Dawie wrote:You don't need to do anything, your wife is ALREADY domiciled in the UK. So stop worrying.
I worry about conclusion like this. It is far too simplistic! I suspect if it is that easy, most tax advisors especially Inheritance Tax (IHT) specialists, would have retrained as plumbers by now. When I last spoke to my own accountant and tax advisor late last week, he was still in business.
The issue of domicile is a complex one which would require consideration of a lot of factors. My response below, which is on the basis on the limited information which you have provided, is not intended to be a comprehensive discussion of all relevant issues or options. Other aspects of taxation such as income tax or capital gains tax have been ignored. In this respect, you are strongly advised to obtain proper advice from qualified professionals before taking or not taking decisions. Where reference is made to your “death”, this is purely hypothetical for illustration purposes only.
Let’s kick-off with some good news. Er, no, I’m not referring to the departure of Jade Goody’s mother from Celebrity Big Brother. Although the limit for non-domiciled spouse is £55,000, the tax-free limit can be stretched to £340,000 by utilising the nil rate band (NRB) of £285,000. The key here is to ensure that the non-domiciled spouse is the sole beneficiary under the will. Any amount above £340,000 would then be taxed at 40%.
There are a number of ways, but not limited to the following, in which the domicile of an individual is determined. Your wife’s domicile of origin is presumably Brazil. This is acquired from her father when she was born. It is probably a no-go area. Your best line of argument is to claim that she is now domiciled in UK by virtue of her dependency on you (i.e. domicile of dependency) AND her choice (i.e. domicile of choice). In addition, if your wife has been in resident in the UK for at least 17 of the 20 tax years preceding the transfer, she will be deemed to be domiciled in the UK for IHT purposes.
It has been suggested that you complete a form DOM1. I’m not sure this would lead to anywhere as HRMC will not normally give a ruling unless there has been a chargeable transfer or IHT100 form or similar filed. In fact, the HRMC’s own guide, IR20, made it clear that “We will consider the question of your domicile only where this will affect your
current tax liability.” See paragraph 4.9 IR20.
The recent high profile case of
Gaines-Cooper reaffirms this fairly well established point that domicile is a legal status which is demonstrated by a person’s intention. If your wife wants, she can declare her intention to stay in the UK on a permanent and indefinite basis and claim UK domicile immediately. She needs to make a written declaration of intention upon obtain some written advice accordingly.
At this point, we pause for a break (and make a cup of tea?) and ask this fundamental question. Is it absolutely necessary to make your wife domiciled in UK immediately? If you and your wife ever want to retire abroad, your wife could then be subjected to UK IHT (and possibly other taxes) unnecessarily. Most people actually want to be non-domiciled in UK for tax purposes! I fully understand that you don’t want to expose your wife to potential IHT liabilities. You can easily do so, without affecting her valuable non UK domicile status, by simply taking out inheritance tax insurance. The policy will pay enough to pay the tax bill. The value of the premium is obviously dependant on the value of your assets but can be surprisingly affordable. If you do want to go down this route, remember that the inheritance tax insurance should be written in trust since by not doing so would simply add in the proceeds of the policy to your estate and make the inheritance tax bill even bigger.
If you die testate (i.e. with a valid will), your wife, being the sole beneficiary of the estate, so as to take advantage of the NRB+£55k limit as a non domiciled spouse, could execute a Deed of Variation up to two years following your death to change how the assets are shared. Your spouse owns all of her own estate together with that inherited from you, but has only one nil rate band to use on her own death. If she happens to be UK domiciled by then, she could change your will by deed of variation so that assets up to say the NRB limit are passed on to your children tax free.
Other popular ways to minimise the value of your estate include the use of loan trusts which effectively freezes the value of your assets and allowing growth and income to accumulate outside the estate.
I’m going to call my tax advisor in the morning to see if he has now retrained as a plumber to fix the low water pressure in my bathroom …
The Mafia …
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