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Old 25.03.2021, 15:01
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Inheritance Tax UK brokers & UK investements

I am trying to understand UK Inheritance Tax implications as a result of owning UK investments in a brokerage account at Interactive Brokers (UK) Ltd. Since a few folks on the forum also have UK investments (Fundsmith, Smithson, Baillie Gifford, Hargreaves Lansdown, … ) I thought it might be helpful to start a dedicated thread

I believe I would qualify as non-UK domiciled (a separate and more involved discussion that I won’t go into in my first post). Assuming for the moment this is true then only my assets in the UK should be subject to UK IHT after my death.

My question is the definition of “assets in the UK”. HMRC told me they won’t give me any advice on this topic until after I am dead. Likely I will have to consult a lawyer but I am hoping someone may have looked at this before

My account at IB is in my name & Swiss residential address. The contractual set up is that IB (UK) Ltd acts as an introducer to IB LLC (US) which is the custodian of my assets. So legally my assets are held in the US, not in the UK.

My doubt is that my assets at IB include (1) UK Open Ended Investment companies (e.g. Fundsmith) (2) UK investment trusts (closed ended fund e.g. Smithson) (3) UK shares

I found a statement on HMRC website implying that UK Open Ended Investment companies are excluded whether they are held in the US or not (*)

What I can’t find any confirmation of are the rules for UK investment trusts or UK shares

Any help welcome

(*)
https://www.gov.uk/inheritance-tax/w...de-the-uk-dies
“If your permanent home (‘domicile’) is abroad, Inheritance Tax is only paid on your UK assets, for example property or bank accounts you have in the UK.
It’s not paid on ‘excluded assets’ like:
foreign currency accounts with a bank or the Post Office
overseas pensions
holdings in authorised unit trusts and open-ended investment companies [i.e. Fundsmith]“
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Old 25.03.2021, 16:31
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Re: Inheritance Tax UK brokers & UK investements

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I am trying to understand UK Inheritance Tax implications as a result of owning UK investments in a brokerage account at Interactive Brokers (UK) Ltd. Since a few folks on the forum also have UK investments (Fundsmith, Smithson, Baillie Gifford, Hargreaves Lansdown, … ) I thought it might be helpful to start a dedicated thread

I believe I would qualify as non-UK domiciled (a separate and more involved discussion that I won’t go into in my first post). Assuming for the moment this is true then only my assets in the UK should be subject to UK IHT after my death.

My question is the definition of “assets in the UK”. HMRC told me they won’t give me any advice on this topic until after I am dead. Likely I will have to consult a lawyer but I am hoping someone may have looked at this before

My account at IB is in my name & Swiss residential address. The contractual set up is that IB (UK) Ltd acts as an introducer to IB LLC (US) which is the custodian of my assets. So legally my assets are held in the US, not in the UK.

My doubt is that my assets at IB include (1) UK Open Ended Investment companies (e.g. Fundsmith) (2) UK investment trusts (closed ended fund e.g. Smithson) (3) UK shares

I found a statement on HMRC website implying that UK Open Ended Investment companies are excluded whether they are held in the US or not (*)

What I can’t find any confirmation of are the rules for UK investment trusts or UK shares

Any help welcome

(*)
https://www.gov.uk/inheritance-tax/w...de-the-uk-dies
“If your permanent home (‘domicile’) is abroad, Inheritance Tax is only paid on your UK assets, for example property or bank accounts you have in the UK.
It’s not paid on ‘excluded assets’ like:
foreign currency accounts with a bank or the Post Office
overseas pensions
holdings in authorised unit trusts and open-ended investment companies [i.e. Fundsmith]“
UK Investment trusts are definitely UK assets.
If you & your married partner are not BOTH UK domiciled the unlimited spouse exemption does not exist just £55k in addition to the £325k Nil rate band. When I lived in CH I held mainly US assets as CH/US has an inheritance tax deal same as UK/US with 7 million or more exemption. However now being married to someone who is also UK domiciled it makes sense to hold UK assets. Be aware that you need probate in all jurisdictions adding to cost.

