Michael Kors handbag? Check! Savile Row suit? Check! Mayfair apartment? Check! It’s not an unusual shopping list for non-UK domiciled persons having a day out in London, perchance to celebrate their survival of this year’s Ed Miliband Manifesto to wipe them out as a species. Their status remains politically charged largely because of a range of Income and Inheritance Tax (‘IHT’) benefits available to them under English law.

Aside from boosting the UK economy, it is important to bear in mind that such a shopping trip for a ‘Non-Dom’ brings into play a whole range of tax and succession issues where it is important to get the right advice and planning in place.

Romanes eunt domus

Domicile is a strange but important concept because it determines (among several other legal concepts) how much IHT you pay. The word ‘domicile’ comes from the Latin ‘domus’ which means the place you call home (i.e. the place in Monty Python’s Life of Brian where Graham Chapman unsuccessfully attempted to direct the occupying Romans by means of grammatically incorrect graffiti).

A Non-Dom only pays IHT on assets situated here whereas a UK Dom pays tax on all assets worldwide. This means that the Non-Dom’s Mayfair flat will be subject to tax at 40% on the value over their modest allowance of £325,000 which can come as a shock if the plan was to keep the property in the family. Often there will be no other assets in the UK to pay the IHT and, unless money can be brought in from overseas, the property will have to be sold to pay the tax. Until a few years ago, it was possible to change where the land is situated by the alchemy of transferring it to an offshore company and thereby converting the nature of the asset from land to shares situated outside of the UK and therefore out of the IHT net. Now, such a scheme requires payment of a punitive yearly charge known as the Annual Tax on Enveloped Dwellings (‘ATED’) and, in comparison, there is much to be said for the simplicity of outright ownership accompanied with correct planning.

London calling

Mundays’ London office opened in July as part of its long-term growth strategy. The new office is located at 1 Berkeley Street, Mayfair, and is staffed full-time, with a number of partners from the firm’s property team splitting their time between Cobham and London.

In time, other Mundays teams covering Commercial Property, Corporate Commercial, Dispute Resolution, Private Wealth and Family will also be in regular attendance as the firm builds its London office offering.

The traditional Mundays’ market in North Surrey and South London remains very much at the heart of the firm’s strategy and future, indeed you may have noticed the newly refurbished office space in Cobham. Mundays sees its new London office as an exciting step forward as the firm continues to grow and evolve.

Profile

Julie Jaggin is a Senior Associate in Mundays’ long-established Private Wealth department and specialises in trusts, probate, Wills, capital tax-planning, domicile, international succession, Court of Protection and elderly client work. As a full professional member of both the Society of Trust and Estate Practitioners (STEP) and Solicitors for the Elderly, Julie aims to deliver comprehensive, clear and practical advice to a wide range of overseas and UK based clients.

No tax please, we’re spouse exempt

For married couples, a properly drafted Will limited to their UK assets is recommended. Where the couple are both Non-Doms, the IHT spouse exemption is unlimited and a gift of all UK property to a spouse means no IHT is chargeable. This is linked to a general political motivation to encourage marriage so long as home-grown family wealth is not going out of the country. If a UK Dom spouse passes property to a Non-Dom spouse on death, the IHT spouse exemption is limited to £325,000 unless the Non-Dom makes a formal election to be treated as a UK Dom for IHT purposes.

The succession problem

On the world succession stage, English law is an oddity. Its basic premise is that you can leave your assets on death to whomever you like, subject to certain categories of person asking the court for an order under the Inheritance (Provision for Family and Dependants) Act 1975. However, our rules of Private International Law are very respectful to those of another person’s domicile. English law applies to any land situated here, but we defer to the law of a person’s domicile in respect of any other assets such as shares or bank accounts.

The consequence is that buying the Mayfair flat without a valid English Will is that English rules of Intestacy will determine who inherits it.

Unsurprisingly, a surviving spouse and children take priority under Intestacy, but disputes can arise between the surviving spouse and children, particularly among families with children blended from first and subsequent marriages. Such a dispute could have been avoided with a flexible life interest trust balancing the needs of all.

And finally...

No-one likes contemplating their mortality, but the particular status and requirements of some of our wealthiest Non-Dom visitors need specialist, practical advice to ensure their assets acquired here do not convert into legacy of a nasty tax and succession surprises for the family they leave behind.

essence info

Mundays LLP
Cedar House, 78 Portsmouth Road, Cobham KT11 1AN
Telephone: 01932 590500