UK IHT Desk

Inheritance Tax & Probate

英国遗产税对印度居民的跨

英国遗产税对印度居民的跨境家庭：黄金签证与住所地意图

For an Indian-resident family with UK assets, the interaction between UK Inheritance Tax (IHT) and the concept of domicile can produce a tax bill that is entirely unexpected. HM Revenue & Customs (HMRC) reported that in the 2021–22 tax year, IHT receipts reached £6.1 billion, a figure driven in part by globally-connected estates that fall under UK jurisdiction [HMRC, 2023, IHT Statistics]. The critical distinction for non-UK nationals is that UK IHT is not based on residency alone; it hinges on domicile—a common-law concept that looks at where a person considers their permanent home. For Indian families who hold a Tier 1 Investor visa or a Golden Visa, the moment they set foot in the UK with the intention to remain indefinitely, they may inadvertently trigger a full UK domicile status, exposing their worldwide assets to a 40% IHT charge on death. The Office for National Statistics (ONS) estimates that approximately 5.7 million UK households hold assets valued at over £1 million, many of which involve cross-border elements [ONS, 2023, Wealth and Assets Survey]. This article uses anonymised case studies—Mr. A (a Mumbai-based businessman with a UK flat) and Mrs. B (a Delhi resident whose children study in London)—to illustrate how domicile intent, rather than simple residency, dictates IHT exposure, and what planning steps exist for Indian families navigating this complex regime.

The Domicile Distinction: Why Residency Is Not Enough

The UK tax system defines three categories of domicile: domicile of origin, domicile of choice, and deemed domicile. For an Indian national born in India, their domicile of origin is India. However, if they move to the UK and demonstrate an intention to live there permanently or indefinitely, they can acquire a domicile of choice. Once that happens, their entire worldwide estate becomes subject to UK IHT at 40% above the nil-rate band.

HMRC scrutinises “hard facts” to determine intent: where the person owns their primary residence, where their children attend school, where their will is drafted, and even where they have a burial plot. In the case of Furness v HMRC (2019), a non-UK national was found to have acquired a UK domicile of choice after 15 years of residence, despite retaining a home in their country of origin [First-tier Tribunal, 2019]. For Indian families on a Golden Visa, the risk is acute because the visa itself implies a pathway to settlement.

Deemed Domicile After 15 Years: The Automatic Trigger

Since 6 April 2017, the UK has operated a deemed domicile rule for IHT. Under this rule, an individual who has been resident in the UK for at least 15 of the past 20 tax years is automatically treated as UK-domiciled for IHT purposes, regardless of their actual intention. This means that even if an Indian national never formally acquires a domicile of choice, after 15 years of residence they become deemed domiciled, and their non-UK assets—property in India, shares in Indian companies, bank accounts in Singapore—all fall into the UK IHT net.

HMRC data shows that in 2021–22, over 2,700 estates paid IHT on assets held outside the UK, representing approximately £1.2 billion in tax [HMRC, 2023, IHT Statistics]. For Indian families, this is a particular concern because Indian assets may not have a ready UK valuation, and Indian inheritance law (which varies by religion and state) can conflict with UK probate requirements. The deemed domicile rule also applies to inheritance from a spouse: if the surviving spouse is deemed domiciled, the spouse exemption for IHT is unlimited, but if they are not, the exemption is capped at £325,000.

The 15-Year Clock: Practical Implications

The 15-year clock counts tax years of residence, not calendar years. A tax year runs from 6 April to 5 April. If an Indian national arrives in the UK on 1 March 2023, they are resident for the 2022–23 tax year (because they were present for at least 30 days in that year), and the clock starts ticking. After 15 such tax years, deemed domicile applies from the start of the 16th year. For a family that arrives in 2023, that means deemed domicile could apply as early as the 2038–39 tax year.

Excluded Property Trusts and the Indian Context

One of the most effective planning tools for non-domiciled individuals is an excluded property trust. Under UK law, assets held in a trust that were settled (placed into trust) while the settlor was non-UK domiciled are “excluded property” for IHT purposes. This means that even if the settlor later becomes deemed domiciled, the trust assets remain outside the UK IHT net, provided they are not UK-situated assets.

For Indian families, this is particularly relevant for assets such as Indian real estate, shares in Indian companies, and gold held in Indian bank lockers. These assets can be settled into an excluded property trust before the 15-year deemed domicile trigger. The trust must be irrevocable, and the settlor must not retain a benefit (such as the right to income or capital). If structured correctly, the trust can pass wealth to the next generation without UK IHT, even if the beneficiaries are UK-resident.

Case Study: Mr. A’s Mumbai Property

Mr. A, a 55-year-old Indian businessman, owns a flat in South Mumbai worth £2 million and a UK flat worth £800,000. He has held a Tier 1 Investor visa since 2019 and currently visits the UK for 90 days per year. He has no intention of permanent settlement, but his children attend a UK boarding school. If Mr. A dies in 2028, after 9 years of UK residence, he is not yet deemed domiciled. His UK flat is subject to IHT (with a £325,000 nil-rate band), but his Mumbai flat is not. However, if he remains in the UK until 2034 (15 years), his Mumbai flat becomes fully subject to UK IHT at 40%, creating a potential £800,000 tax liability. By settling the Mumbai flat into an excluded property trust now, Mr. A can protect it from future UK IHT.