The open investment trust exemption is new, one of the reason you can incest via Luxembourg is for people who do not wish to hold UK Assets. Lindsal Train Global for example is Irish as are many ETF. (I suspect the exemption does not cover ETF's)

The IB account I have opened is based in Hungary, rather than UK, somewhat complicating matters. They can only except a total of €25k from EU residents at the moment, so I may end up dropping them.
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Old 25.03.2021, 19:53
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Re: Inheritance Tax UK brokers & UK investements

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UK Investment trusts are definitely UK assets.
.....

The open investment trust exemption is new, one of the reason you can incest via Luxembourg is for people who do not wish to hold UK Assets.
FMF I was hoping you might be knowledgeable about this and it looks like it this case (even though you imply you are UK domiciled so not of direct relevance for you)

I am of the same conclusion about UK investment trusts. I could not find any exemptions and the standard rule that seems to apply for shares is the “situs” of the asset is the location of the share registry (so UK). I have been buying SSON which is a UK Investment trust so I need to watch out here

I found the following about the change for Open Ended Investment Companies. Based on this if I am non UK domiciled my investment in Fundsmith should be exempt from UK IHT regardless of whether I own the Fundsmith UK OIEC or the Fundsmith Luxembourg SICAV

https://www.gov.uk/hmrc-internal-man...nual/ihtm04262
“ FA03/S186(1) inserted s 6(1A) into IHTA84. This makes holdings in Open End Investment Companies (OEICs) and Authorised Unit Trusts (AUTs) excluded property (IHTM27211) if they are held by an individual who is not domiciled in the UK….”
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Old 25.03.2021, 20:06
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Re: Inheritance Tax UK brokers & UK investements

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FMF I was hoping you might be knowledgeable about this and it looks like it this case (even though you imply you are UK domiciled so not of direct relevance for you)

I am of the same conclusion about UK investment trusts. I could not find any exemptions and the standard rule that seems to apply for shares is the “situs” of the asset is the location of the share registry (so UK). I have been buying SSON which is a UK Investment trust so I need to watch out here

I found the following about the change for Open Ended Investment Companies. Based on this if I am non UK domiciled my investment in Fundsmith should be exempt from UK IHT regardless of whether I own the Fundsmith UK OIEC or the Fundsmith Luxembourg SICAV

https://www.gov.uk/hmrc-internal-man...nual/ihtm04262
“ FA03/S186(1) inserted s 6(1A) into IHTA84. This makes holdings in Open End Investment Companies (OEICs) and Authorised Unit Trusts (AUTs) excluded property (IHTM27211) if they are held by an individual who is not domiciled in the UK….”
October 2002 looks like the change, my UK solicitor wanted me to sell all UK assets when I left the UK in 1994 'Permanently'. It's a whole lot clearer with the Statutory definition of UK residence.

If my wife dies first everything will go to charity, things got complicated with marriage.
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Old 26.03.2021, 16:19
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Re: Inheritance Tax UK brokers & UK investements

I think the most you are going to get from officialdom on defining "open ended trusts" and the like is in the Inheritance Tax Manual used by the tax collectors.

Jim1 quoted https://www.gov.uk/hmrc-internal-man...nual/ihtm04262 "IHTM04262 - Holdings in Open End Investment Companies (OEICs) and Authorised Unit Trusts (AUTs)"

See the Act, and specifically Part XVII Collective Investment Schemes, at https://www.legislation.gov.uk/ukpga/2000/8/part/XVII

You will find disagreement among cross-border tax specialists on such matters. Ascertaining domicile is often the biggest stumbling block. You may know of the Barclay brothers, estranged over the past several years, one of whom moved permanently to Sark. He visited London over Christmas, and died in London. My guess is that HMRC is going to claim this as evidence that he never lost his UK domicile.

