5 Leading Misconceptions That British Expats Have With Regards To Domicile And Taxation

IHT.jpgThere are some crucial misunderstandings amongst the British expat community when it comes to their understanding of domicile status and their tax position.  These misconceptions could leave their loved ones financially exposed and could even cause trouble with HMRC if they are not paying the correct UK Tax.

  1. UK Expats believe that they are no longer UK Domiciled

British expats are likely to have a UK domicile of origin which is acquired at birth. They can try to acquire a new domicile (a domicile of choice) by settling in a new country with the intention of living in this country permanently. However, it is extremely difficult to lose a UK domicile status and acquire a new one.

There are no fixed rules as to what is required to acquire a new domicile and the burden falls on the individual to prove they have acquired a new domicile, and often this isn’t finally decided or tested by HMRC until someone actually passes away.  Living in another country for a long time, although an important factor does not prove a new domicile has been acquired.   Among the many conditions that HMRC list, it states that all links with the UK must be severed and they must have no intention of returning to the UK.

Should a long term expat move from one country to another the domicile will also revert back to a UK domicile until sufficient connections are made to establish domicile in the new location.
It is estimated that 74% of UK expats who consider themselves no longer UK domiciled still hold assets in the UK, and 81% have not ruled out returning to the UK in the future. This means HMRC is likely to still consider them to be deemed UK domiciled and they would therefore face IHT on their worldwide assets.

2. British expats believe that they will only be subject to UK IHT on their UK assets

Most British expats will be deemed UK domicile upon death, this means that all of their assets that they hold and not just those that are located in the UK will be subject to UK IHT.  It is estimated that 82% of UK expats do not realise this.

Before probate can bIHT Pote granted, the probate fee and any inheritance tax that is due on the estate must be paid. With UK IHT set at 40%, there could be a significant bill for beneficiaries to pay before they have access to their inheritance and this can also take a considerable amount of time.  Setting up a life insurance policy in trust could help ensure beneficiaries have access to cash to pay the required fees and continue life whilst waiting for probate to be granted.

3.British expats mistakenly believe they are no longer subject to UK taxes after leaving the UK

All income and gains that are generated from UK property or assets will continue to be subject to UK taxes. 11% of UK expats seem to think that just because they no longer live in the UK they don’t need to declare their income, capital gains from savings and investments or property held in the UK.  By not declaring the correct taxes people can find they end up being investigated by HMRC, and the penalties for non-disclosure are getting tough

4.British expats often believe that their spouse can sign documents on their behalf should anything happen to them.

Old people.jpg44% of UK expats wrongly believe that a spouse or child or a professional will be able to manage their affairs should they become mentally incapacitated is leading people to think they don’t need a Power of Attorney (POA) in place. This could result in families being left in vulnerable positions as their loved ones will not automatically be able to step in and act on their behalf. Instead, there will be a delay whilst they apply to the Court of Protection to obtain the necessary authority. 

5.British expats unsure if their will is automatically recognised in the country they have moved to

It is wrong to assume a will or POA document is automatically recognised in the country in which they move to. Often overseas law is driven by where the person is habitually resident, and the laws of that country will apply. Therefore, people may require a UK will and POA for their UK assets and a separate one covering their assets in the country they live. The wills also need to acknowledge each other so as not to supersede each other.

Should you have queries with regards to your UK tax situation, Domicile or IHT please do not hesitate to contact us for further information and to discuss your situation.

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4 thoughts on “5 Leading Misconceptions That British Expats Have With Regards To Domicile And Taxation

  1. I’m interested in your opinion as to whether I am considered Non Domicile in UK now that I live in Thailand? I have been living here for over 10 years and have bought a home and have no intention of returning to the U.K. I am exempt from U.K. Income Tax and do not file a return because my U.K. Pension is very small.
    I left U.K. In 1956 directly after National Service in the RA F and lived in Kenya for the next 7 years After this, I transfered to Trinidad and Tobago and lived there for 43 years and was in business in this country. I was told by my Personal Accountant in London who looked after my Tax Returns in UK in respect of a UK property left to me by my father and was rented for several year’s and then sold, that my status was considered Non Domicile in the U.K. when I was living in Trinidad and Tobago. The sale of London property was over 25 year’s ago. I relocated from Trinidad and Tobago to Thailand in 2006 and have been living in Thailand in retirement since. I have not worked in the U.K. after being in the RAF and have only visited the U.K. on short vacations since 1956. I am 85 next birthday November 19, 2017.
    Thanking you in advance.

    Liked by 1 person

    • Hi Nicholas, It sounds like you have a very good chance of being considered a Non-Domicile in light of the length of time that you have spent away from the UK and the fact that it sounds like you have no real links. However to be as sure as you can you should check that you have as few links to the UK as possible; Property, bank accounts, investments, club memberships or any other tenuous links. It may also be dependant upon your residency status in Thailand and also any wishes in your will as to funeral arrangements (In Thailand or the UK). Unfortunately we aren’t in a position to be sure to class you as a non-domicile and HMRC also won’t categorically state that you aren’t domicile until it is actually tested. If you would like to discuss further please feel free to email me simon@intelligentinvestments.biz. Kind regards, Simon Cook

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  2. You have started a useful debate and I am sure there is considerable confusion amongst my circle of friends here in Penang. Other related topics to include in the debate could be:

    1. The Domicile of the spouse and the treatment for UK Inheritance tax.
    2, the need for wills to clearly state which assets are covered, especially if there are multiple will in different jurisdictions. Dying intestate is not an option for Expats.
    3. Taking advantage of and Dual Taxation Treaty between UK and your country of residence
    4. The developing Common Reporting System will require all banks to know where you are Ta Resident and to have your Individual Tax Reference on file before they will open a new account.

    Liked by 1 person

    • Hi Patrick, yes many expats get confused with the difference between tax residency and domicile. CRS is now a requirement for pretty much any financial institution globally and is causing significant problems for the globally mobile retired many of whom don’t spend long in any jurisdiction and therefore haven’t had a tax residency. Would it be worth popping up and doing a group discussion of some sort to address issues?

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