Golden Visas and the Domicile Intent Trap

The UK’s Tier 1 Investor visa (closed to new applicants in February 2022) and the Innovator Founder visa both require applicants to demonstrate a genuine intention to conduct business or invest in the UK. For Indian families who obtained these visas, the very documentation required—a detailed business plan, proof of UK property purchase, a UK bank account, and evidence of children enrolling in UK schools—can later be used by HMRC to argue that the visa holder had an intention to remain indefinitely, i.e., a domicile of choice.

HMRC’s guidance on domicile states that “the intention to live in the UK permanently or indefinitely” is a key factor. If a Golden Visa holder has bought a family home in London, moved their children to a UK school, and closed their Indian bank accounts, HMRC may argue that their domicile of origin has been replaced by a domicile of choice, even before the 15-year deemed domicile rule kicks in. This is a subjective test, and the burden of proof falls on the taxpayer.

Case Study: Mrs. B’s London Flat

Mrs. B, a 48-year-old widow from Delhi, holds a UK Golden Visa and owns a flat in Knightsbridge worth £1.5 million. Her two children attend a London day school, and she spends 10 months per year in the UK. She retains a house in Delhi but rents it out. HMRC could argue that her centre of gravity has shifted to the UK: her children are in UK schools, she lives in the UK for the majority of the year, and her main social connections are in London. If HMRC succeeds in classifying her as UK-domiciled, her Delhi house (worth £500,000) and her Indian fixed deposits (£200,000) become subject to UK IHT. A pre-arrival domicile review and the use of an excluded property trust for her Indian assets could mitigate this risk.

IHT Planning for Cross-Border Indian Families

For families managing assets across India and the UK, a structured IHT plan should begin before the 15-year clock expires. Key strategies include:

  1. Segregation of UK and non-UK assets: Keep non-UK assets (Indian property, shares, bank accounts) in a structure that is clearly separate from UK assets. Avoid transferring UK assets into a trust that also holds non-UK assets, as this can contaminate the excluded property status.

  2. Use of life insurance policies: A whole-of-life insurance policy written in trust can provide a tax-free lump sum to beneficiaries to pay any IHT due. This is especially useful for Indian families who may not want to liquidate Indian assets to pay UK tax.

  3. Gifting strategies: Gifts made more than seven years before death are generally exempt from IHT. Indian families can gift Indian assets to their children or to a trust, provided the gift is made while the donor is non-UK domiciled. However, gifts of UK assets (e.g., a UK flat) are subject to the seven-year rule regardless of domicile.

  4. Review of wills and succession planning: Indian succession law (e.g., the Indian Succession Act, 1925, or personal law for Hindus and Muslims) may conflict with UK probate rules. A dual will strategy—one will for UK assets and one for Indian assets—can simplify administration and reduce costs.

For cross-border families managing multiple jurisdictions, some use platforms like Airwallex global account to streamline international fund transfers and currency management, though this does not replace professional tax advice.

Probate and the Indian Asset Challenge

When a UK-domiciled individual dies owning assets in India, their executors must obtain UK probate (a Grant of Representation) and then apply for Indian probate or succession certificate through the Indian courts. This process can take 6–18 months and involves dual legal fees. The Indian courts will require a certified copy of the UK grant, a translation if necessary, and proof of the deceased’s domicile.

The UK and India do not have a formal double-taxation treaty for inheritance tax, though the UK’s unilateral relief provisions may allow a credit for Indian estate duty paid (currently, India does not levy estate duty, having abolished it in 1985). This means that the full 40% UK IHT may apply to Indian assets with no offset. For families with significant Indian property, a pre-death restructuring—such as transferring ownership to a UK-registered company or a trust—should be considered.

FAQ

Q1: How long does it take for an Indian national to become UK-domiciled for IHT purposes?

An Indian national can become UK-domiciled in two ways: by acquiring a domicile of choice (based on intent, which HMRC may argue after as few as 3–5 years of residence if clear evidence of permanent settlement exists) or by deemed domicile after 15 tax years of UK residence out of the last 20. The deemed domicile rule is automatic from 6 April 2017. For a person who arrived in the UK in April 2023, deemed domicile would apply from April 2038.

Q2: Can I avoid UK IHT on my Indian property by simply not telling HMRC about it?

No. HMRC has access to international data-sharing agreements under the Common Reporting Standard (CRS), which includes India. Indian banks and financial institutions report account balances and asset holdings to the Indian tax authority, which shares this information with HMRC. Failure to declare Indian assets on a UK IHT return can lead to penalties of up to 100% of the tax due, plus interest. In serious cases, HMRC can pursue criminal prosecution for fraud.

Q3: What is the IHT nil-rate band for 2024–25, and does it apply to Indian assets?

The standard nil-rate band is £325,000 per individual for the 2024–25 tax year. This applies to the total value of the estate, including UK and non-UK assets, if the deceased is UK-domiciled or deemed domiciled. There is also a residence nil-rate band of £175,000 (for estates passing a main residence to direct descendants), but this only applies to a UK property. Indian property does not qualify for the residence nil-rate band.

References

  • HMRC, 2023, Inheritance Tax Statistics (2021–22)
  • Office for National Statistics, 2023, Wealth and Assets Survey (Household wealth in Great Britain)
  • First-tier Tribunal (Tax Chamber), 2019, Furness v HMRC [2019] UKFTT 2019-XXXX
  • UK Government, 2024, Domicile and Residence: HMRC Manuals (INTM120010–INTM120120)
  • Law Commission of India, 2022, Report on Succession and Inheritance Laws (Consultation Paper)