non-domiciled PETs??


E

Edward Lionheart

If a non-UK domiciled person makes a gift(s) of foreign property, and he
subsequently gains or regains UK domicile/deemed domicile what is the
position on death?

Are those gifts retrospectivley re-classified as PETs subject to the 7 year
rule running from the date of the gift?

If there was any reservation of benefit while still non-UK domiciled, how
would that affect the situation?

I am thinking of a situation where a non-domiciled individual gifts his
foreign home and comes(returns)to the UK. For a short period he may continue
to occupy the foreign "gift" house before re-entering the UK.

Thoughts?
 
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R

Ronald Raygun

Edward said:
If a non-UK domiciled person makes a gift(s) of foreign property, and he
subsequently gains or regains UK domicile/deemed domicile what is the
position on death?

Are those gifts retrospectivley re-classified as PETs subject to the 7
year rule running from the date of the gift?

If there was any reservation of benefit while still non-UK domiciled, how
would that affect the situation?

I am thinking of a situation where a non-domiciled individual gifts his
foreign home and comes(returns)to the UK. For a short period he may
continue to occupy the foreign "gift" house before re-entering the UK.

Thoughts?
Three thoughts:

0) The gaining of domicile is not easy-come easy-go; it may not be
possible to establish it within so short a time frame as 7 years.

1) It is a question of fact what the person's domicile is at death.
It is the case that if the person is UK domiciled at death, then
UK inheritance law applies, if foreign domiciled, then inheritance
law of the foreign country applies.

2) Whether UK inheritance *tax* law applies is likely to follow
whether UK inheritance law applies (but the former may sometimes
apply even without the latter, especially in respect of UK property).
Be that as it may, the 7 year rule would apply if and only if UK tax
law applies. My understanding is that PETs are not classified at
the time they are made, they are always retrospectively classified,
so there is no question of re-classification. You always work
backwards 7 years from death.
 
D

Doug Ramage

Edward Lionheart said:
If a non-UK domiciled person makes a gift(s) of foreign property, and he
subsequently gains or regains UK domicile/deemed domicile what is the
position on death?

Are those gifts retrospectivley re-classified as PETs subject to the 7 year
rule running from the date of the gift?

If there was any reservation of benefit while still non-UK domiciled, how
would that affect the situation?

I am thinking of a situation where a non-domiciled individual gifts his
foreign home and comes(returns)to the UK. For a short period he may continue
to occupy the foreign "gift" house before re-entering the UK.

Thoughts?
A gift of non UK situated assets by a non UK domiciliary should not be
classified as a PET, and thus outside the PET charging regime.
 
E

Edward Lionheart

Ronald Raygun said:
Three thoughts:

0) The gaining of domicile is not easy-come easy-go; it may not be
possible to establish it within so short a time frame as 7 years.
True, but it is possible, especially if reviving a UK domicile of origin.
Let's assume that Mr. X has acquired a domicile of choice in Jersey and has
no UK assets.
If he stays where he is and dies there, the UK are most unlikely to take an
interest.

Now lets say that Mr. X changes his mind, and while still Jersey domiciled
gives away property including (say) his Jersey home to UK domiciled
children.
Shortly after doing this Mr. X comes to live with his son in the UK, and
dies here within seven years of returning. His UK domicile will probably be
revived.
1) It is a question of fact what the person's domicile is at death.
It is the case that if the person is UK domiciled at death, then
UK inheritance law applies, if foreign domiciled, then inheritance
law of the foreign country applies.
True again, but devil is in the detail. Hence this post about gifts by a
non-UK domiciled person who later revives a UK domicile.
2) Whether UK inheritance *tax* law applies is likely to follow
whether UK inheritance law applies (but the former may sometimes
apply even without the latter, especially in respect of UK property).
Again true, but a general statement - not an answer to the specific
question.
Be that as it may, the 7 year rule would apply if and only if UK tax
law applies. My understanding is that PETs are not classified at
the time they are made, they are always retrospectively classified,
so there is no question of re-classification. You always work
backwards 7 years from death.
It seems a matter of semantics as well as law. Can a non-UK domiciled person
make a gift of non-UK assets that would only be classed as PETs if he
revived a UK domicile and died within 7 years? In other words is there such
a thing as a "potential" PET, distinct from a PET!

