International tax is becoming so complicated expats can easily make expensive mistakes about how to safeguard their wealth.
One family recently lost their case before a UK tax tribunal in an attempt to prove their father’s domicile when their grandfather married and lived in Brazil for two years in the 1930s, where the father, Nicholas Henderson was born.
The case hinged around if their grandfather had picked Brazil as his domicile of choice rather than the UK, which was his domicile of origin.
Had they proved the case, the grandchildren would have won an appeal against tax determinations issued against them by HMRC.
But the judge ruled against them, deciding they were UK domiciled, and rejected their appeal.
Finance provider Old Mutual International has recently highlighted several domicile mistakes that can backfire for expats.
Research by the firm found three out of four expats wrongly believed they were not UK domiciled by held assets in Britain and 81% consider they may return to the UK to live at some time, which means they are likely still UK domiciled for tax.
“British expats will likely have UK domicile of origin from birth. They can choose a new domicile by settling in overseas and intending to stay permanently,” said a spokesman.
“They must prove they have a new domicile, and often this isn’t finally decided by HMRC until someone passes away.”
Living overseas is not enough
“Living overseas for a long time is an important factor but does not prove they have a new domicile. Among the many conditions that HMRC list, they must sever all links with the UK and have no intention of returning to Britain.”
One vital error is 82% of expats believe inheritance tax is only due on their UK assets when they die, but if they are still UK domiciled, the tax is due on their worldwide estate.
Many expats with UK domicile mistakenly also believe they do not pay income or capital gains taxes in the UK.
Other common misconceptions include believing someone can manage their finances if they are incapacitated without a power of attorney and are unsure if their UK will is recognised as binding in their new home.
He likelihood is they will need a will and power of attorney in each country where they have assets.