All individuals domiciled in the UK are subject to IHT on ‘transfers of value’ of all their worldwide assets with the exception of excluded property – see below. Those who are not UK domiciled are only subject to IHT in respect of their UK assets. The issue of domicile is beyond the scope of this brochure, however, the domicile of an individual is generally the country where he or she permanently resides or intends to remain in the future – often referred to as ‘where your heart is’.

Furthermore, for the purposes of IHT only, there is the concept of ‘deemed domicile’, which applies where:

• The individual has been resident in the UK in 17 out of the last 20 tax years, or

• The individual was domiciled in the UK within the previous 3 tax years.

Excluded Property

Certain assets are excluded from IHT. These include:

• A reversionary interest under a trust.

• Non UK assets, ie assets not situated within the UK. However, the individuals beneficially entitled to these assets must be domiciled outside the UK or the assets must be held in a trust created at a time when the person who created the trust (the settlor) was non UK domiciled.

What is a transfer of value?

A transfer of value for IHT purposes is any action or omission (usually a gift) in relation to your estate,which reduces its value. This can be during your lifetime or on death. It is not necessarily measured by the value of the asset gifted. It is calculated by reference to the loss to your estate, ie by looking at the value of the estate before, and after, the gift is made, in order to calculate the loss and therefore the value transferred.

Transfers of value will be one of three types:

• Exempt Transfers. These are transfers where IHT will never be payable.

• Potentially Exempt Transfers (PETs).These become exempt if the donor survives seven years from the date of the gift.

• Chargeable Lifetime Transfers (CLTs).These may result in an immediate lifetime charge to IHT of 20%.

Get the complete guide Inheritance tax advice – an introduction

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