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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 The relevant sections are in Appendix A below and these are superseded by the revised guidance below.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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Crown Copyright 2010.

A licence is needed to reproduce this article and has been republished for educational / informational purposes only. Article reproduced by permission of HM Revenue & Customs under the terms of a Click-Use Licence. Tax briefs are updated regularly and may be out of date at time of reading.

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Article Published/Sorted/Amended on Scopulus 2010-08-27 19:16:54 in Tax Articles

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