First question is: are your parents UK domiciled for the purposes of IHT? Note that this is broader than general UK domicile and includes several anti-avoidance rules deeming domicile, see: Inheritance Tax deemed domicile rules - GOV.UK
Next is scope of assets: in the general case there’s no territorial exclusion for assets so worldwide assets are included. There are some exceptions to this.
Lastly nature of asset: certain AIM listed shares might quality for BPR and so be excluded provided the holding period is met.
My Mother has been living in Switzerland for 40 years. So she is not domiciled in the UK by that definition.
I take it the following rules will apply to her situation:
When someone living outside the UK dies
If your permanent home (‘domicile’) is abroad, Inheritance Tax is only paid on your UK assets, for example property or bank accounts you have in the UK.
It’s not paid on ‘excluded assets’ like:
foreign currency accounts with a bank or the Post Office
overseas pensions
holdings in authorised unit trusts and open-ended investment companies
Would an ETF in Interactive Broker be considered a UK asset in this regard? Since I have opened the account with IB UK.
FYI she is currently alive and well. I’m just thinking well in to the future here
No. The deemed domicile rules can only bring you into the IHT net. They don’t take you out.
If she was ever domiciled in the UK, you have to prove that she has lost her UK domicile and acquired a domicile of choice in Switzerland.
The burden of proof lies with tax payer claiming ot have lost their UK domicile. Be warned that it is notoriously difficult to prove this and HMRC have won many court cases. If big money is at stake, you might want to plan around it.
ok, I understand. But lets say we can prove she has had her domicile in Switzerland since 1980.
What about storing ETFs at Interactive Brokers UK. Would that constitute as assets that fall under the UK inheritance tax due to the fact that IB is domiciled in the UK?
UK domiciled individuals are subject to IHT on their worldwide assets whereas non-UK domiciled individuals are only subject to IHT on their UK situated assets.
Am I right to assume:
If a UK national is domiciled in Switzerland and the person has stocks or ETFs in a Swiss Domiciled Broker then no inheritance tax will be levied.
However if the same UK national, domiciled in Switzerland has stocks or ETFs at a UK broker, these could be subject to inheritance tax?
Thats basically what I am trying to find out. If that is the case I would move the stocks to a Swiss Broker from Interactive Broker, which I believe would be considered an UK broker.
Yes, I saw this too. A residence based test would be much easier even if it is a strict one. I’d do something like you are within scope to IHT if you have been resident in the UK for at 1 to 10 or more of the last 20 years. And taper the IHT by 10% increments so you have 100% if you’ve been resident 10 years of the last 20 down to 10% if only 1 year in last 20.
So this means an UCITS ETF domiciled in Ireland would be not fall under inheritance tax, however if they were to own stock of an UK Company or UK based ETF this would fall under the inheritance tax?
Or if my parents would keep a large amount of cash on IB (which they do not). And then only if thats UK pounds. According to this listing, foreign currency does not fall under the inheritance tax?
When someone living outside the UK dies
If your permanent home (‘domicile’) is abroad, Inheritance Tax is only paid on your UK assets, for example property or bank accounts you have in the UK.
It’s not paid on ‘excluded assets’ like:
foreign currency accounts with a bank or the Post Office
overseas pensions
holdings in authorised unit trusts and open-ended investment companies
Was your mother born in UK to a UK mother and father ?
If “yes” then under the current rules it would mean she probably has UK “domicile of origin” even if she has been resident in Switzerland for 100 years. This is my case.
Under the current rules you needed to pay careful attention to the concepts of domicile vs. residency. Hopefully that is all about to become irrelevant
Under the current laws she would be liable to UK IHT on her WORLDWIDE assets UNLESS her heirs could demonstrate she has obtained a different “Domicile of Choice” .
Based on what I’ve been told Domicile of Choice is difficult to prove and it is recommended to take active measures to cut ties with the UK. It is not possible to request a ruling.
Search “UK tax establish domicile of choice”
I’ll be so happy if it’s reformed
EDIT: article explaining the current rules and issues
From memory there is a very high exemption of USD 11m or so that is applicable and the tax itself was not (yet) an issue for me
However my heirs would have to go through the process of US probate. iirc IBKR would need a notarised certificate of death from Switzerland, and it could take some months to get the assets
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