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HMRC amends policy on determining the domicile of settlors
HMRC has changed its guidance on when it will consider the domicile of a settlor: in the past, if a settlor considered himself non-UK domiciled it was not necessary to submit an IHT account to HMRC. If an account was submitted then HMRC would only open an enquiry if tax of at least £10,000 was at stake. Now it is pursuing a risk-based approach and the guidance makes it clear that HMRC is aware of the potential costs of pursuing an enquiry and any resulting litigation. The £10,000 minimum has been removed and no definite guidance on HMRC's view of what amounts to "substantial" has been given but from the guidance it is likely to be considerably higher than £10,000.
This is the wording of the new guidance:
"The revised guidance applies to dispositions made after the issue of this Revenue & Customs Brief (24 August 2010).
In future HMRC will consider opening an enquiry where domicile could be an issue, or making a determination of Inheritance Tax in such cases, only where there is a significant risk of loss of UK tax.
The significance of the risk will be assessed by HMRC using a wide range of factors. The factors will depend very much on the individual case but will include, for example:
- a review of the information available to HMRC about the individual on HMRC databases
- whether there is a significant amount of tax (all taxes and duties not just Inheritance Tax) at risk
HMRC does not consider it appropriate to state an amount of tax that would be considered significant, as the amount of tax at stake is only one factor. It should be borne in mind that HMRC will take into account the potential costs involved in pursuing an enquiry, and also those of potential litigation should the enquiry not result in agreement between HMRC and the individual; clearly such costs can be substantial.
Where HMRC does open an Inheritance Tax enquiry in any of these cases, it will keep the factors in view and may stop the enquiry at any stage if it considers the continuation of the enquiry is not cost effective. The outcome of such an enquiry may be that HMRC does not consider it appropriate to make a determination of the Inheritance Tax.
Individuals should also bear in mind that enquiries into domicile involve a detailed inquiry into all of the relevant facts and HMRC is likely to require considerable personal information and extensive documentary evidence about the taxpayer and the taxpayer's close family."
The link to the full guidance is here:
02 September 2010