Even the retention of UK assets could be used as one factor in determining Common-law domicile. The IHT Manual says "Under common law it is not possible to be domiciled in two countries at the same time and certainly not for the same purpose at the same time. But, for the purposes of charging Inheritance Tax (IHT) having two different domiciles for the same purpose at the same time is key to the concept of deemed domicile." That is not inconsistent with Prof. Willis L.M. Reese's contention, innovative at the time (1955), that one could have different domiciles for different purposes. https://www.jstor.org/stable/1119564?seq=1 And certainly under the laws of different countries.
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Old 26.03.2021, 17:28
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Re: Inheritance Tax UK brokers & UK investements

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I think the most you are going to get from officialdom on defining "open ended trusts" and the like is in the Inheritance Tax Manual used by the tax collectors.

Jim1 quoted https://www.gov.uk/hmrc-internal-man...nual/ihtm04262 "IHTM04262 - Holdings in Open End Investment Companies (OEICs) and Authorised Unit Trusts (AUTs)"

See the Act, and specifically Part XVII Collective Investment Schemes, at https://www.legislation.gov.uk/ukpga/2000/8/part/XVII

You will find disagreement among cross-border tax specialists on such matters. Ascertaining domicile is often the biggest stumbling block. You may know of the Barclay brothers, estranged over the past several years, one of whom moved permanently to Sark. He visited London over Christmas, and died in London. My guess is that HMRC is going to claim this as evidence that he never lost his UK domicile.

Even the retention of UK assets could be used as one factor in determining Common-law domicile. The IHT Manual says "Under common law it is not possible to be domiciled in two countries at the same time and certainly not for the same purpose at the same time. But, for the purposes of charging Inheritance Tax (IHT) having two different domiciles for the same purpose at the same time is key to the concept of deemed domicile." That is not inconsistent with Prof. Willis L.M. Reese's contention, innovative at the time (1955), that one could have different domiciles for different purposes. https://www.jstor.org/stable/1119564?seq=1 And certainly under the laws of different countries.
This was why my UK solicitor advised me to sell all UK assets & close any interest bearing accounts to show my move was permanent without any likelihood of ever returning when I left the UK in 1994. When I left CH 20 years later I would have demonstrated a Domicile of choice, however my Domicile automatically returned to my Domicile of Origin when I moved to Malta.
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Old 26.03.2021, 18:12
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Re: Inheritance Tax UK brokers & UK investements

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See the Act, and specifically Part XVII Collective Investment Schemes, at https://www.legislation.gov.uk/ukpga/2000/8/part/XVII
Thank you for sharing. If I understand well this is the act which defines an OIEC

My understanding is that for a non-UK domiciled person concerned about UK IHT the first check is whether a UK fund meets the criteria to be an OEIC outlined in this act.

If "yes" then gov.uk webpage - Inheritance Tax - states that UK OEICs are excluded from IHT for non UK domiciled individuals (link in my first post in the thread). This is repeated in the IHT manual used by tax collectors (link in my 2nd post).

I assume the logic behind excluding OEICs from UK IHT is that it provides the UK fund management industry the opportunity to attract international clients.

I agree that losing UK domicile is by far the biggest stumbling block. It is a good challenge whether buying a UK OEIC or UK shares calls into question whether ties have been severed with UK. It could be argued that in a global economy many non UK people invest in UK funds and shares so this does not indicate domicile. In addition in my case I hold these assets in Interactive Brokers which means in a custody account in the US. However the rules seem totally subjective
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Old 26.03.2021, 18:19
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Re: Inheritance Tax UK brokers & UK investements

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When I left CH 20 years later I would have demonstrated a Domicile of choice, however my Domicile automatically returned to my Domicile of Origin when I moved to Malta.
Did you look into the practicalities of obtaining Domicile of Choice in Malta ? How many years residence you might need, obtain nationality etc
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Old 26.03.2021, 18:19
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Re: Inheritance Tax UK brokers & UK investements

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I agree that losing UK domicile is by far the biggest stumbling block. It is a good challenge whether buying a UK OEIC or UK shares calls into question whether ties have been severed with UK. It could be argued that in a global economy many non UK people invest in UK funds and shares so this does not indicate domicile. In addition in my case I hold these assets in Interactive Brokers which means in a custody account in the US. However the rules seem totally subjective
Where the assets are held is irrelevant, it's what the assets are that counts.
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Old 26.03.2021, 20:47
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Re: Inheritance Tax UK brokers & UK investements

