Are Swiss estates ‘excepted’ from UK inheritance tax? Simple answer: not necessarily!
It may surprise those administering the estate of a Swiss citizen to learn that, if the estate includes UK shares or other UK assets, the estate could have an exposure to UK inheritance tax (IHT) and a grant of probate may need to be taken out in the UK.
This note explains when a UK reporting obligation might arise and what steps are needed to administer the estate.
What is an excepted estate?
In 2022 the rules for ‘excepted estates’ were revised in the UK. An ‘excepted estate’ is one where H M Revenue & Customs (HMRC) do not require an inheritance tax (IHT) account to be delivered. There are three categories of excepted estates, but this article will focus on the category where the deceased was never UK domiciled nor deemed to be UK domiciled (Non-Dom Excepted Estates).
When could an Inheritance Tax liability arise?
Liability to UK IHT is determined not only by the deceased’s ‘domicile’ (permanent home) but by the 'situs' of their assets. In the case of real estate (including residential and commercial buildings), the situs of the asset will be clear.
However, in the case of investments, for example, the question requires more thought. Attention should be paid to any shares, including those held within a nominee account of an offshore investment management company or bank. A 'GB' country code at the beginning of the International Securities Identification Number ('ISIN') indicates the issuing company is headquartered in Great Britain. The ISIN isn't always the end of the story, but is a good indication of the situs of the shareholding for IHT purposes.
The Current Position
For deaths occurring on or after 1 January 2022, Non-Dom Excepted Estates will have no liability to IHT and limited (if any) reporting will be needed provided:
- The deceased was never UK domiciled nor deemed domiciled;
- The value of UK assets held in the estate does not exceed £150,000 and only consist of quoted shares or cash;
- The deceased did not hold an indirect interest in UK residential property; and
- The deceased has not made gifts of UK assets within the 7 years prior to their death (above £3,000 per year)
What if the estate does not meet one of these criteria?
If the estate does not meet one or more of these criteria, the personal representatives will need to submit an account known as an IHT400 to HMRC within 12 months of the death.
To the extent that the value of the UK assets exceeds the nil rate band, currently £325,000, IHT will need to be paid to HMRC at a rate of 40% (unless an exemption applies, such as spouse or charity exemption). Should this payment be made after the end of the sixth month following death, interest will accrue on the outstanding amount until such time as it is paid.
In addition to submitting an IHT400, personal representatives should check with the asset holding institution what they will require before releasing the assets. Should they require a UK grant of probate, a separate application will need to be made to H M Court and Tribunals Probate Service.
What are the risks for personal representatives?
Personal representatives should be aware of the potential requirement to report to HMRC under the above criteria and be mindful of the deadlines for submission of the IHT400 and payment of IHT. It is important for personal representatives to note that they are personally liable for the IHT due on the estate, which could be a significant liability.
Personal representatives should therefore seek professional advice if they are uncertain of their duties and reporting responsibilities, particularly in relation to UK assets where the laws of the jurisdiction may not be as familiar to them.
Charles Russell Speechlys are highly experienced in dealing with cross border estates and advising personal representatives on their reporting obligations. The firm has both Swiss and UK qualified lawyers in our Switzerland and UK offices who are able to provide joined up legal advice to both professional and lay executors.