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bigduckontax
bigduckontax, Accountant
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Inheritance tax Questions: Background: I am a UK citizen age

Customer Question

Inheritance tax Questions:
Background:
I am a UK citizen age 65, and have been resident in Cyprus for 19 years (91-97 & 02 to date), and intending to remain permanently so. I maintain that my “domicile of choice” is now Cyprus. I have noted this previously on UK tax returns when I was receiving UK rental income). However, I am well aware how difficult it is to “lose” UK domicile, and that HMRC will not rule on one's domicile status unless it is relevant in any particular tax year.
My wife, age 60, is a dual UK & Cypriot citizen, born in Cyprus of Cypriot parents, and currently resident in Cyprus. She was UK resident for 25 years (62-82 & 97-02). I don't think there is any doubt that her domicile is Cypriot.
Our UK assets comprise one joint bank account and one sole bank account. In addition, we hold investments in the form of UK listed shares, held by a Luxembourg bank as nominees, and offshore bank accounts in Cyprus and Isle of Man (and property in Cyprus).
1. As far as you are aware, is there any way that I can “test” my own domicile status, and force HMRC rule on it? (as non-resident I cant see any way to do this)
2. My wife is non-UK domiciled, I understand that she would be liable for inheritance tax on her UK assets only. In this context, would UK-listed shares held by a nominee in Luxembourg bank be considered as UK assets for IHT purposes?
3. I assume that bank deposits in IoM, (or other UK offshore centres) would not be considered UK assets?
4. Our residential home is located in Cyprus, and jointly owned. Under the IHT changes coming into effect in 2017-2021, (additional nil rate bad), will this apply to a non-uk primary residence?
5. The additional nil-rate allowance is conditional on bequeathing the residence to “direct descendants”. If my wife survives me, she will leave the property to my 2 children, but they are her step-children. Do they count as direct descendants?
6. Assuming yes, to Q4, and that my wife survives me (most likely), how will it work given that she is non-UK-domiciled. Is it still the case that if I leave everything to her then there is no IHT on my death? And then when she dies she will have the basic £325k allowance on any UK assets, but the additional nil rate would not apply as the residence would not be a UK asset, and as a non-domicile, this would be exempt anyway?
7. If I survive my wife (less likely), and she leaves everything to me, again there is no IHT due, but when I die, would I have my £325k nil rate, + her £325k + my additional £175k? Can I also claim her £175k additional nil rate?
7. Are life insurance proceeds considered part of the deceased persons' estate for IHT purposes?
Submitted: 11 days ago.
Category: Tax
Expert:  Nicola-mod replied 9 days ago.
Hello,
I've been working hard to find a Professional to assist you with your question, but sometimes finding the right Professional can take a little longer than expected.
I wonder whether you're ok with continuing to wait for an answer. If you are, please let me know and I will continue my search. If not, feel free to let me know and I will cancel this question for you.
Thank you!
Nicola
Customer: replied 9 days ago.
I am happy to wait. If it is proving difficult to find an available expert qualified & willing to answer all the sub-questions, I may be able to summarise/simplify the question?
Expert:  bigduckontax replied 8 days ago.

1. Not easily, it usually takes about 16+ years to change a domicile. Your spouse being non domiciled and your residence will be to your advantage though.

2. Correct, but she would appear to have no UK assets.

3. The IOM is not part of the UK or the EU.

4. Yes, but as it is in Cyprus and not an UK asset it is irrelevant. the increased IHT allowance rises in the case of a dwelling left to children progressively rises to 500K from 2017 through to 2020.

5,6&7. Unused proportions of the nil rate allowance may be inherited by the survivor this making a possible 1M free after 2020.

7. Yes, unless it is left to a designated beneficiary.

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