Individuals who are domiciled in the UK are liable to inheritance tax on their worldwide assets. This can mean that UK individuals who relocate to other countries, for example, for work purposes, may continue to have exposure to inheritance tax in the UK on their worldwide estate as their domicile of origin would usually continue.
Take the example of a woman, Sarah, born in Wales to Welsh parents (who themselves descend from Welsh parents). This woman lived in Wales from birth until she finished university aged 21, when she decided to move to Germany for work.
She always intended to move back to Wales after she retired. The implication of retaining a domicile in the UK is that if she dies aged 45 while still living and working in Germany, her worldwide assets would be within the UK inheritance tax net - despite having lived outside the UK for more than half her life.
There is also a separate concept of deemed domicile which is relevant in cases where a UK-domiciled individual abandons their domicile of origin by moving to another jurisdiction and adopting that jurisdiction as their permanent home – thus acquiring a domicile of choice there.
In such a case, there is a tail period of three years during which the person will still be treated as domiciled in the UK and not elsewhere. This will mean continued liability to inheritance tax in the UK on their worldwide assets for that period.
Taking a different example, a retired couple Mark and Mary, who decide to move from England to their Greek holiday home on 18 December 2020, because they want to spend the rest of their lives there.
They were both born in England and have a UK domicile of origin. As Mark and Mary have no plan to ever move back to England, they would acquire a domicile of choice in Greece from the time they move there permanently.
However, for UK inheritance tax purposes Mark and Mary would continue to be domiciled in the UK for three years after their permanent move to Greece.
If they both die before these three years pass, leaving their Greek property and other assets to their children who have remained in the UK, the value of these assets in excess of the nil-rate band (currently £325,000 each) would be within the UK inheritance tax net at 40 per cent.
Even if Mark and Mary successfully break their ties with England and survive for more than three years, they can still have an exposure to UK inheritance tax. Individuals who are not domiciled or deemed domiciled in the UK are still liable to UK inheritance tax on their UK assets.