t: 0141 221 4442

Living outside the UK

What happens when someone dies?

When someone living abroad dies, the rules for paying Inheritance Tax usually depend on:

• How long they lived abroad
• Whether their assets (property,
money and possessions) are in the UK or abroad
• If their assets in the UK are
‘excluded assets’
• If their assets were put into a trust

How long the deceased lived abroad

For IHT purposes, HM Revenue and Customs (HMRC) can treat someone who had their permanent home (‘domicile’) abroad as if it was in the UK (known as ‘deemed domicile’) if they had either:

• Had their permanent home in the UK
at any time in the three years before they died
• Been resident in the UK for at least
17 of the 20 Income Tax years up to their death

If the deceased is deemed domiciled in the UK, their estate has to pay UK IHT on all their assets.
If they aren’t deemed domiciled, their estate:

• Has to pay IHT on their assets (except excluded assets) in the UK
• Won’t have to pay UK IHT on their assets outside the UK

HMRC only recognises a change of domicile if there’s strong evidence that someone has permanently left the UK and intends to live abroad indefinitely.

UK assets you don’t pay Inheritance Tax on
The estate doesn’t have to pay IHT on some assets in the UK if the deceased was domiciled abroad. These are known as ‘excluded assets’. They include:

• Holdings in authorised unit trusts
and open-ended investment
companies (OEICs)
• Foreign currency accounts with a bank or the Post Office
• UK government gilts which were issued ‘free of tax to residents abroad’
• Overseas pensions
• Pay and possessions of members of visiting armed forces and staff of
allied headquarters
Government gilts

There’s no IHT payable on government gilts issued:

• Before 30 April 1996 – and the deceased wasn’t deemed domiciled or resident in the UK
• On or after 30 April 1996 – and the deceased wasn’t resident in the UK

Channel Islands and Isle of Man
National Savings Certificates or certain other forms of small savings are excluded from IHT if the deceased was domiciled (not deemed domiciled) in the Channel Islands or the Isle of Man.

Double-taxation treaties
You may be able to avoid or reclaim tax through a double-taxation treaty if IHT is charged on the same assets by the UK and the country where the deceased lived.

There are different rules if the deceased put assets outside the UK into a trust while they were domiciled in the UK.

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