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UK inheritance tax & domicile of origin

AIDAN BAILEY of The Fry Group reveals how domicile of origin and other factors impact your UK Inheritance tax responsibilities. 

A
s a British expatriate, the key to deciding if you’re liable for UK Inheritance tax (IHT) is based on the concept of domicile. If you’re domiciled in England, Wales, Scotland or Northern Ireland, taxable estate includes global assets. But if you’re domiciled elsewhere, taxable estate is limited to UK assets only.
     Assessing your domicile requires a detailed examination of your background. At birth you acquire a domicile of origin from your father. But if your father is deceased at the time of your birth, or if you were born out of wedlock, your domicile of origin is determined by your mother. Upon adulthood, you can establish a domicile of choice in another country by demonstrating you’ve severed all connections with your “homeland” and have established permanent ties elsewhere. If you move to another country, your domicile of choice will remain as is until you establish a fresh domicile of choice. 
     If you’ve emigrated from the UK you remain domiciled in the UK for three tax years after departure. A foreigner entering the UK is only domiciled after being a UK resident for tax purposes for more than 16 tax years out of 20 years. Despite frequent references to the “17 out of 20” rule, it’s unsafe to act on the 17th year. If married couples have different domiciles the usual inter-spouse or registered civil partner transfer rules are also affected. So be careful when transferring assets from a UK-domiciled spouse or registered civil partner, to a foreign-domiciled spouse or registered civil partner and vice-versa.


Tax Burden
A potential charge to tax arises when you “gift” assets during your lifetime or upon death. While you’re not required to pay IHT on the first £325 000, any excess will be taxed at 40 percent. Attitudes to IHT vary. Some people feel it’s important to retain all assets, while others don’t see the point in saving Income Tax and Capital Gains Tax during their lifetime, if it results in assets being subjected to 40 percent IHT when they die. If you fall under the latter category you can take measures to reduce or eliminate IHT altogether. As a homeowner, you could be caught in the IHT net by default – even before taking into account the value of your investment. For an unmarried individual with valuable property or substantial investments, the burden is obviously considerable.
    
The Fry Group has developed a user-friendly guide using flowcharts to help you minimise or eliminate IHT. By answering a series of questions, you’ll be directed towards an IHT planning solution best fitting your needs. Email info@thefrygroupsg.com to request a copy of the chart today.

Aidan BaileyBA (Hons) CertPFS AWPCM 
General Manager Singapore, International Division

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Posted by The Fry Group Wed, 24 Nov 2010 07:35:00 GMT


Choose the right UK pension plan for you

UK pension plans are not a one-size-fits-all model as AIDAN BAILEY of The Fry Group reveals, outlining the many schemes available.

If you’ve worked in the UK but have retired to another country, under UK law your UK pension remains liable for income tax. However, this can easily be avoided by taking action. The current trend is to transfer pension benefits to a Qualifying Recognised Overseas Pension Scheme (QROPS) – designed to give you complete control over your finances while avoiding UK tax. While considered a powerful tool, a QROPS is generally more expensive than other UK-based equivalents. So it’s always wise to conduct a full review of your pension benefits and consider all available options.

Pension options
Double Taxation Agreements (DTAs) Most DTAs require your pension to be taxed only in your country of residence – beneficial if tax rates in your resident country are lower than the UK. While a DTA doesn’t exist between the UK and all countries, it’s available in many countries within and around Asia, so it pays to check if your country of choice complies. 
Foreign Service Relief Your pension can be exempted from UK tax if a substantial portion or better yet, the entire amount was earned through overseas employment. Complete a simple application to Her Majesties Revenue and Customs (HMRC) and your pension could be paid out in gross.
Qualifying Recognised Overseas Pension Scheme (QROPS) If both DTA and Foreign Service Relief are not applicable for you, choose a QROPS. This overseas self-invested personal pension plan enables UK-registered pensions to be transferred to overseas jurisdictions upon approval from HMRC. As long as your funds are from a UK-registered pension and you’re a non-UK resident, Income Tax will not be deducted from any ongoing pension payments.

Although tax is often the primary consideration, it’s not the only thing. Depending on where your pension is being transferred from and whether it’s the Final Salary or Money Purchase, other considerations should include:
• Fund performance comparison
• Charges
• Flexibility
• Death benefits
• Guarantees
• Ancillary benefits
 
Clearly, this is a very complex topic requiring in-depth, quality advice. To understand all your options, The Fry Group operates a Pensions Assessment Service® consultancy service to help assess your pension arrangements and determine which of the many options would suit you best. In many cases, this may be a combination of advice and adopting a financial planning solution.
 
Aidan BaileyBA (Hons) CertPFS AWPCM 
General Manager Singapore, International Division

 

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Posted by The Fry Group Mon, 01 Nov 2010 06:12:00 GMT