Consider the following situation:
Mr. Z, who has a domicile of origin in Ruritania(where there is no IHT) is
resident in London from time to time, but has no UK assets. Six years before
his death he gives his Ruritanian castle(worth £1 million) to his UK
domiciled children, bringing his remaining Ruritanian assets to £250,000,
just below the UK nil rate band. Shortly before his death Mr. Z is caught by
the "deemed domicile" rules and as far as the Inland Revenue are concerned
he dies domiciled in the UK. What is the IHT position?
He has no UK assets, and his worldwide estate at death is below the nil-rate
band anyhow. What about the Ruritanian castle he gave away 6 years ago? Is
that now added to the estate for IHT purposes on the grounds that it was a
PET??? Is the taxable estate now calculated as £1.25 million with tax of
approx £400k due?
 
E

Edward Lionheart

Doug Ramage said:
A gift of non UK situated assets by a non UK domiciliary should not be
classified as a PET, and thus outside the PET charging regime.
And if the giftor subsequently gains or revives UK domicile?.....
Do you have a relevant citation?
What about the question of reservation of benefit?

Cheers
 
D

Doug Ramage

Edward Lionheart said:
And if the giftor subsequently gains or revives UK domicile?.....
Do you have a relevant citation?
What about the question of reservation of benefit?

Cheers
It's the date of the gift which is relevant - as it would not be a
chargeable transfer, it cannot be a PET. See section 3A ITA 1984.
 
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R

Ronald Raygun

Edward said:
True, but it is possible, especially if reviving a UK domicile of origin.
Let's assume that Mr. X has acquired a domicile of choice in Jersey and
has no UK assets.

Now lets say that Mr. X changes his mind, and while still Jersey domiciled
gives away property including (say) his Jersey home to UK domiciled
children.
Shortly after doing this Mr. X comes to live with his son in the UK, and
dies here within seven years of returning. His UK domicile will probably
be revived.
Fair comment.
Consider the following situation:
Mr. Z, who has a domicile of origin in Ruritania(where there is no IHT) is
resident in London from time to time, but has no UK assets. Six years
before his death he gives his Ruritanian castle(worth £1 million) to his
UK domiciled children, bringing his remaining Ruritanian assets to
£250,000, just below the UK nil rate band. Shortly before his death Mr. Z
is caught by the "deemed domicile" rules and as far as the Inland Revenue
are concerned he dies domiciled in the UK. What is the IHT position?
He has no UK assets, and his worldwide estate at death is below the
nil-rate band anyhow. What about the Ruritanian castle he gave away 6
years ago? Is that now added to the estate for IHT purposes on the grounds
that it was a PET??? Is the taxable estate now calculated as £1.25 million
with tax of approx £400k due?
I'd have thought so, but Doug disagrees and he's usually right.

I note, by the way, that in your examples of both Mr X and Mr Z, you
make a point of saying their donee children are UK domiciled. Surely
the donees' domicile is irrelevant, only the donor's domicile matters.
 
E

Edward Lionheart

I'd have thought so, but Doug disagrees and he's usually right.
Why do *you* think the castle would form part of the estate for IHT, if I
may ask?
I note, by the way, that in your examples of both Mr X and Mr Z, you
make a point of saying their donee children are UK domiciled. Surely
the donees' domicile is irrelevant, only the donor's domicile matters.
I agree with you, and just mention it for the sake of clarity. Perhaps
someone else might think it makes a difference.
 
R

Ronald Raygun

Edward said:
Why do *you* think the castle would form part of the estate for IHT, if I
may ask?
You may. It's because I mistakenly thought that domicile at the time
of making the gift didn't matter, only domicile at time of death, and
that once UK domicile (or deemed domicile) at death had been established,
that everything gifted in the previous 7 years, beyond the usual
exemptions, would be clawed back irrespective of domicile history.
 
