Tax, Financial And Legal Issues For Uk Expats

[DocTom]

Is anyone knowledgable about UK tax matters for expats - particularly inheritance tax, and the position of a Thai wife (widow!) ? I wish to get to know if there are any legal ways to mitigate inheritance tax, eg. (Not just the usual stuff about gifts and the 7 year rule - I seem to remember reading somewhere that recognition of domicile status outside the UK would lead to relief from IT, but I cannot remember where.)

Also I am interested in any info on good tax advisors - in the UK or here, who really know their stuff re expats.

And I am considering retaining a legal advisor here in Thailand to assist my wife through the UK minefield of probate etc, when I die - any experience on this aspect?

Does anyone out there share my interests as described, and if so is it something that can be usefully debated in the forum?

[Expat2B]

Is anyone knowledgable about UK tax matters for expats - particularly inheritance tax, and the position of a Thai wife (widow!) ? I wish to get to know if there are any legal ways to mitigate inheritance tax, eg. (Not just the usual stuff about gifts and the 7 year rule - I seem to remember reading somewhere that recognition of domicile status outside the UK would lead to relief from IT, but I cannot remember where.)

Also I am interested in any info on good tax advisors - in the UK or here, who really know their stuff re expats.

And I am considering retaining a legal advisor here in Thailand to assist my wife through the UK minefield of probate etc, when I die - any experience on this aspect?

Does anyone out there share my interests as described, and if so is it something that can be usefully debated in the forum?

Only UK domiciled individuals are liable for IHT on their worldwide estate. If you become non UK domiciled then you become expempt from UK IHT (but may face an IHT liability in your country of residence/domicile). I think there is also a short transition period (2 years IIRC) after the change of domicile where you retain some UK IHT liability (presumably to prevent "last minute" domicile changes).

The ease of changing domiclie depends upon the extent of any retained connections within the UK. If you do not own a property in the UK or retain any significant connection other than perhaps occasional visits to family and relatives then it should be theoretically straightforward to agree a change of domicile with HMRC.

I cannot really recommend a good firm of accountants/tax advisers as I have found the firms I have dealt with equally poor. Your best option (if you have significant assets) would be to consult a good UK tax lawyer, this will not be cheap however.

[naka]

Is anyone knowledgable about UK tax matters for expats - particularly inheritance tax, and the position of a Thai wife (widow!) ? I wish to get to know if there are any legal ways to mitigate inheritance tax, eg. (Not just the usual stuff about gifts and the 7 year rule - I seem to remember reading somewhere that recognition of domicile status outside the UK would lead to relief from IT, but I cannot remember where.)

Also I am interested in any info on good tax advisors - in the UK or here, who really know their stuff re expats.

And I am considering retaining a legal advisor here in Thailand to assist my wife through the UK minefield of probate etc, when I die - any experience on this aspect?

Does anyone out there share my interests as described, and if so is it something that can be usefully debated in the forum?

Only UK domiciled individuals are liable for IHT on their worldwide estate. If you become non UK domiciled then you become expempt from UK IHT (but may face an IHT liability in your country of residence/domicile). I think there is also a short transition period (2 years IIRC) after the change of domicile where you retain some UK IHT liability (presumably to prevent "last minute" domicile changes).

The ease of changing domiclie depends upon the extent of any retained connections within the UK. If you do not own a property in the UK or retain any significant connection other than perhaps occasional visits to family and relatives then it should be theoretically straightforward to agree a change of domicile with HMRC.

I cannot really recommend a good firm of accountants/tax advisers as I have found the firms I have dealt with equally poor. Your best option (if you have significant assets) would be to consult a good UK tax lawyer, this will not be cheap however.

It is almost impossible to lose UK domicile.

While you may become Non-Resident or Not Normally Resident, Domicile is another matter entirely and

you need to lose domicile to avoid IHT.

Just read the HMRC fact sheet IR20 available online.

Naka.

Naka.

[DocTom]

Thanks for the responses. There does not seem to be a lot of interest. Perhaps most people are much younger than me!

As to domicile, is there anyone out there who has tried to establish domicile in Thailand, and had this accepted by the UK Revenue?

[GuestHouse]

I get my tax advice from my employer’s tax advisors but any firm of Chartered accounts in the UK will have a Tax advisory service.

Domiciled:

This is a bit tricky if you own property in the UK - The term "Domiciled" is often confused with the where an individual lives - It actually relates to where you were born and where your father was born. As a general rule to become non 'Domiciled' in the UK you need to demonstrate that you have left the UK, removed all your assets, have remained overseas for around 3 years and convince the tax man that you are not returning.

