If you are someone who is not (yet) resident in the UK and you don’t have what’s called a UK domicile (more shortly), and you are thinking of moving to the UK, then putting your assets that are outside the UK into an Excluded Property Trust could provide you with an important shelter against UK Inheritance Tax which comes in at a massive 40% very quickly.
Yes, it’s worth repeating: if you are thinking of moving to the UK or you think there is a chance that in future you will become UK domiciled, the UK will apply Inheritance Tax at40% to your worldwide (and not only your UK) assets.
That’s because Inheritance Tax applies to the concept of domicile which is very different to tax residence.
Domicile is a UK legal concept. It is initially decided at birth, normally by reference to the permanent home of an individual’s father. So, if you were born in India of an Indian father, you will not be UK domiciled.
However, as an adult, your domicile may change. Someone with a UK domicile of origin could settle permanently or indefinitely in another country and acquire a domicile of choice in that country.
So, if you are born outside the UK with a non-UK domiciled father, you will have a non-UK domicile of origin but if you decide to move to the UK permanently (and many people do), then at some stage you may well acquire a UK domicile of choice – and then you will be as exposed to UK Inheritance Tax as anyone with a UK domicile of origin.
The current rules state that an individual will be deemed to be domiciled in the UK if he or she has been resident there for at least 15 of the last 20 tax years.
By transferring your non-UK assets to an EPT before you move to the UK, you can shelter those assets from being exposed to Inheritance Tax which starts to apply above a threshold of £325,000, a relatively low asset level.
Most EPTs are normal discretionary trusts which provide a great degree of flexibility. It’s usually wise to obtain professional tax advice before setting one up to ensure that the objectives are being met.
Abacus Gibraltar has provided trustee services from Gibraltar and elsewhere for 50 years and we’d be happy to walk you through how an EPT could help you as you plan your future. Email us at contactus@abacus.gi for more information.