The law of domicile is important for Inheritance Tax (IHT) for several reasons:
- It is a common law concept that will determine which rules apply for succession to personal (movable) property, wherever it is situated, and help establish ‘who gets what’.
- It limits the charge to IHT to people domiciled in the UK or with assets sited in the UK. For example if someone creates a settlement with assets outside the UK, when they are not domiciled in the UK, the settlement could be excluded from the charge to Inheritance Tax (IHTM04000).
- It is one of the conditions for leaving the value of non-sterling bank accounts (IHTM04380) in the UK out of account.
As part of protective and anti-avoidance legislation. For example:
- Spouse or civil partner exemption may be limited if the recipient is domiciled outside the UK
- Long term tax residents of the UK may be treated as being domiciled in the UK for the purposes of IHT, even though they have a domicile outside the UK under general law (IHTM13024)
- Those who were UK domiciled but have emigrated recently could also be treated as being domiciled in the UK (IHTM13024).
Lastly, double taxation conventions (IHTM27161) apply to people domiciled in certain countries and this will have tax implications. For example:
- Property can be removed from the charge to IHT, depending on the terms of the convention.
- The availability of a tax credit can depend upon the ‘fiscal’ domicile of the taxpayer, which may be defined by the terms of the convention.