are exempt from UK IHT so planning against UK IHT is designed to assist your children or other heirs. However, the exemption only applies if it is between 2 domiciled persons. So, if you are domiciled but your spouse is not then on your death the transfer to your spouse would be chargeable to UK IHT at 40%. This makes it even more crucial that you try and rid yourself of this liability. Obviously, if you are both non domiciled then the issue of UK IHT does not arise except insofar as you have UK situated assets. UK assets are always subject to UK IHT irresepective of who owns them but we can plan against this. Additionally, being married to a foreign national will probably greatly assist in any attempt to to establish another domicile.

Q3.I don't have any assets in the UK so what is the relevance of my domicile?

The relevance is that because of your domicile you may still liable to UK inheritance tax at 40% on the value of your worldwide estate. You do have a tax free threshold (known as the Nil Rate Band) which is currently £285,000. However, add up the value of everything that you own wherever it is situated i.e. your holiday home, your main residence, your portfolio of investments, your furniture, art and wine collection. Take away any outstanding loans you have and that should leave you with a figure of your total net worth. Deduct £285,000 and your potential tax bill is 40% of the remainder.

Q4.OK, so I may be liable to UK inheritance tax but if I die abroad after many years of living outside the UK then how will they know I have died and collect the tax?

Relying on the tax man not finding out is NOT good planning. If you have any assets whatsoever in the UK then it will be impossible to get those assets transferred without obtaining probate. Part of the probate process necessitates getting a clearance from the Capital Taxes Office so they will, of necessity, be given the opportunity to assess the tax due. If you have no assets or a will in the UK but have heirs who are resident in the UK then they may be questioned about how they came to receive the inheritance and that may trigger the investigation. If you die in a country which has a tax treaty with the UK that treaty will contain exchange of information clauses so the foreign tax authority may inform the UK about your death. If none of this applies then it is unlikely, but not impossible, that the UK will find out but why take the risk? You will be potentially liable unless you obtain a ruling that you are non UK domiciled. The cost of getting the ruling is small. The cost of doing nothing may be huge. This is insurance against a 40% tax bill.

Q5.I have been told that if I have UK situated property or other assets I cannot be considered non UK domiciled?

Wrong. Having UK property or other assets does indicate that you have retained a connection with the UK but if sufficient evidence of connection to another country can be established it will outweigh any considerations about UK assets. Sovereign has a 100% success record in processing applications and nearly all applicants have owned UK property and other UK investments.

Q6.So how do I establish that I am not domiciled in the UK?

You must establish a close connection with another place. The UK Revenue say that it is not possible to lose an UK domicile until that person has been out of the UK for 3 years. So, in theory, any stay of 3 years in another country could be sufficient to establish an alternative domicile but in practice we suggest that an application is not made until you have been in another country for a minimum period of 6/7 years and have made some real social and business commitments to that new place of residence. Legally there are really only 2 criteria necessary to establish that you have lost your UK domicile: (1) Can you honestly state that you have left the UK and have no current intention to return to live there on a permanent basis? (2) Have you established another permanent home and residence abroad?

If the answer to both these questions is "yes" then you have established an alternative domicile but you still have the task of convincing the UK Revenue that this is the case.

Q7.What happens if I establish a foreign domicile and then change my mind and return to the UK?

You can visit the UK as often as you like without this effecting your domicile. If you become tax resident in the UK again for a finite period such as to be near your children when they are at school or university, to take up a job in the UK for a number of years or just return to the UK to live with it in mind that you will come back to your foreign place of domicile later then this should not immediately effect your domicile and you will remain non UK domiciled. This status has very large UK income and capital gains tax benefits. UK residents who are not domiciled in the UK pay tax only on income arising in the UK and foreign income remitted to the UK. In practice this means that non domiciled persons can live in the UK virtually or absolutely tax free. This is why many wealthy foreign nationals choose to live in the UK as they can do so while enjoying this hugely advantageous tax status.

Q8.What if I go back to the UK permanently?

Then you will generally pick up your UK domicile again but even then assets which were transferred into a discretionary trust while you were not domiciled should remain outside the scope of UK inheritance tax forever. Generally a person will go back to the UK but would probably not decide that he is going to remain there permanently until he has spent some time there and seen whether he likes it again. Until the decision is made to stay there permanently the foreign domicile can be retained. Of course, if you know the minute you set foot back in the UK that you are going to remain there then you will pick up your UK domicile again immediately. Most people do not have such certainty in their plans.

Q9.I have been living quietly abroad for many years and don't want the Inland Revenue to pick up my file again. Won't making application for the non domicile status make that occur?