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Where the assets are held is irrelevant, it's what the assets are that counts.
You are correct

If there is uncertainty whether you are uk domiciled or not it would be worse to have excluded assets like OEICs in an account in a UK located broker like Hargreaves Landsdown, vs in a broker located in the US
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Old 27.03.2021, 10:32
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Re: Inheritance Tax UK brokers & UK investements

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Did you look into the practicalities of obtaining Domicile of Choice in Malta ? How many years residence you might need, obtain nationality etc
I am able to be taxed as a non domiciled resident of Malta, it actually advantage not to have a domicile of choice of Malta. (No CGT on world wide gains, only income remitted to Malta subject to a min €5k tax liability for a single / married couple)
I intentionally renewed my residents permit as ordinary resident & not permanent after 5 years, equivalent of refusing a C permit & remaining on a B. I believe permanent residents maw retain Freedom of Movement however I am not working.
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You are correct

If there is uncertainty whether you are uk domiciled or not it would be worse to have excluded assets like OEICs in an account in a UK located broker like Hargreaves Landsdown, vs in a broker located in the US
Also remember there will be a requirement for a grant of probate in every country, I just dropped HSBC expat to knock Jersey off the list, my new account with IB will probably go to drop Hungry as well.
Looks like France, Malta, UK Luxembourg & USA is quite enough for me.
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Old 27.03.2021, 13:01
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Re: Inheritance Tax UK brokers & UK investements

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Also remember there will be a requirement for a grant of probate in every country, I just dropped HSBC expat to knock Jersey off the list, my new account with IB will probably go to drop Hungry as well.
Looks like France, Malta, UK Luxembourg & USA is quite enough for me.
Since I had a career of dealing in such matters I remain a member of a US lawyers' estates and trusts discussion group. There is, of course, no "US probate" but only probate in one of the 50 states, DC or 4 territories. In some states (California notably) probate is so expensive and complex that most residents have Revocable Living Trusts that hold their assets including real estate. In others (New York, Florida), probate is cheap and such trusts are uncommon. Ancillary probate can be a nuisance, but in a discussion yesterday about Florida it was noted that if Florida assets are low in value or limited to real estate, a formal probate may not be needed. Other ways of avoiding probate are Transfer on Death (TOD) accounts: Fidelity, and probably most brokers and all banks can title accounts that way, with assets passing to the beneficiary(ies). Federal and state estate (or in some states inheritance) tax is another consideration. Under the US-UK estate tax treaty provisions the $60,000 estate tax exemption (allowance) is replaced by the US citizen allowance ($11.5 million, more or less, but likely to be reduced during the Biden administration and in any case by its own terms in 2026). "Assets that are exempt from U.S. estate tax include securities that generate portfolio interest, bank accounts not used in connection with a trade or business in the U.S., and insurance proceeds." https://www.irs.gov/individuals/inte...te-tax-returns

Here's a link to IB's Knowledge Base on TOD: https://ibkr.info/node/836
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Old 27.03.2021, 13:07
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Re: Inheritance Tax UK brokers & UK investements

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Since I had a career of dealing in such matters I remain a member of a US lawyers' estates and trusts discussion group. There is, of course, no "US probate" but only probate in one of the 50 states, DC or 4 territories. In some states (California notably) probate is so expensive and complex that most residents have Revocable Living Trusts that hold their assets including real estate. In others (New York, Florida), probate is cheap and such trusts are uncommon. Ancillary probate can be a nuisance, but in a discussion yesterday about Florida it was noted that if Florida assets are low in value or limited to real estate, a formal probate may not be needed. Other ways of avoiding probate are Transfer on Death (TOD) accounts: Fidelity, and probably most brokers and all banks can title accounts that way, with assets passing to the beneficiary(ies). Federal and state estate (or in some states inheritance) tax is another consideration. Under the US-UK estate tax treaty provisions the $60,000 estate tax exemption (allowance) is replaced by the US citizen allowance ($11.5 million, more or less, but likely to be reduced during the Biden administration and in any case by its own terms in 2026). "Assets that are exempt from U.S. estate tax include securities that generate portfolio interest, bank accounts not used in connection with a trade or business in the U.S., and insurance proceeds." https://www.irs.gov/individuals/inte...te-tax-returns
Would an S&P 500 tracker that pays a dividend come under " securities that generate portfolio interest ", Berkshire Hathaway pays no dividend so clearly not or is it just Treasury bonds or equivalent ?
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Old 30.03.2021, 10:51
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Re: Inheritance Tax UK brokers & UK investements

