ACCA ATX ^UK Syllabus A3. Inheritance Tax - Domicile - Past Papers ^{1 / 3}

Your client, Dan, requires advice on the inheritance tax implications arising as a result of the recent death of his father, Noah

Noah:
– Was resident in the UK from 1 April 1998 until his death on 31 May 2017, following a short illness.
– Had a domicile of origin in the country of Skarta and did not acquire a domicile of choice in the UK.
– Has one child, Dan.

Noah – information for inheritance tax:
– Noah had not made any lifetime gifts.
– Noah left all the assets in his estate upon his death to Dan.

Noah – valuation of assets owned at death on 31 May 2017:

Inheritance tax and liabilities in the country of Skarta:
– Under the tax system in Skarta, the inheritance tax payable will be £56,080.
– Legal and administration fees of £12,400 will be payable in Skarta in respect of Noah’s house.
– There is no double tax treaty between the UK and Skarta.

Required:
(a) (i) State, giving reasons, whether or not the house in Skarta will be included in Noah’s chargeable estate on death for the purposes of UK inheritance tax. (3 marks)

(ii) Assuming that the house in Skarta is subject to inheritance tax in the UK, calculate the value of Dan’s inheritance from Noah after all taxes and liabilities have been paid. (6 marks)

Your manager has been advising a client, Waverley, on his plans to sell his business. An email from your manager setting out the current situation and some notes on the tax system in the country of Surferia are set out below:

Email from your manager – dated 8 September 2016
Waverley

Waverley was born in 1976. He divorced his wife in 2014. His three children, all of whom are under 18, live with his ex-wife in the UK.

Residence status
Waverley has always been resident and domiciled in the UK, but it is likely to be beneficial for him to be non-UK resident for the tax year 2017/18.

Investment property
Waverley owns an investment property located in the UK. The property is a residential house, which is tenanted under a lease which expires on 31 October 2021. This house has never been Waverley’s principal private residence and it is not available for him to use. Waverley plans to sell this house as soon as possible following the end of the lease. He will then give the proceeds from the sale to his sister.

Email from your manager – dated 8 September 2016 
Please carry out the following work:

(c) Investment property
– Discuss, by reference to Waverley’s domicile status, whether or not Waverley’s gift to his sister of the proceeds from the sale of the investment property will be within the scope of UK inheritance tax.

Tax manager

Notes on the tax system in the country of Surferia
– Individuals who are resident in Surferia are subject to capital gains tax on disposals of worldwide assets at the rate of 12%. There is no annual exempt amount.
– For the purposes of capital gains tax in Surferia, Waverley’s chargeable gains will be the same as they would be in the UK.
– The payment date for capital gains tax in Surferia is the same as the payment date for capital gains tax in the UK.
– There is no inheritance tax in Surferia. 
– There is a double tax treaty between the UK and Surferia.

Required:Carry out the work requested in the email from your manager.
(c) Investment property.

Your manager has received a letter from Jodie in connection with her proposed emigration from the UK. Extracts from the letter and from an email from your manager are set out below.

Extract from the letter from Jodie
I was born in 1975 and I have always lived in the UK. I plan to leave the UK and move to the country of Riviera on 5 April 2016. My intention is to move to Riviera permanently and acquire a new home there. However, if my children are not happy there after four years, we will return to the UK.

Extract from an email from your manager 
Additional information

Please prepare paragraphs for inclusion in a letter from me to Jodie addressing the following issues.

(d) Other matters
Explain how leaving the UK will affect the UK inheritance tax liability on any gifts Jodie may make in the future.

Tax manager

(d) Other matters.                   (5 marks)

Kesme and Soba, a married couple, require advice on the assets which will be received by Soba under Kesme’s will.

Kesme:
– Was born on 1 June 1940.
– Is UK resident and UK domiciled.
– Is married to Soba.
– Has not made any lifetime gifts for the purposes of inheritance tax.

Soba:
– Is UK resident but non-UK domiciled.
– Has elected to be treated as UK domiciled for the purposes of inheritance tax.

Kesme’s estate and his will:
– Kesme’s share of the family home, a plot of land and chattels are worth £1,280,000 in total.
– The plot of land is worth £370,000 and is situated in the UK.
– Kesme has left the plot of land to his daughter.
– Kesme has left the residue of his estate to his wife, Soba.

Required:
(c) Explain the implications of the election made by Soba to be treated as UK domiciled for the purposes of inheritance tax. (2.5 marks)