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Taxation Readers’ Forum: IHT returns for Indian-domiciled late client

/ 21 August 2023

Terry Jordan

Writing for Taxation Readers’ Forum, BKL tax consultant Terry Jordan responds to a reader’s query about inheritance tax (IHT) returns for an Indian-domiciled client who has died.

‘A client of mine has just died. He was born in India to Indian parents but lived in the UK from his late teens until the end of his life. He had built up a considerable wealth around the world, including owning a property in India which he stayed in on his regular visits to meet members of his extended family. He always regarded himself as Indian and he planned to go back to India at the end of his life. I have on file an old DOM1 ruling from HMRC which agrees that he was domiciled in India.

To what extent can I rely on that ruling when preparing IHT returns on his death? The UK’s deemed domicile rules for IHT are over-ridden by the treaty with India so if he is domiciled as a matter of general law in India his non-UK assets are outside the UK IHT charge. How far do I have to go to satisfy myself about his domicile status? Does the old ruling give me a filing position? Clearly I will need to warn the executors of the risk of a challenge.

Any guidance will be most welcome.’ Query 20,183 – Hopeful.

Terry Jordan’s reply: It is crucial to know the late client’s date of death.

‘Hopeful’s query relates to the domicile of his late client whose domicile of origin was Indian and he refers to the treaty with India which dates to 1956.

India abolished estate duty in 1985 and the treaty remains in force.

For individuals domiciled in India under Indian domestic law and who are not domiciled within the UK under our domestic law (there is a professional debate about whether they also have to be domiciled in India under our law or merely domiciled outside the UK) the effect can be to disapply the deemed domicile provisions now in IHTA 1984, s 267 with the result that non-UK situs assets can escape inheritance tax provided they are dealt with by a non-UK will. That beneficial treatment applies only on death and would not affect the potential charges on lifetime gifts.

The treaty can also affect the operation of Schedule A1 that imposes IHT on UK residential property regardless of how ‘enveloped’ by the provisions of paragraph 7, see question 29 in the ICAEW Tax Guide 11/20.

One crucial piece of information is missing from the query and that is the late client’s age at death. To acquire a domicile of choice that would supplant the domicile of origin requires the two elements of physical presence in a new territory and the current intention permanently to remain.

The DOM1 ruling to which Hopeful refers might give some comfort but it would be necessary to consider what was said about when the client intended to leave the UK, eg on retirement and whether he remained UK resident after the occurrence of any specified event.

In the recently reported case of Ameet Shah (as executor of the estate of Anantrai Maneklal Shah deceased) (TC8842) the First-tier Tribunal held that the deceased who was born in Karachi (then part of India) in 1929 and who died in 2016 had acquired a domicile of choice within the UK.

Similarly, Mr Henkes who was born in Venezuela in 1943 was found to have acquired a domicile of choice within the UK: E Henkes (TC7645).’

The full article is also available on the Taxation website.

Our experts in private client tax and international tax can advise on the tax implications of situations involving more than one jurisdiction. For more information, please get in touch with your usual BKL contact or use our enquiry form.

Terry Jordan

Senior Adviser, Private Client

T +44 (0)20 8922 9360
E terry.jordan@bkl.co.uk

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