Your helpful comments triggered me to start researching the practical (probate) steps my wife and kids would have to follow upon my future demise. Although hopefully not imminent it would be nice to leave this clear

Assume I die resident in Geneva, with Swiss & UK nationality and without a will. My wife and I are quite happy for the default Geneva / Swiss inheritance lines to spouse and children to apply which are exempt from Geneva IHT.

I understand they would need to follow the steps in the link below to register my death and release assets. Would either of you know if this certificate would be accepted by authorities in UK and USA or would further checks be needed there (probate)?
https://www.ch.ch/en/requesting-a-ce...f-inheritance/

I will have cash in a Swiss bank (UBS) and Swiss pension which should be relatively straightforward

I have an account at Interactive Brokers UK ltd which is an introducing agent for IB US and my assets are held in custody in the US. I assume US probate would apply - would the above certificate be enough?

Regards Uk, first question is whether the certificate above would be enough for probate. 2nd and much bigger question is domicile. I believe I otherwise would pass the criteria to have obtained CH domicile of choice.. However having (just) made the minimum number of years’ contributions before I left the UK I have the right to a small UK state pension (that I need to look into what happens with and if my non uK National wife has a right to claim). In addition I have an amount of money in my former UK employer’s private pension plan that we looked into transferring but fees were prohibitive.. Perhaps I ought to revisit this from a domicile perspective although the argument would be that it was just left there due to the fees and we had no intention to return to the UK to claim it
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Old 01.04.2021, 11:01
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Re: Inheritance Tax UK brokers & UK investements

This is guesswork on my part: I have never dealt with an estate that did not have, or pretend to have, a decedent's domicile or at least residence in a particular state. IB is headquartered in Connecticut. Here's a general explanation of CT probate practice: https://probateadvance.com/connecticut-probate-laws/ A joint account, DOT or RLT account would avoid probate, as would assets under $40,000. In the absence of that it might be worthwhile to have a US-only Will. Ancillary probate exists in all states but tends to be expensive when you have to provide a certified translated copy of a Swiss administration or succession. IB itself can surely give you guidance. Fidelity was helpful to me and we decided to go with a California RLT using the local address of relatives. How the Swiss or the British would react to the mention of an RLT during a probate/succession process is unpredictable, but they couldn't do anything about it so long as all bills were paid: the only thing that breaks an RLT is debt. Or tax. Here's a report on CT estate tax: https://www.cga.ct.gov/2020/rpt/pdf/2020-R-0180.pdf The only case I ever handled in CT was in federal bankruptcy court for which my NYS Bar license sufficed; I'm not going to opine on CT law, or whether you could avoid it by having a stronger connection to some other place. IB surely should know the answer. (My daughter has an IRA with Fidelity and her non-US-citizen minor son as beneficiary. She has a small investment account TOD with her son as beneficiary. There would be no probate.) Needless to say ancillary probate is often (but not always) required where real property is located in a state where the decedent does not live. There are peculiarities with trusts and financial institutions. And another point: if you want to give a durable (enduring, in UK parlance) power of attorney to someone, it's best to use the form provided by the bank in question. Finally, if your account is really with IB UK and IB US is only a vehicle for investments lodged with IB UK, all the above may be irrelevant. Watch out for US estate duty: I haven't read this: https://www.eda.admin.ch/dam/countri...en/tax1951.pdf

Last edited by Caryl; 01.04.2021 at 11:24.
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