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Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). property thatis outside the scope of inheritance tax), the debt is disallowedfor IHT purposes.SCROLL FULLY DOWN TO READ THE TERMS AND CONDITIONSThis rule only applies to liabilities incurred on or after 6April 2013.Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.Mondaq has a "free to view" business model. Individuals who are domiciled in the UK are subject to IHT on all their worldwide assets, subject to reliefs and exemptions. They may also use it to provide Mondaq users with information about their products and services.The UK has a favourable tax regime for individuals who arenon-UK domiciled, and this extends to inheritance tax (IHT). Examples are gifts to trusts, gifts to trust-like entities such as private foundations and gifts to charitable entities outside the EU.The only notable exception to this relates to non-UK assets which derive their value from UK residential property, or have been provided as collateral for a loan used to acquire or improve such property. Such assets are effectively deemed to be UK assets for IHT purposes.It is important to count tax years of residence correctly for these purposes. Under the rules which applied before the UK introduced its current statutory residence test, it was not uncommon for an individual moving to the UK to become taxable as a resident in a given tax year even if he only started spending time in the UK towards the end of the tax year; and indeed, an unlucky or ill-advised individual might became tax resident a matter of days before the end of the tax year in which he “arrived” in the UK. This can also happen under the statutory resident test, for example if the individual becomes UK resident on commencing full-time work in the UK. There is no doubt that, where an individual became UK resident partway through a tax year, that whole tax year must “go onto the clock” for the purposes of the deemed domicile test (even if he was taxable as a resident, in that tax year, for just a few days). Deemed domicile can therefore arrive sooner than expected, sometimes little more than 14 years after the individual’s “arrival” in the UK.In addition, it is very common for individuals to have poor records and recollection of when they first became UK resident. Very often, it transpires that the individual became UK resident earlier than he or she had remembered, and/or that the totting up of years of UK residence has been done incorrectly. In either case, a surprisingly common outcome is that the professional adviser is consulted about establishing an excluded property settlement after the individual has already become deemed domiciled! This is deeply disappointing for the individual and adviser alike.Normally, assets passing from one spouse to another are free of IHT, by virtue of the spouse exemption. However, in the scenarios mentioned above, the spouse exemption is limited to £325,000 – unless the surviving spouse makes an election to be treated for IHT purposes as domiciled in the UK. If so, the spouse exemption is unlimited, but the worldwide assets of the surviving spouse will be within the scope of IHT on his or her own death (unless the surviving spouse then spends sufficient time outside the UK to shed his or her deemed domiciled status).We provide specialist insight and advice to privately owned, family businesses, private equity-backed, AIM and other listed companies.Our sector specialists are committed to a jargon-free, practical and commercial approach.Guardianship of grandchildren following parent’s death or divorceDetermining an individual’s domicile is not necessarily straightforward, but where an individual was born abroad, or his parents lived abroad, or he himself has lived abroad for a long period, it is likely to be worth investigating his domicile further to see whether he may be a “non-dom”.This note focuses on the IHT advantages of being domiciled outside the UK. For a discussion of the income tax and CGT advantages of being a non-dom, please see our note “UK resident non-UK domiciliaries: the remittance basis”.By contrast, when a non-dom dies, then provided that he or she is not deemed domiciled in the UK for IHT, the tax generally applies only to UK assets; generally there is no IHT on assets situated outside the UK.If you think that any of these issues may be of relevance to you or your client, please do contact us to arrange a meeting to discuss the issues and possible solutions in further detail. If the trust has non-UK resident trustees, it offers an additional advantage, because neither the non-UK domiciled settlor nor any other UK resident beneficiary will be liable to CGT in respect of capital gains realised by the trustees, or liable to income tax in respect of non-UK income received by the trustees, until a benefit is received from the trust. This means that income and gains can, in principle, roll up inside the trust without tax being paid on them.Other important issues for non-doms to consider include:Non-dom status is generally beneficial, but there is one situation in which it can have unwelcome IHT consequences – where there is a “domicile mismatch”. This occurs when:In this series, we take a look at UK and Swiss tax issues which should be considered when climbing the English or Swiss real estate ladder.We work with a variety of clients across a broad range of sectors.Being non-UK domiciled is highly advantageous where IHT is concerned.The legal and tax treatment of non-doms is a highly complex area and this note only covers a selection of the relevant issues. Our note “UK resident non-UK domiciliaries: the remittance basis” covers some of the planning points for individuals who are preparing to become UK resident as remittance basis users. It also touches on the structuring of acquisitions of UK real estate by non-doms who are resident in the UK.Visit our hub page for the latest on planning for and coping with the impact of Coronavirus.An individual with a non-UK domicile of origin will remain non-UK domiciled for as long as he can credibly say that he intends to cease residing in the UK at some point in the future. For example, it is common for individuals with foreign domiciles of origin to intend to leave the UK when their children cease to be in full-time education in the UK, on the termination of a particular job with a UK employer, on the sale of a particular UK company, on their retirement, etc. As long as the intention to leave the UK is realistic, the domicile of origin will be retained in these scenarios. However, if an individual moves to the UK late in life, an assertion of a foreign domicile may be more susceptible to challenge.When a UK domiciliary dies, his or her estate is subject to IHT on a worldwide basis. IHT applies at 40% to assets both within and outside the UK, except to the extent that they are protected by the exemption for assets passing to a surviving spouse, or fall within the individual’s “nil rate band”. At £325,000, the latter is not exactly generous.A non-UK domiciliary (sometimes called a “non-dom”) is an individual who is domiciled outside the UK for the purposes of English common law.If an individual plans to “break” his deemed domicile, close attention must be paid to the provisions of the UK’s statutory residence test, to ensure that he will qualify as a non-UK resident throughout the required period. Deemed domicile will not be “broken” if the individual resumes UK residence too soon.Although an excluded property settlement will save IHT at 40% of the value of the assets on the settlor’s death, there will be ongoing trustee fees. Prospective settlors should compare these costs against the cost of life assurance.Heather Maizels speaks to Sarah Rowley about setting up a charitable foundationAs mentioned above, non-doms generally lose their favoured IHT status once they become deemed domiciled, when their non-UK assets fall within the scope of IHT.However, it is probably fair to say that the most immediate impact of a foreign domicile is in relation to tax. Non-doms have a reduced exposure to UK taxation, in recognition of the fact that they are less closely connected to the UK than individuals who are domiciled within the UK. The tax advantages of being a non-dom are essentially threefold:We would normally recommend that a professional offshore trust company is appointed as trustee, to ensure that the non-UK resident status of the trust is maintained. If the intention is to defer tax on income and gains through the use of an offshore trust, it is crucial that the settlor does not become actually domiciled in the UK, and also that the trust assets are carefully selected.There are two reasons for this. One reason is that it can take some time to choose a trustee and establish and fund a trust, and it is not sensible to leave it to the last minute. Generally, an individual who has become deemed domiciled in the UK for IHT purposes has the same status, where IHT is concerned, as someone who is domiciled in part of the UK. However, in certain scenarios the position is modified by a double taxation treaty.Mixed domicile couples, and non-dom couples who became UK resident at different times, should consider putting special Wills in place to cater for the possibility of a domicile mismatch on the first death.