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

Who pays UK IHT?

• An individual who is UK domiciled is charged to UK IHT on his worldwide assets.

• An individual who is not UK domiciled is charged to UK IHT only on assets situated in the UK.

What is domicile?

Domicile means place of permanent home and an individual can only have one domicile at a particular point in time.

Four types of domicile for IHT

1. Domicile of origin

   – automatically taking the domicile of their father at birth. 

   Therefore, this is the place of their father’s permanent home.

    For example, if your father’s permanent home is London when you are born, then you will be UK domiciled.

2. Domicile of dependency

   – if your father changes his domicile before you are 16, then your domicile will change with his. 

   For example, if your father moves to France from London before you are 16 years old, and that is his permanent home now, both of you will be French domiciled

3. Domicile of choice 

   – an individual can change their domicile from one country to another if they show permanent intention to change the country of permanent home. 

   Showing permanent intention means not retaining property, moving burial arrangements and changing nationality/citizenship from one country to the other. 

   For example, if you were UK domiciled since birth but you emigrated to France with the intention of remaining there permanently (you sold all property in London, you changed your nationality and you created burial arrangements in France), then you will be French domiciled.

4. Deemed domicile

   –  for an individual to be deemed domicile in the UK for  IHT purposes at the relevant time (ie at the time of a transfer of value) they must satisfy any one of the following three conditions:

    1. Deemed domicile 
   – an individual who has been domiciled in the UK can move abroad and make another country their permanent home but they will still retain UK domicile for 3 years after they change their domicile.

   For example, you moved to France and became French domiciled, but you will still be considered to be UK domiciled for 3 years after the move.

    2. Deemed domicile 
   – this also applies to an individual who was never UK domiciled but has been resident in the UK for at least 15 years out of the previous 20 tax years immediately preceding the relevant tax year, and for at least 1 of the 4 tax years ending with the relevant tax year.

   For example, if you have been UK resident since 2004, but never UK domiciled, and you made a gift of a home in France in 2024, this gift will be chargeable to UK IHT, because you are deemed domicile, as you have been     resident in the UK for the last 20 tax years.

    3. The individual is a formerly UK domiciled individual. 
   This is an individual  who:
    - was born in the UK; and
    - has a UK domicile of origin; and
    - is UK resident in the relevant tax year; and
    - was UK resident in at least 1 of the 2 tax years immediately before the relevant tax year.

   For example, Tom was born in the UK in 1975 and his father was UK domiciled. In 2005 he moved to Australia. He returned to the UK in August 2024. He will be deemed UK domicile in 2024/25.

UK Domicile election

A person who is domiciled overseas can make an election to be treated as UK domiciled provided the necessary conditions are met.

1. The non-domiciled person must be/or was married to a person who is UK domiciled. 

   The election can also be made following the death of the UK domiciled spouse or civil partner. 

   In this case the election must be made within two years of the date of the spouse or civil partner’s death.

2. The election must be made after 5 April 2013

3. The election can be backdated for up to 7 years, but not before 6 April 2013.

4. The election is irrevocable, but if a person makes the election and is non-UK resident for four consecutive tax years, the election will lapse

Transfers between spouses

Both spouses UK domiciled

Gifts to spouses (and registered civil partners) are exempt from IHT . This exemption applies both to lifetime gifts and on death.

UK Domiciled spouse transferring to Non UK Domiciled spouse

There is a maximum exemption of £325,000.