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IHT liability on death for non-UK tax resident

Does a sale of shares in a UK Ltd by a non-resident with a terminal illness result in IHT on death?

The facts:

I act for a UK trading company which has 2 equal shareholders - whilst remaining a director, one of the shareholders emigrated in December 2010 and has remained non Uk tax resident since and is now an NZ resident and citizen.

He is married with 2 children.

He has a terminal illness and the shareholders had a shareholder protection insurance paying £750k in Trust to the surviving shareholder that allows him to purchase the shares from the estate on death or directly from the individual given a less than 12 month terminal prognosis, which unfortunately is the case.

I am wholly confident that should the share transfer happen whilst the non-res director is alive, there is no CGT liability and nor would there be on death.

However, I am slightly concerned that a transfer for cash whilst he is alive may give an IHT issue - the BPR obviously is lost as the asset is now cash.

Does an immediate transfer of funds to the spouse help at all or am I missing something obvious?

Also are the upcoming changes in the deemed domocile going to change matters after 6th April?

Thanks in anticipation.

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By MBK
17th Mar 2017 12:51

The fact that he is a NZ resident and citizen doesn't matter. What matters is where he is domiciled. He may have acquired a domicile of choice in NZ - but you need to look much more closely at the facts in relation to the guidance on domicle.

I'm going to assume he is non UK domiciled.

There is no CGT or IHT in NZ. Neither he nor wife are UK res, so they cannot be subject to UK CGT (temporary non residence rules aside - which I'm sure don't apply here). So it matters not whether you do stuff before or after death.

All you have to do to get the £750k out of UK IHT is ensure that there are no UK situs assets at the date of death. So, provided the £750k for the sale of shares exits the UK before the date of death, you are fine - no IHT. The day before will do. Best to get the cash into a NZ bank account.

I wouldn't risk relying on BPR when the above alternative is available. The trust arrangements might amount to a binding commitment to sell - in which case BPR is unavailable.

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By sumo69
to MBK
18th Mar 2017 00:19

Thanks

From 6/4/17, the 3 years out the UK changes to 5 but he meets that criteria.

Other than that, I had assumed he had to remove £££ from the UK, or leave less than the exempt band.

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