HM Revenue and Customs Brief 34/10
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Issued 24 August 2010
Domicile and Inheritance Tax
This Revenue & Customs Brief details changes to the circumstances in
which HM Revenue & Customs (HMRC) will consider an individual's domicile and
decide whether to make a determination of Inheritance Tax based on that.
These changes are being made because in HMRC experience the existing
guidelines were not working well for the customer and HMRC. In future, by
adopting a wider risk-based approach HMRC will ensure that resources are
deployed in the most cost effective way.
Revenue & Customs Brief 17/09 issued on 25 March 2009 described changes
to procedures following the changes to the remittance basis rules and the
residence rules made by the Finance Act 2008. The relevant sections are in
Appendix A below and these are superseded by the revised guidance below.
Revised guidance
The revised guidance applies to dispositions made after the issue of this
Revenue & Customs Brief.
In future HMRC will consider opening an enquiry where domicile could be
an issue, or making a determination of Inheritance Tax in such cases, only
where there is a significant risk of loss of UK tax.
The significance of the risk will be assessed by HMRC using a wide range
of factors. The factors will depend very much on the individual case but
will include, for example:
- a review of the information available to HMRC about the individual on
HMRC databases
- whether there is a significant amount of tax (all taxes and duties not
just Inheritance Tax) at risk
HMRC does not consider it appropriate to state an amount of tax that
would be considered significant, as the amount of tax at stake is only one
factor. It should be borne in mind that HMRC will take into account the
potential costs involved in pursuing an enquiry, and also those of potential
litigation should the enquiry not result in agreement between HMRC and the
individual; clearly such costs can be substantial.
Where HMRC does open an Inheritance Tax enquiry in any of these cases, it
will keep the factors in view and may stop the enquiry at any stage if it
considers the continuation of the enquiry is not cost effective. The outcome
of such an enquiry may be that HMRC does not consider it appropriate to make
a determination of the Inheritance Tax.
Individuals should also bear in mind that enquiries into domicile involve
a detailed inquiry into all of the relevant facts and HMRC is likely to
require considerable personal information and extensive documentary evidence
about the taxpayer and the taxpayer's close family.
Appendix A: Extract from Revenue & Customs Brief 17/09
superseded by Revenue & Customs Brief 34/2010 issued on 24 August 2010.
"Where an individual who is not domiciled in the UK settles non-UK assets
into a non-UK resident trust then assets in that trust will not be subject
to Inheritance Tax. Following the release of the new HMRC guidance on
domicile most settlors should now be able to decide for themselves whether
or not they are UK domiciled."
"An individual setting up a non-resident trust who, having taken account
of the new HMRC guidance, considers they are non-UK domiciled is not obliged
to submit an Inheritance Tax account to HMRC. If the settlor is non-UK
domiciled then no Inheritance Tax is due. But if an Inheritance Tax account
is submitted in these circumstances, HMRC will continue its existing
practice and only open an enquiry into that return if the amounts of
Inheritance Tax at stake make such an enquiry cost effective to carry out.
At present that limit is £10,000."
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