What is UK inheritance tax?

To buy a house and immigrate to the UK, you need to understand certain tax knowledge. What is the inheritance tax in the UK? This is an issue that many immigrants are concerned about. Let’s take a look at the Overseas Immigration Network! Below is the relevant information I compiled, welcome to read.

What is British inheritance tax?

For those of us overseas Chinese, domicile is a very important concept. There is no corresponding word for this concept in Chinese. After searching for a long time, I feel that the "domicile" used in Hong Kong law is more reliable. So what is domicile?

Domicile is a legal concept, which refers to the country you consider as your "home", or the country where you have a "permanent home". It is different from nationality, citizenship, resident or permanent resident, although these all have a certain influence in determining your domicile.

In general practice, your domicile is your father’s domicile when you were born, that is, your country of origin. For those of us Chinese who have immigrated to the UK, we are all non-doms (non UK domicilaries, non-UK domiciles). If you insist on saying that you are a UK domicile, it doesn’t matter. HMRC (the British tax office) will probably not object and will only laugh. But if a native British person says that he has become a non-dom, HMRC will take a closer look. He...

This is because non-dom has great tax advantages, at least for now.

1. From the perspective of Income tax (personal income tax) and CGT (capital gains tax):

UK domicilaries, their global income/gain must pay tax in the UK (taxed on arising basis). For non-dom, only the income/gains generated in the UK must be taxed in the UK (taxed on UK sourced income/gains only). Your overseas income/gains can choose to be taxed only when it is brought (remitted) to the UK. Tax (taxed on remittance basis); if your overseas income/gain in that tax year is less than ?2000, it can be ignored.

But if you have lived in the UK as a resident for more than 7 years, you need to pay money to use this remittance basis. This money is called Non-domicile Remittance Basis Charge. After paying the money, you don’t have to pay UK tax as long as your overseas income/earnings are not brought into the UK. How much do you pay? In the 2015/16 tax year, if you have been a UK resident for at least 7 of the past 9 years, you have to pay ?30k; in the past 14 years, if you have been a UK resident for at least 12 years, you have to pay ?60k; if you have been a UK resident for at least 17 of the past 20 years, pay ?90k.

As mentioned above, the premise is that you are a resident (UK resident). If you are a non-resident (non-resident), UK dom is the same as non-dom. You only pay tax on the income/income generated in the UK.

However, from a tax perspective, what is a resident and what is a non-resident? There are many cumbersome regulations here, which cannot be summarized in one or two sentences. Fortunately, HMRC has an online tool called Tax Residence Indicator. You can fill in the relevant information to see if you are a resident or non-resident.

Link here:

There is no deemed domicile for e-tax and CGT.

Moreover, if you become a deemed UK domicile due to this 15-year rule, if you want to change back to a non-dom, you must leave the UK and become a non-resident for at least 5 years (the current policy is 4 Year).

This 15-year/5-year rule is undoubtedly a blow to the rich people who have a large amount of overseas assets and overseas income/income. It is definitely not good news for me who is not a rich person. The new regulations are currently in the stage of soliciting opinions and refining the terms. If nothing goes wrong, they will be formally written into the tax law next year and will come into effect in April 2017.

Now let’s talk about the inheritance tax issue on UK residential property. The government is closing loopholes in tax laws for non-dom, and the current tax planning will soon become unworkable. In short, as long as non-dom is mentioned in recent years, it is not good news.

As mentioned before, from the perspective of inheritance tax, the assets of UK domiciles must be taxed no matter which country they are in. As for our non-doms, only British assets are taxed. Overseas assets are excluded properties (assets that can be excluded) and are not within the scope of British inheritance tax.

This gives non-dom a great tax advantage: not only do overseas assets not need to pay tax (this article refers to inheritance tax IHT, the following are all), but our British assets can also easily pass tax planning ( tax planning) to avoid estate taxes.

For example, non-dom Mr. Zhang Tuhao, he has many properties in the UK, for example, the value is ?5m (five million pounds). If no tax planning is done, these properties will be taxed when calculating inheritance tax in the future. It is his death estate. After deducting the nil rate band (NRB) and other reliefs and exemptions of ?325k (325,000 pounds), the remaining inheritance tax of 40% is a considerable amount of tax that makes him feel painful.

What can the wealthy Mr. Dou do? A commonly used tax avoidance method is to establish an offshore company and transfer his real estate to the name of this company. In this way, he no longer has British real estate in his name, but instead owns shares in this offshore company. This share is a foreign share, which is an excluded property for non-dom, so it is exempt from inheritance tax.

But if the rich man has been a British resident (tax resident) for 17 of the past 20 years (changed to 15 years from April 2017), he will become a deemed domicile, "enjoyment" "The inheritance tax treatment is the same as that of British locals, that is, taxed on worldwide assets, so the foreign share mentioned above cannot avoid inheritance tax. This problem is usually solved using trust.

What is trust? This refers to trust, not the trust of Xiao Tang Tiezui in "Tea House" who "drags in, pulls in, and tears it in half if you don't obey." Simply put, a trust means that the settlor (settlor) transfers his assets (such as real estate, money, shares, etc.) to trustees (trustees). The trustees then legally own these assets, but they are the beneficiaries (beneficiaries). ) to manage and handle these assets for the benefit of the company. The purpose of setting up a trust is to still have control over the assets that have been given away, or to legally avoid taxes, or to ensure that family property does not flow out, or to hide the true owner of the property, etc.

Let’s take Mr. Zhang Tuhao as an example. He can set up an offshore trust while he is still non-dom, and put the foreign share mentioned above into this trust. This trust is an excluded property trust (EPT). Even if it becomes a deemed domicile in the future, the non-UK assets in its EPT will not have to pay high inheritance tax.

However, here comes the problem. The government is not a fool. They have to take measures to fix this loophole. In July Budget announced that from April 2017, all UK residential properties owned by trusts or individuals through offshore companies or partnerships, whether self-occupied or rented, regardless of value, will be included in the scope of inheritance tax collection. In other words, all UK residential properties are within the scope of inheritance tax, regardless of whether you are a UK domicile or non-dom, whether you own it directly or indirectly.

So HMRC has something to do again: offshore company, lift your veil and let me see if there is any UK residential property?

This means that Mr. Zhang Tuhao placed British properties in offshore companies, whether in a trust or not, will be subject to inheritance tax under the following circumstances:

—When the rich man dies. Regardless of whether he is a British resident at the time, as long as he owns the shares of the offshore company;

— When he donates the company shares to the trust;

— When the trust is established On the 10th anniversary;

— When the company’s shares are transferred out of the trust;

— If a rich man gifts the company’s shares to others such as his children, but within 7 years of the gift, he If you die (7-year rule)

Note that we have said that inheritance tax (IHT) includes lifetime tax and tax on death, and is not just a tax paid after death.

It is worth mentioning that this new policy only targets UK residential properties. For other assets, such as commercial properties, non-doms can still use old methods to avoid taxes.

For more details, please check the government website: https://www.gov.uk/inheritance-tax