As UK Inheritance Tax (IHT) looks at both a person’s residence and domicile status, it is an important tax to consider when relocating to or from the UK.
For a person who has a UK Domicile of Origin (in most cases, when their father was UK domiciled), they are subject to UK IHT on their worldwide assets, regardless of where they are resident. Non-UK domiciled individuals are only subject to UK IHT on their UK situs assets.
Persons relocating from the UK would therefore still be taxable on their worldwide assets even though they are not living in the UK, due to their UK Domicile of Origin status. It is therefore possible for an individual who is non-UK resident with no UK situs assets to still be subject to UK IHT.
In order to abandon a UK Domicile of Origin and become non-UK domiciled, an individual would need to obtain a Domicile of Choice in another country. It is not easy to obtain a Domicile of Choice in another country, as an individual must show a clear intent to break their UK domicile and a clear intent to reside in the other country indefinitely. Due to new rules which took effect on 6 April 2017, even if a person born in the UK with a UK Domicile of Origin obtained a Domicile of Choice in another country, once they are resident in the UK for at least one of the previous two tax years, they will become deemed UK domicile for IHT purposes (“Formally Domiciled Resident”).
For a person arriving in the UK with a non-UK Domicile of Origin, even though they are living in the UK, they will continue to be subject to UK IHT on only their UK situs assets, unless they obtain a UK Domicile of Choice in the UK. However, once an individual is resident in the UK for 15 of the previous 20 tax years (before 6 April 2017, 17 of the previous 20), they will be deemed UK domiciled for IHT purposes. Once an individual with a non-UK Domicile is deemed UK domicile for UK IHT purposes, they would need to be non-UK resident for at least 6 of the previous 20 tax years in order to lose their deemed domiciled status.