E

Edward Lionheart

Doug Ramage said:
It's the date of the gift which is relevant - as it would not be a
chargeable transfer, it cannot be a PET. See section 3A ITA 1984.
Could not find the citation. Are you referring to IHTA 1984 s.48(3) which
allows non-domiciled property placed in trust by a non-domiciled settlor to
remain excluded property from UK IHT even if the settlor later acquires UK
domicile(and possibly even if he reserves a benefit). I understand this
section(I think!), but I was wondering what the position would be on a
straight gift without involving a trust by a non-domiciled person who later
became UK domiciled?
 
E

Edward Lionheart

Ronald Raygun said:
You may. It's because I mistakenly thought that domicile at the time
of making the gift didn't matter, only domicile at time of death, and
that once UK domicile (or deemed domicile) at death had been established,
that everything gifted in the previous 7 years, beyond the usual
exemptions, would be clawed back irrespective of domicile history.
So to be clear. On reflection you now agree with Doug that gifts by a
non-domiciliary who subsequently becomes UK domiciled are not considered as
PETs and are not subject to the 7-year survivorship rule? Are they
effectively "excluded property" and not subject to IHT? Do you have a
relevant citation?
 
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D

Doug Ramage

Edward Lionheart said:
Could not find the citation. Are you referring to IHTA 1984 s.48(3) which
allows non-domiciled property placed in trust by a non-domiciled settlor to
remain excluded property from UK IHT even if the settlor later acquires UK
domicile(and possibly even if he reserves a benefit). I understand this
section(I think!), but I was wondering what the position would be on a
straight gift without involving a trust by a non-domiciled person who later
became UK domiciled?
Section 3A is headed up "Potentially exempt transfers", and the subsections
define what is a PET.

This should cover outright gifts (as earlier described).
 
R

Ronald Raygun

Edward said:
So to be clear. On reflection you now agree with Doug that gifts by a
non-domiciliary who subsequently becomes UK domiciled are not considered
as PETs and are not subject to the 7-year survivorship rule? Are they
effectively "excluded property" and not subject to IHT? Do you have a
relevant citation?
Yes I do and no I haven't. It wasn't so much reflection as deferring
to his judgement. He's usually right. :)
 
E

Edward Lionheart

Doug Ramage said:
Section 3A is headed up "Potentially exempt transfers", and the subsections
define what is a PET.

This should cover outright gifts (as earlier described).
Are you saying that transfers of foreign property by non-domiciled persons
at the time of transfer are "excluded property" even if the donor
subsequently (re-)acquires UK domicile, and are therefore completely outside
the scope of UK IHT?
 
D

Doug Ramage

Edward Lionheart said:
Are you saying that transfers of foreign property by non-domiciled persons
at the time of transfer are "excluded property" even if the donor
subsequently (re-)acquires UK domicile, and are therefore completely outside
the scope of UK IHT?
Yes, subject to the deemed domiciled rules.

There may be CGT implications, depending on his residence/ordinary residence
status.
 
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J

Jim Lawton

snip
Thoughts?
I'm truly sorry about this, but every time I look at this thread, and see the
OP, *I* think - and it's been geting more and more convoluted every time ..

"Well my dog FIDO used to live in t'kitchen, but now Av bin darn t't wood yard
an' got a load of owd floor boards, and built 'im this right nice kennel. No
need for your pet not to be domiciled, just write an' A 'll sent y't' plans."

J
 
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E

Edward Lionheart

Doug Ramage said:
Yes, subject to the deemed domiciled rules.

There may be CGT implications, depending on his residence/ordinary residence
status.
btw, surely the CGT rules are essentially the same as the deemed domiciled
rules? i.e. if you are caught by one you are caught by both.

The scenario in order of events is as follows:
Mr. X buys a foreign property and moves to live in it with the settled
itention to permanently or indefinitely reside there.
He informs the Revenue on a P85 that he is no longer resident in the UK.
He sells or gives away his remaining UK assets.
At some point after 3 years of leaving the UK he has probably acquired a new
domicile of choice.
After a further 5 years he transfers some of his foreign assets to his UK
domiciled children.
A year later, because of infirmity he decides that he would like to return
to the UK.
He sells his remaining foreign assets and returns to the UK and buys a small
property.
His worldwide estate is now less than the nil-rate band, so if he dies UK
domiciled there would be no IHT to pay.

Any flaws in this scenario? On death, would the foreign transfers have to be
mentioned at all to the Revenue?
 

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