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HMRC internal manual

Inheritance Tax Manual

From
HM Revenue & Customs
Updated
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Pre-owned assets: exemptions: foreign element - foreign domiciliaries

Where a person is resident, but not domiciled in the UK (taking into account the Inheritance Tax deemed domicile rules), the POA charge only applies to property that is situated in the UK, FA04/Sch15/para12(2).

Example

Gregor, who is non-UK domiciled but resident in the UK, gives his French house to an offshore company which is 100% owned by him and continues to live there. This is a disposal of land, but there is no POA charge because of the exemption under FA04/Sch15/Para12(2). However Gregor owns the company shares that derive their value from the house, so he is also exempt under FA04/Sch15/Para11(1). If, after a period of time, Gregor becomes deemed domiciled in the UK, this exemption under FA04/Sch15 /Para12(2) will be lost. However, exemption under FA04/Sch15/Para11(1) (IHTM44041) is still available as Gregor’s estate includes property (the company shares) which derives its value from the relevant property.

If Gregor had given his UK house to the offshore company and continued to live there, a POA charge potentially arises. The exemption under FA04/Sch15/Para12(2) does not apply because the property is situated in the UK. However, exemption under FA04/Sch15/Para11(1) is still available as Gregor’s estate includes property (the company shares) which derives its value from the relevant property.

Note that in the second scenario above, the exemption still applies even though should Gregor die non-UK domiciled the property will not be liable to Inheritance Tax because the shares in the offshore company will be excluded property (IHTM04260).