The declaration forms for non domiciled status P85 and P85S have been changed over the past years to ask a load more questions about property, savings, pensions, insurance policies etc. Essentially if you hold any of these things in the UK it is almost certain that the tax man regards you as UK Domiciled. Declaration of Leaving the UK

Inheritance Tax.

The current threshold is £300,000 but under UK law your wife owns half your estate so the as a married couple you can hold £600K at your death and your wife will not pay tax on the £300K that you are leaving her outside of the UK - If she lives in the UK she can receive your whole estate without taxes, but will pay taxes when she herself dies (unless she mitigates those taxes).

Wills

My advice to anyone leaving a large estate to their Thai family is to think very carefully about the impact of receiving that wealth on their family - The full extended family.

This is especially important if you have children below the age of minority.

My personal choice has been to divide my estate into parts.

One immediate pay out (mainly from insurances and pensions) that is paid in equal part to my wife and children (note they have their own share to be held in trust). This covers immediate needs, clearance of minor debts and a reasonable amount of cash in the bank

A regular payment from trust for household living expenses etc

A monthly payment from trust conditionally on school/college attendance and a few other things I want for my children, for example contact with my UK family.

Long term payments of pension to my wife and children.

What I do not do is hand over my full wealth in one easy lump.

Note: Pensions and most life insurances are covered by trust law - You should allocate pensions via an expression of wishes form NOT IN YOUR WILL.

Adding Pensions and Insurance payments to Wills removes the protections they enjoy from Inheritance tax.

Where to have your will.

Yours should have two wills, one for your wealth in Thailand, and one for your wealth in the UK. Since you are worried about UK Inheritance taxes I take it you have an estate in excess of £300K (excluding pensions and trusts).

If so my advice is leave that wealth in the UK where it can be controlled by a UK will, placed into UK Trusts and importantly enjoy the protection of UK law.

If you are worried about the tax man, he is a kitten compared with bent lawyers, distant relatives and crooks in the woodwork waiting to rob your family of your estate if it is handed over in cash or easily accessible funds.

[interbrit]

I'm still not sure how this works.

If your money is offshore (IOM/Channel Islands or wherever) and you are non-domiciled for tax purposes, can't the executors of your will just transfer the money to the beneficiaries? How would the UK tax man be involved or even know as the assets have never been reported to him? Does the local UK consulate have to report your death back to UK authorities?

Interbrit

[rak sa_ngop]

Also I am interested in any info on good tax advisors - in the UK or here, who really know their stuff re expats.

I use The Fry Group in the UK for Tax and investment advice. Check out their website

http://www.thefrygroup.co.uk

From my experience they are much better than the typical 'financial advisors' you find floating around SE Asia. Their head office is located in Worthing on the South coast so I usually visit them on my return trips to the UK. They have a number of staff located in the UK and overseas, and the people I have dealt with have given me good professional advice.

[cmsally]

Doesn't it make a difference to your ability to hand over to your spouse if she/he is not domiciled in the UK?

I seem to remember reading on the IR info. that your estate passing to your spouse was only exempt from inheritance tax if they were UK domiciled, which I would imagine , many people's spouses are not.

[GuestHouse]

I'm still not sure how this works.

If your money is offshore (IOM/Channel Islands or wherever) and you are non-domiciled for tax purposes, can't the executors of your will just transfer the money to the beneficiaries? How would the UK tax man be involved or even know as the assets have never been reported to him? Does the local UK consulate have to report your death back to UK authorities?

Interbrit

Firstly, if your money is in a Channel Isles or IoM bank then the bank is reporting your account balance and any large movements of cash to the UK ILR.

Domicile is, as I mention above, a lot more complicated than most people believe - You may think you are not UK Domiciled when in fact you are - Regardless of where you live.

A point of note here is that one of the conditions of being non domiciled in the UK is to establish and demonstrate domicile elsewhere - If you are living in Thailand on a 'Non-Immigrant' visa then that in itself might very well spoil to pot.

UK Citizen deaths are reported back to the UK authorities as are the values and recipients of UK wills.

But again, as I mention above, I don't think it is wise to focus only on avoiding taxes - The law in the UK offers first class provisions for the protection of assets and the management of wealth after your death for your family and dependents.

Thailand has no trust law and lax laws with respect to asset protection, this added to the mine field of incompetent/criminal Thai lawyers, bank managers willing to do anyone's bidding and all the pressures of extended families in Thailand makes moving assets to Thailand risky when you are alive, after you are dead your wealth is essentially up for grabs.

[Without making any judgement of the following observation] It is also generally true that most western men married to Thai women in Thailand have married women with little or minimal education and who lack the social connections and social position to protect themselves against having their late husband's legacy taken from them by people with power.

