IOM Tax Solutions
Home is where the heart is....
There is no estate duty payable in the Isle of Man. This does not necessarily mean that you will have successfully avoided inheritance tax by moving offshore. Depending upon where your world wide assets are situated and where you are domiciled; you may have a liability lurking in the depths . If you are UK domiciled your world wide assets are chargeable to inheritance tax in the UK.
You must establish a domicile of choice in the Isle of Man. Domicile has evolved as an historic concept arising from Roman Law and development and integration of Italian principalities. It relates to your home, where your heart lies and as such it is not necessarily straight forward to effect a change. Also the UK law includes a deemed domicile rule, which in essence means that you will be regarded as domiciled in the UK for three years following your departure from the UK. And then to get out of the woods entirely you must establish a domicile of choice in the Isle of Man.
Assuming you replace your Domicile of origin with a domicile of choice you must still consider the physical location of your assets and investments and not necessarily at their current value, as perhaps their future value may prove to be relevant. HMRC will charge UK situated assets in excess of the nil rate band to inheritance tax regardless of your domicile. The remedy is to place assets in an Isle of Man company which is totally effective in this regard. In utilising a company your ownership of UK or foreign assets is transferred to ownership of IOM shares.
DOMICILE OF ORIGIN
From a UK perspective your domicile follows that of your father. This is your domicile of origin. So if your father was a UK domiciled individual you will have a UK domicile of origin. Wives married prior to April 1974 adopted their husbands domicile.
DOMICILE OF CHOICE
Assuming you abandon your domicile of origin then you can establish a domicile of choice. In this regard it means that you have no intention to return to your original home. You must establish tenuous links to your new home and sever those to your old home. There are many pitfalls and HMRC can take into account affidavits. For example if you were born in the Yorkshire dales, and told a friend that "the dales were the most beautiful place on, earth", this as an affidavit could be enough for HMRC to demonstrate a love of your former home and therefore a UK domicile. Similarly providing instruction for your ashes scattered over the dales would not be a good thing to do. Essentially I hope these points demonstrate how easy it is for an individual to unwittingly unravel all the hard work.
Obviously an IOM will is required. This will state you are domiciled in the IOM, but quite frankly this does nothing on its own and the sum of your actions will ultimately prove your domicile.
UK Inheritance Tax - Sheltering UK property & Investments
If you are IOM resident and domiciled purchasing UK property or investments in a Manx Company is totally effective in shielding your estate from Inheritance tax. In simple terms You / Your estate owns shares in a Manx Company outside the UK Inheritance Tax net as far as IHT is concerned and other capital taxes for that matter. Please note that stamp duty charges apply so it is preferable for your company to purchase the property in the first instance. Land duty is up to 4% of the sale price or market value and on equties 0.5%. Legal costs, land registry fees and brokerage charge also need to be accounted for where applicable. Typically the set up costs will be £500 and ongoing tax, accounts and administration up to £1000 pus filing fees.
IHT on UK Residential property
A favourite wrapper for UK property was the use of an offshore Close company or structure to hold the property. From 6 April 2017 this is unravelled, and in addition the availability of Debt to to reduce the HT charge has also been withdrawn. HMRC have offered no incentives or help in any potential unwrapping of existing structures. The value of the company is to be attributed to the individual shareholders.
Where an IHT charge arises on shares etc. under the new rules, the IHT liability will be calculated on the open market value of the shares (or other interest) to the extent that their value is attributable to UK residential property. In determining the value of an interest in a close company, the liabilities of the close company will be attributed to all of its property pro rata. The liabilities attributable to the residential property will be deductible in determining the value within the scope of IHT. any debt used to finance the acquisition, maintenance or repair of UK residential property as an asset subject to IHT in the hands of the lender, with look through provisions where the lender is itself a non-UK close company or partnership. Similarly, any security or collateral for such a debt will be within the scope of IHT in the estate of the provider of the security.