Having discussed our client’s immigration position last week, it seemed appropriate to consider his residence and domicile position bearing in mind the large number of gifts he intended to make in a short period of time.
I began by explaining that the main tax that might affect his plans was inheritance tax (IHT). UK liability to IHT depends, for the most part, on the concept of domicile, which essentially equates to the concept of a permanent home and the situs of the asset. Completing a domicile questionnaire together, it soon became clear that he did not have a domicile of origin in England and Wales.
However, it transpired that he did spend a significant proportion of his time in this country, overseeing his toy manufacturing facilities (the UK is well known for its stringent Elf and Safety regulations), and that his wife had been born in the UK – a small hamlet, about three miles from Ware in Hertfordshire, called Cold Christmas.
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That said, I concluded that FC would only acquire a domicile in the UK if he lived here, intending to live here permanently or indefinitely. This seems unlikely.
FC’s gift records
Unlike many of my clients, however, he had a complete record of every single gift he had made (spanning many centuries, in fact) which would, of course, prove useful if it were necessary to determine whether any of the millions of potential exempt transfers of UK situs assets might become chargeable if he died within seven years, particularly if he acquired a domicile of choice here.
What was clear was that he had certainly exceeded his nil rate band and, notwithstanding the Government’s introduction of legislation to enable non-UK domiciled spouses to “elect” a UK domicile (to ensure the matching spouse exemption was available for those married to UK domiciled spouses), any gifts from her to him would in any event be spouse exempt from IHT. This is because she would have acquired a domicile matching his on their marriage – I ventured the assumption that it was pre-1974.
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I also mentioned in passing that it was probable his business in the UK would qualify for business property relief from IHT in its entirety, and with a little persuasion, HMRC might allow agricultural property relief on the reindeer stud.
Tax residence clarification
His tax residence status was not immediately clear – even with the introduction of the Statutory Residence Test, under which individuals will be conclusively non-UK tax resident if:
(a) They have been resident in the UK in at least one of the previous three tax years but spend fewer than 16 days in the UK in the current tax year.
(b) They have not been resident in the UK in any of the previous three tax years and spend fewer than 46 days in the UK in the current tax year.
(c) They work “sufficient hours” overseas – excluding “significant breaks” (in practice, this equates to full-time work abroad) – even though they may spend up to 90 days in the UK in any tax year, up to 30 of which are working days in the UK.
I observed that his day count might be difficult to ascertain because it was not always apparent whether he was within UK airspace at midnight (his visits extended beyond his seasonal duty on Christmas Eve due to his manufacturing commitments). I suggested a GPS tracking device might help since he would not be able to benefit from official records in and out of UK airports (public or private).
However, we determined that, notwithstanding his manufacturing obligations in the UK, his day-count would be below the limit in (b) even if there was a chance he might fall foul of working days in the UK in (c).
I concluded that it seemed unlikely FC will become resident in the UK, and if he is neither UK domiciled nor resident in the UK, he won’t be liable to UK taxes at all. I hope this means I make it on to the “good” list this year…
Sophie Mazzier is Counsel at boutique private wealth law firm Maurice Turnor Gardner LLP