This shouldn't be a worry. Confidentiality in all its forms is disappearing fast. Information is now being exchanged between tax authorities automatically or by request and if any element of your planning relies upon the fact that you are "below the radar" then this is bad planning and you are at risk. Normally there is a way of mitigating any particular tax and it would be wise to assume that any and all information about your finances and tax affairs will eventually come to light and plan accordingly. Keeping your head down (or buried in the sand!) is unlikely to be a sensible approach to tax planning.

Q10.What are the alternatives?

You can give away your assets at least 7 years prior to death and then no UK IHT will be payable irrespective of your domicile position. However, most of us have some difficulty in timing this correctly and are reluctant to have to rely upon the charity of others later in life so this is rarely a feasible option. You can insure against inheritance tax but that tends to be expensive particularly as you get older. You can assume you are non domiciled and take the chance but why would you want to do that when there is a relatively simple procedure to get certainty?

Q11.I thought that if you transferred assets into trust then they were outside the scope of UK IHT anyway?

Yes they are but to transfer them into the trust when you are UK domiciled attracts a UK lifetime inheritance tax charge of 20% of the value of those assets.

Q12.Are there any disadvantages to obtaining UK non domiciled status?

No. The status affects only your UK tax position so unless you see paying less tax as disadvantageous there are no disadvantages. Your entitlement to social security, access to the NHS, pension rights and any other UK state benefits remains unaffected.

[thaieagle67]

It sound very much that you are also non domiciled.

However you must actively get your non 'dom status' agreed with the revenue, as you would not wish your heirs to do this after your demise. In your case it will be quite straight forward, but you must do it.

Read the following:

UK Domicile

Q1.I am not resident in the UK for tax purposes and haven't been so for many years so surely I am not domiciled in the UK?

No, domicile and tax residency are 2 entirely different things. A person can be tax resident somewhere completely different to his place of domicile. The simplest explanation of domicile is that it is the place with which you have the closest connection and that will nearly always be your place of nationality or birth until concrete steps are taken to change that. If you are a British national born in the UK you will almost certainly still be domiciled there even if you haven't lived in the UK for many years.

Q2.I am married to a foreign national. Does this make any difference?

Yes it makes a great deal of difference. Normally transfers between a husband and wife are exempt from UK IHT so planning against UK IHT is designed to assist your children or other heirs. However, the exemption only applies if it is between 2 domiciled persons. So, if you are domiciled but your spouse is not then on your death the transfer to your spouse would be chargeable to UK IHT at 40%. This makes it even more crucial that you try and rid yourself of this liability. Obviously, if you are both non domiciled then the issue of UK IHT does not arise except insofar as you have UK situated assets. UK assets are always subject to UK IHT irresepective of who owns them but we can plan against this. Additionally, being married to a foreign national will probably greatly assist in any attempt to to establish another domicile.

Q3.I don't have any assets in the UK so what is the relevance of my domicile?

The relevance is that because of your domicile you may still liable to UK inheritance tax at 40% on the value of your worldwide estate. You do have a tax free threshold (known as the Nil Rate Band) which is currently £285,000. However, add up the value of everything that you own wherever it is situated i.e. your holiday home, your main residence, your portfolio of investments, your furniture, art and wine collection. Take away any outstanding loans you have and that should leave you with a figure of your total net worth. Deduct £285,000 and your potential tax bill is 40% of the remainder.

Q4.OK, so I may be liable to UK inheritance tax but if I die abroad after many years of living outside the UK then how will they know I have died and collect the tax?

Relying on the tax man not finding out is NOT good planning. If you have any assets whatsoever in the UK then it will be impossible to get those assets transferred without obtaining probate. Part of the probate process necessitates getting a clearance from the Capital Taxes Office so they will, of necessity, be given the opportunity to assess the tax due. If you have no assets or a will in the UK but have heirs who are resident in the UK then they may be questioned about how they came to receive the inheritance and that may trigger the investigation. If you die in a country which has a tax treaty with the UK that treaty will contain exchange of information clauses so the foreign tax authority may inform the UK about your death. If none of this applies then it is unlikely, but not impossible, that the UK will find out but why take the risk? You will be potentially liable unless you obtain a ruling that you are non UK domiciled. The cost of getting the ruling is small. The cost of doing nothing may be huge. This is insurance against a 40% tax bill.

Q5.I have been told that if I have UK situated property or other assets I cannot be considered non UK domiciled?

Wrong. Having UK property or other assets does indicate that you have retained a connection with the UK but if sufficient evidence of connection to another country can be established it will outweigh any considerations about UK assets. Sovereign has a 100% success record in processing applications and nearly all applicants have owned UK property and other UK investments.

Q6.So how do I establish that I am not domiciled in the UK?

You must establish a close connection with another place. The UK Revenue say that it is not possible to lose an UK domicile until that person has been out of the UK for 3 years. So, in theory, any stay of 3 years in another country could be sufficient to establish an alternative domicile but in practice we suggest that an application is not made until you have been in another country for a minimum period of 6/7 years and have made some real social and business commitments to that new place of residence. Legally there are really only 2 criteria necessary to establish that you have lost your UK domicile: (1) Can you honestly state that you have left the UK and have no current intention to return to live there on a permanent basis? (2) Have you established another permanent home and residence abroad?

