The following article is written by Andrew Coyne and aims to answer questions such as how does inheritance tax work? What does Domicile really mean? and Do I need a will?

The taxman’s global reach

It would be stretching things to suggest that dealing with UK inheritance tax (IHT) under any circumstances is straightforward, but an added layer of complexity is brought to bear when UK expatriates are involved.

And expatriates living in Spain face additional concerns as that country has its own inheritance tax, which in some respects is tougher than the UK one. (more on this later).

But perhaps the biggest danger facing expatriates with regard to this tax is complacency. They may take an out of sight out of mind attitude; unfortunately the UK Exchequer does not.

As with much relating to UK expatriate finance, the key to understanding IHT is the thorny old issue of UK Domicile and residency.

UK citizens who move abroad may well be treated as Non-resident but losing UK Domicile status is a whole different ball game.

Domicile usually relates to a Domicile of origin, acquired at birth (or even your father‘s birth). Living in another country is not conclusive proof of an intention to change Domicile. This can have a major impact on IHT as an individual who is UK domiciled is liable to inheritance tax on chargeable ‘property’ on a worldwide basis. A non-UK domiciled individual is only liable to inheritance tax on chargeable property in the UK.

An individual can be deemed domiciled in the UK for IHT purposes if he or she was UK domiciled at any time in the three years immediately preceding the time at which the question of Domicile is to be decided or, alternatively, UK resident for at least 17 out of the last 20 years.

Simply put, any UK citizen, wherever based, remains UK domiciled unless permanently emigrating through official channels. Choosing a ‘Domicile of choice' in this way requires strong proof of having moved to the other country permanently. It is worth repeating that living in another country is not conclusive evidence of an intention to change Domicile.

It is crucial for UK expatriates to understand this question of Domicile if they are to successfully dispose of their assets in the way they desire. 

As Sean Scahill, chief executive of the London-based wealth management firm The Fisher Family Office, says: “Inheritance tax is all about Domicile.

“For UK individuals it is very difficult to lose that. If you go to live in France, inheritance tax will be applicable in the UK.”

It is as stark as that.