And then there is the 'Burned Bridges Problem'. We non of us know the future - We might be happy in Thailand now, we might not ever want to leave Thailand - But life changes, if for some reason a return to the UK is unavoidable (health, political change in Thailand or some other issue beyond our control) Then trying to avoid taxes by keeping wealth off shore can become a real problem.

[LivinLOS]

I'm still not sure how this works.

If your money is offshore (IOM/Channel Islands or wherever) and you are non-domiciled for tax purposes, can't the executors of your will just transfer the money to the beneficiaries? How would the UK tax man be involved or even know as the assets have never been reported to him? Does the local UK consulate have to report your death back to UK authorities?

Interbrit

Firstly, if your money is in a Channel Isles or IoM bank then the bank is reporting your account balance and any large movements of cash to the UK ILR.

Thats not correct if your not an EU / UK resident.

I have checked this reporting over and over and have it in writing from multiple banks in IoM and Jersey that if your not a resident of Europe then even though they are now a signatory to the EU reporting requirements that this is ONLY for EU residents. EU non residents are not included in this, its residency not nationality.

What the OP could look into is a legal trust set up in an offshore jusridiction. He then transfers all his assets into the trust (which he can own and manage though it is almost impossible to find out the beneficial owners / shareholders / directors) and has his will set up so that she inherits the trust on his demise. As the trust is offshore, and as he is not (visibly) the owner of the trust, asset protection against death duties can be achieved.

[PattayaParent]

Thanks for the responses. There does not seem to be a lot of interest. Perhaps most people are much younger than me!

As to domicile, is there anyone out there who has tried to establish domicile in Thailand, and had this accepted by the UK Revenue?

Just started this process myself this morning by emailing HMRC to ask them for the forms and what paperwork requirments there are to establish non domicile.

Will post an update when something happens.

In the meantime check out this http://www.sovereigngroup.com/sovereign-gr...entsq&a.htm

Reason for edit url: added

Edited December 18, 2007 by PattayaParent

[PattayaParent]

GH, your link to the Declaration of Leaving the UK is for claiming tax relief or repaymentsd of tax paid and has nothing to do with Domicile or establishin Non-Domiciled status.

[PattayaParent]

The response I got from HMRC is as follows

Dear Sir,

Thank you for contacting HMRC Residency.

Domicile is a concept of general law and not income tax legislation. It is therefore Revenue policy only to comment on domicile where it is immediately relevant to an individuals liability to UK tax.

Domicile affects the UK liability of income from abroad. As a non resident is not liable to UK tax on income from abroad, it is unlikely that your domicile status would be in point.

You can find information on domicile and how it affects your liability to UK tax in booklet IR20 (http://www.hmrc.gov.uk/leaflets/c9.htm).

which doesn't answer my question to them of how to establish Non-Domicile Status.

Seems like they want to wait until they think you owe them money and then get you to prove that you are Non-Domiciled. Difficult when you're dead and they want their IHT.

[Ricardo]

A typically helpful response, from HMRC, to a straightforward enquiry from a citizen, who merely wants to get the paperwork right in good time. And people wonder why we leave the UK ? !

Personally I plan to move some assets into my childrens' names, at the appropriate point, when I've been away for several years, and Gift Tax is no longer an issue. Always assuming that I have advance-warning of my impending demise.

Recent proposed changes to the IHT-threshold don't really help much, if you have significant assets, even the Tory proposal of a million-pound threshold is only a step in the right direction, as far as I can see, but it did get them a wave of public support, which helped upset Chairman Brown's early-election plan !

I look forward to seeing, over the next few decades, just how successful HMRC will be, in collecting IHT from long-term departees ... although I suspect they may not be keen to release the details on this.

[PattayaParent]

When I again queried the issue of Non-Domicile Status I received this response.

As we have mentioned, domicile is not an income tax concept, it is a matter of general law. And in areas of civil or general law HMRC has no special legal standing or authority, only the UK Courts have that. The only occasion when we have to consider domicile is when an individual claims a reduction in his current UK tax liabilities on the basis that he is not domiciled in the UK.

If the question of domicile does not affect the extent of the current tax liabilities, we do not consider, or comment upon, the individual's domicile. This is an approach that was decided by the Board of HMRC and has been confirmed by them on many occasions since then.

Inheritance tax matters are dealt with by the Inheritance Tax Office in Nottingham. Although I understand that they too will only comment on an individual's domicile if it affects current inheritance tax liabilities, if you wish to contact them directly they can be found at

Ferrers House

PO Box 38

Castle Meadow Road

Nottingham NG2 1BB

Tel. No. +44 115 974 3009

Finally if you are unsure about your domicile there is nothing to stop you from seeking independent legal advice.

