Inheritance Tax Planning for Indian and Pakistani domiciled clients

Those individuals who live in the UK but have a father who was born outside the UK, may have what is known as ‘non-UK domiciled status’. There can be tax advantages for such individuals.

There are various conditions to this status, the most important being that the individual must not have a permanent intention to stay in the UK. However, such individuals may live in the UK for many years and still retain this status for income tax and capital gains tax purposes.

Inheritance tax

A different rule applies for inheritance tax, whereby an individual is treated as deemed domiciled in the UK if he has been resident here for 17 out of the last 20 tax years. An individual who is deemed domiciled would have his worldwide estate subject to UK inheritance tax.

For those individuals with an Indian or Pakistani domicile status, Double Tax Treaties (‘DTT’) are in place that can prevent this deemed domicile position from applying. If properly structured, this could mean that only the individual’s UK situs assets would be subject to UK inheritance tax at 40%. Unfortunately there is a common misconception and oversimplification on how the DTTs work.

How do DTTs work?

Any such planning must be implemented carefully and this involves a dual will structure, inside and outside the UK. In addition, domicile status advice must be sought in the country of origin, under Indian or Pakistani law (as appropriate) to give HMRC comfort on the position.

The DTTs only apply on death so any lifetime gifts would not be covered by these rules.

French and Italian domiciled clients may also be able to attract a similar treatment under their DTTs but the rules are not quite as straightforward.

We work alongside a private client solicitor who has a great deal of experience and success with HMRC in this area – significantly minimising the inheritance tax liability of the clients in question.




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