Expats may face huge UK tax charges

3 mins read

British expats who have lived abroad for many years often remain UK domiciled and liable to UK Inheritance Tax (IHT).

The rate of tax might be considered penal.

It is currently 40% of the total value of the estate of a deceased after the exemptions.

It is an additional tax payable on capital accumulated during a lifetime upon which tax has already been paid.

Many UK nationals who have lived long-term in Cyprus may assume their liabilities to UK tax have ended.

Probably they are no longer liable to UK income and capital gains tax but may well remain liable to UK IHT.

It is difficult to change domicile, so the default position is that those who acquired a UK domicile or origin at birth (99% of those UK nationals born in the UK) will keep that UK domicile for their entire lives and therefore keep their liability to UK IHT.

It is possible to acquire a new domicile of choice, and it is hugely advantageous to do so.

Any long-term Cyprus residents can potentially lose their UK domicile and acquire a new domicile of choice in Cyprus.

That is the only way they lose their liability to UK IHT.

They would pick up a liability to Cyprus estate taxes, but there are none, so there is no disadvantage to acquiring a domicile of choice in Cyprus.

Legally, the test is simple, and there is only one.

Has the taxpayer formed the intent to remain in Cyprus indefinitely?

If the answer is yes, that person is now domiciled in Cyprus.

All facts and circumstances are evidential, and none are definitive apart from this test of intent.

But convincing the UK HMRC of that isn’t easy.

Suppose the evidence to support the claim of a new domicile of choice is not accumulated and documented during the taxpayer’s lifetime.

In that case, it will be very difficult for their executors to convince the UK revenue that there has been a change of domicile.

So it is vital that steps are taken during the taxpayer’s lifetime to properly document their intentions and obtain an opinion from UK counsel that a new domicile has been acquired.

That opinion will rarely be challenged unless facts and circumstances change, so that is the holy grail and the best possible protection.

All people’s facts and circumstances are relevant, but none are definitive.

Normally, it will be impossible for the revenue to agree that a new domicile has been acquired for the first six or seven years.

Still, if the facts and circumstances back up that statement of intent, there is a good chance that a new Cyprus domicile is or can be acquired.

For this to happen, it is necessary to show permanence in Cyprus by acquiring property and establishing social and economic ties.

Losing such ties with the UK is also extremely helpful but not vital.


Certainly, not having a UK property is by no means fatal to any claim that the UK domicile has been lost.

Normally, it is necessary only to show that the taxpayer has more connections with Cyprus than he has retained with the UK.

But we still go back to the main test of intent as being the definitive one.

Coincidentally, one of the leading cases on domicile involves a Cypriot failing to pick up a UK domicile after leaving Cyprus and spending 40 years in the UK.

In Cyganik v Agulian, the Court of Appeal held that the deceased had retained his foreign domicile of origin in Cyprus despite being a UK resident for more than 40 years before his death in the UK.

The retention of strong ties with the country of origin carried weight for the court.

These included: ownership of two flats in Cyprus; close family there (daughter and granddaughter); lengthy return trips; a Cyprus identity card providing him with local rights; and clear attempts to purchase a home and a hotel there.

It is easy to see and logical that the reverse may be true, i.e. a UK national spending 40 years in Cyprus may not necessarily lose his UK domicile and fail to acquire a new domicile in Cyprus.

Gains-Cooper and Barlow Clowes International Ltd & Ors v Henwood are leading cases.

Both those cases involve UK nationals who spent long periods abroad but retained UK connections and failed to establish sufficient connections abroad in one place to convince HMRC that they had lost their UK domicile with severe tax consequences for both – or at least their heirs.

Obviously, UK IHT is only payable after death, so the taxpayer in question did not suffer, but their family certainly did, and most (if not all) taxpayers would sooner that their hard-earned cash went to their families rather than HMRC.

We strongly suggest that anyone who has any doubt about their domicile takes expert advice soonest.

IHT can be planned out relatively easily, but the key to planning is first to get certainty on domicile.

There is never a convenient time to start this planning, and many people never get around to it.

The message is: Get on with it or lose it.

By Howard Bilton – UK/Wales and Gibraltar qualified Barrister, Chair of the Sovereign Group & visiting Professor at Texas A&M University.

Sovereign Group contact in Cyprus: George Ayiomamitis, Managing Director, TEP ([email protected])