If the answer to both these questions is "yes" then you have established an alternative domicile but you still have the task of convincing the UK Revenue that this is the case.

Q7.What happens if I establish a foreign domicile and then change my mind and return to the UK?

You can visit the UK as often as you like without this effecting your domicile. If you become tax resident in the UK again for a finite period such as to be near your children when they are at school or university, to take up a job in the UK for a number of years or just return to the UK to live with it in mind that you will come back to your foreign place of domicile later then this should not immediately effect your domicile and you will remain non UK domiciled. This status has very large UK income and capital gains tax benefits. UK residents who are not domiciled in the UK pay tax only on income arising in the UK and foreign income remitted to the UK. In practice this means that non domiciled persons can live in the UK virtually or absolutely tax free. This is why many wealthy foreign nationals choose to live in the UK as they can do so while enjoying this hugely advantageous tax status.

Q8.What if I go back to the UK permanently?

Then you will generally pick up your UK domicile again but even then assets which were transferred into a discretionary trust while you were not domiciled should remain outside the scope of UK inheritance tax forever. Generally a person will go back to the UK but would probably not decide that he is going to remain there permanently until he has spent some time there and seen whether he likes it again. Until the decision is made to stay there permanently the foreign domicile can be retained. Of course, if you know the minute you set foot back in the UK that you are going to remain there then you will pick up your UK domicile again immediately. Most people do not have such certainty in their plans.

Q9.I have been living quietly abroad for many years and don't want the Inland Revenue to pick up my file again. Won't making application for the non domicile status make that occur?

This shouldn't be a worry. Confidentiality in all its forms is disappearing fast. Information is now being exchanged between tax authorities automatically or by request and if any element of your planning relies upon the fact that you are "below the radar" then this is bad planning and you are at risk. Normally there is a way of mitigating any particular tax and it would be wise to assume that any and all information about your finances and tax affairs will eventually come to light and plan accordingly. Keeping your head down (or buried in the sand!) is unlikely to be a sensible approach to tax planning.

Q10.What are the alternatives?

You can give away your assets at least 7 years prior to death and then no UK IHT will be payable irrespective of your domicile position. However, most of us have some difficulty in timing this correctly and are reluctant to have to rely upon the charity of others later in life so this is rarely a feasible option. You can insure against inheritance tax but that tends to be expensive particularly as you get older. You can assume you are non domiciled and take the chance but why would you want to do that when there is a relatively simple procedure to get certainty?

Q11.I thought that if you transferred assets into trust then they were outside the scope of UK IHT anyway?

Yes they are but to transfer them into the trust when you are UK domiciled attracts a UK lifetime inheritance tax charge of 20% of the value of those assets.

Q12.Are there any disadvantages to obtaining UK non domiciled status?

No. The status affects only your UK tax position so unless you see paying less tax as disadvantageous there are no disadvantages. Your entitlement to social security, access to the NHS, pension rights and any other UK state benefits remains unaffected.

Mobi,

Thank's for all the great information. I am currently putting my will together and this information was an interesting read. I believe that i am non-domiciled, so would you happen to know the right contact person(s) at the Inland Revenue to follow this up?

[astromash]

Your entitlement ... to the NHS ... remains unaffected.

If you stay out of the UK for more than 3 months in a country outside the EU (for example, Thailand) I believe technically you have no longer have any automatic entitlement to NHS treatment on your return to the UK - other than to accident & emergency treatment.

That is, unless you can convince the authorities that you have returned "to spend your final years in the UK":

http://insurance.thaivisa.com/news/new-nhs...for-expats.html

Or maybe things have changed since this article was posted in 2004?

[Mobi]

Your entitlement ... to the NHS ... remains unaffected.

If you stay out of the UK for more than 3 months in a country outside the EU (for example, Thailand) I believe technically you have no longer have any automatic entitlement to NHS treatment on your return to the UK - other than to accident & emergency treatment.

That is, unless you can convince the authorities that you have returned "to spend your final years in the UK":

http://insurance.thaivisa.com/news/new-nhs...for-expats.html

Or maybe things have changed since this article was posted in 2004?

You are quite correct, and I apologise for the slightly misleading advice here which is clearly out of date, and for those of you interested in this point, it has been discussed at great length in a recent thread in the General Forum.

What I should have said was:

"Your entitlement to social security, access to the NHS, pension rights and any other UK state benefits remains the same as for any other person who has lived outside the UK for 3 months or more."

In any event, it has no relevance on the main point which is the subject of inheritance tax.

But thank you for putting me straight.