One of the favourite areas that is regularly examined in the Advanced Tax and BPT exams is the impact of domicile for inheritance tax.

UK domiciled individuals are subject to tax on their worldwide assets while non-UK domiciled individuals are only subject to tax on their UK assets.

An individual’s domicile is their permanent home, and the domicile of origin is generally acquired from your father at birth.

However, an important concept to understand is deemed domicile. Here, an individual who is domiciled overseas will be treated as UK domiciled.

The two most important deemed domicile cases are:

Long term residents -if an individual has been UK resident for 15 out of the last 20 tax years, the person will be deemed UK domiciled in the 16th tax year.

In addition, if an individual leaves the UK permanently, the person retains the UK domicile for a further 3 tax years.

Individuals who are domiciled overseas only pay tax on their UK assets. The location of the asset for tax is called the lex situs of the asset and is usually the physical location of the asset.

There are special rules for debtors (the location is the country in which the debtor resides except for court judgements, the location is the country where the judgement was recorded)

With registered shares, the location is the country where the share register is.   

Finally, to encourage UK investment , HMRC have decided to designate UK bank accounts in foreign currency and UK securities like open-ended investment trusts and unit trust assets as exempt from UK inheritance tax as long as they are owned by an individual domiciled overseas.

If you are planning on doing Taxation or Advanced Tax in December 2023 or March 2024, I recommend you purchase Tax Condensed or Advanced Tax Condensed which will allow you to learn the technical rules. If you then practice the key questions I recommend, you too will be ready for anything the examiner throws at you.

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