So it seems that they want to wait until a person is dead and then have their estate go through expensive, and probably lengthy, legal hassles to establish that you don't have to pay IHT at all.

[PattayaParent]

I've had a reply to a query I sent to the company on the link I posted (Sovereign).

Thank you for your recent enquiry. If your circumstances are such that all the criteria for the non-UK status seem to be fulfilled, there should in principle be little difficulty in obtaining a ruling from the UK Capital Tax Offices ("CTO") in respect of your non-UK status.

Under the current rules the application is most easily carried out by setting up a discretionary trust and transferring into that trust an amount somewhat in excess of the lifetime and annual exemptions - say £ 300,000. This will produce a bill for lifetime IHT equal to 20% of the excess value transferred (i.e. Nil Rate Band of £ 285,000 + annual exemption of £ 3,000 + £ 3,000 unused annual exemption of the previous year b/fwd = £ 291,000). Chargeable value transferred is therefore £ 9,000 and tax bill is 20% of this = £ 1,800 if non-domiciled status is not agreed. Please note though that is always a change that the CTO will not want to issue a ruling for this amount and as consequence will not bother with collecting tax (this has happened once in the past). So, it might therefore be attractive and advisable to increase the transfer amount from £ 300,000 to lets say £ 400,000 and see what happens then. Please also note that the Nil Rate Band for the year 2007/2008 has been increased to £ 300,000.

Reasons for doing the above-mentioned test despite the fact that the UK CTO might not always give a ruling is:

1) Once the above-mentioned trust is set up, any accumulation within that trust (i.e. interest gained on the amount of £ 300,000 or £ 400,000 or value increase on any property bought for the amounts transferred) will no longer be subject to UK Inheritance Tax, even not when one would move back to the UK.

2) In circumstances where one does not have a ruling whereby a lack of UK domicile is conceded, it remains an open question as to whether the UK CTO would challenge this status or not on death. Thus it is a risk to do nothing, which one would be wise to avoid if that is at all possible. And of course this is something we can assist with.

3) It would also be possible to take out an insurance policy, which would cover any tax liability when it arises. I believe that the insurance premiums amount to roughly 10% of the liability.

Our fee for submitting the application is GBP 5,000. This includes the provision of a trust which you may choose to use or not at your election. The ongoing trustees fees will depend on what the trust has in it - but normally it's fixed to USD$ 3,000. Please note that in circumstances where one begins to own assets in various jurisdictions, owning these through a trust is massively useful (probate issues will be avoided). Also when moving back to the UK, this will be an advantage.

I'm also waiting for a reponse from my IFA but he's on holiday at the moment.

[fletchsmile]

Doesn't it make a difference to your ability to hand over to your spouse if she/he is not domiciled in the UK?

I seem to remember reading on the IR info. that your estate passing to your spouse was only exempt from inheritance tax if they were UK domiciled, which I would imagine , many people's spouses are not.

Yes you're correct on that. It often gets overlooked. Transfers of assets between spouses in the UK are usually exempt from inheritance tax. But, this is not the case if your spouse is not UK domiciled, i.e Thai.

We're based in Thailand. One approach to this is we simply buy certain assets in my wife's name, eg our home. It's difficult for foreigners handling property affairs here anyway, so it kills two birds with one stone. Other main assets aside from property in Thailand we're starting to transfer into joint names. Outside Thailand is still in my single name.

Another one is simply to start putting some assets into your children's names if you have them. eg next year I'll start some mutual fund savings in my daughters name (I would also be a signatory), and she can't do much with them until 18 anyway, under Thai law.

There was also talk of increasing the IHT threshold to GBP 1mio. The Conservatives said they will do this if they get in. This may tip some of the balance away from trusts.

The key thing I like about trusts is as GH points out, you can safeguard against the money all being passed on in a lump sum. I consider myself fairly astute in financial matters, tax etc. My wife wouldn't easily be able to follow what I do. eg she'd have no idea (yet) on effectively managing my investment portfolios, and I wouldn't like her to fall prey to the many sharks out there, or simply put it all in cash at miserly rates.

Edited December 20, 2007 by fletchsmile

[fletchsmile]

BTW it may seem like the opposite in some respects but I think it links in, relating to transferring your assets for when you're gone:

Has anyone tried to make their children (born overseas) UK resident for tax purposes, even tho' they live in Thailand. eg I'm non-resident but I'd like my daughter to be resident for UK tax purposes.

That way I can start contributing to a stakeholder pension for her, and gain the 22% contribution from the UK government. eg every GBP 78 I contribute gets grossed up to GBP 100, up to a max GBP 3,600 pa. It would also ensure she can't touch it until her own old age!