non-domiciled PETs??

Three thoughts:

0) The gaining of domicile is not easy-come easy-go; it may not be possible to establish it within so short a time frame as 7 years. 1) It is a question of fact what the person's domicile is at death. It is the case that if the person is UK domiciled at death, then UK inheritance law applies, if foreign domiciled, then inheritance law of the foreign country applies. 2) Whether UK inheritance *tax* law applies is likely to follow whether UK inheritance law applies (but the former may sometimes apply even without the latter, especially in respect of UK property). Be that as it may, the 7 year rule would apply if and only if UK tax law applies. My understanding is that PETs are not classified at the time they are made, they are always retrospectively classified, so there is no question of re-classification. You always work backwards 7 years from death.

A gift of non UK situated assets by a non UK domiciliary should not be classified as a PET, and thus outside the PET charging regime.

True, but it is possible, especially if reviving a UK domicile of origin. Let's assume that Mr. X has acquired a domicile of choice in Jersey and has no UK assets. If he stays where he is and dies there, the UK are most unlikely to take an interest.

Now lets say that Mr. X changes his mind, and while still Jersey domiciled gives away property including (say) his Jersey home to UK domiciled children. Shortly after doing this Mr. X comes to live with his son in the UK, and dies here within seven years of returning. His UK domicile will probably be revived.

True again, but devil is in the detail. Hence this post about gifts by a non-UK domiciled person who later revives a UK domicile.

Again true, but a general statement - not an answer to the specific question.

It seems a matter of semantics as well as law. Can a non-UK domiciled person make a gift of non-UK assets that would only be classed as PETs if he revived a UK domicile and died within 7 years? In other words is there such a thing as a "potential" PET, distinct from a PET!

Consider the following situation: Mr. Z, who has a domicile of origin in Ruritania(where there is no IHT) is resident in London from time to time, but has no UK assets. Six years before his death he gives his Ruritanian castle(worth 1 million) to his UK domiciled children, bringing his remaining Ruritanian assets to 250,000, just below the UK nil rate band. Shortly before his death Mr. Z is caught by the "deemed domicile" rules and as far as the Inland Revenue are concerned he dies domiciled in the UK. What is the IHT position? He has no UK assets, and his worldwide estate at death is below the nil-rate band anyhow. What about the Ruritanian castle he gave away 6 years ago? Is that now added to the estate for IHT purposes on the grounds that it was a PET??? Is the taxable estate now calculated as 1.25 million with tax of approx 400k due?

And if the giftor subsequently gains or revives UK domicile?..... Do you have a relevant citation? What about the question of reservation of benefit?

Cheers

It's the date of the gift which is relevant - as it would not be a chargeable transfer, it cannot be a PET. See section 3A ITA 1984.

Fair comment.

I'd have thought so, but Doug disagrees and he's usually right.

I note, by the way, that in your examples of both Mr X and Mr Z, you make a point of saying their donee children are UK domiciled. Surely the donees' domicile is irrelevant, only the donor's domicile matters.

Why do *you* think the castle would form part of the estate for IHT, if I may ask?

I agree with you, and just mention it for the sake of clarity. Perhaps someone else might think it makes a difference.

You may. It's because I mistakenly thought that domicile at the time of making the gift didn't matter, only domicile at time of death, and that once UK domicile (or deemed domicile) at death had been established, that everything gifted in the previous 7 years, beyond the usual exemptions, would be clawed back irrespective of domicile history.

Could not find the citation. Are you referring to IHTA 1984 s.48(3) which allows non-domiciled property placed in trust by a non-domiciled settlor to remain excluded property from UK IHT even if the settlor later acquires UK domicile(and possibly even if he reserves a benefit). I understand this section(I think!), but I was wondering what the position would be on a straight gift without involving a trust by a non-domiciled person who later became UK domiciled?

So to be clear. On reflection you now agree with Doug that gifts by a non-domiciliary who subsequently becomes UK domiciled are not considered as PETs and are not subject to the 7-year survivorship rule? Are they effectively "excluded property" and not subject to IHT? Do you have a relevant citation?

Section 3A is headed up "Potentially exempt transfers", and the subsections define what is a PET.

This should cover outright gifts (as earlier described).

OK found it

However, it is mind-numbingly complex and the word "domicile" does not appear anywhere in it! Could you guide me to the to the relevant clause please?

Yes I do and no I haven't. It wasn't so much reflection as deferring to his judgement. He's usually right. :-)

Are you saying that transfers of foreign property by non-domiciled persons at the time of transfer are "excluded property" even if the donor subsequently (re-)acquires UK domicile, and are therefore completely outside the scope of UK IHT?

Yes, subject to the deemed domiciled rules.

There may be CGT implications, depending on his residence/ordinary residence status.

snip

I'm truly sorry about this, but every time I look at this thread, and see the OP, *I* think - and it's been geting more and more convoluted every time ..

"Well my dog FIDO used to live in t'kitchen, but now Av bin darn t't wood yard an' got a load of owd floor boards, and built 'im this right nice kennel. No need for your pet not to be domiciled, just write an' A 'll sent y't' plans."

J

btw, surely the CGT rules are essentially the same as the deemed domiciled rules? i.e. if you are caught by one you are caught by both.

The scenario in order of events is as follows: Mr. X buys a foreign property and moves to live in it with the settled itention to permanently or indefinitely reside there. He informs the Revenue on a P85 that he is no longer resident in the UK. He sells or gives away his remaining UK assets. At some point after 3 years of leaving the UK he has probably acquired a new domicile of choice. After a further 5 years he transfers some of his foreign assets to his UK domiciled children. A year later, because of infirmity he decides that he would like to return to the UK. He sells his remaining foreign assets and returns to the UK and buys a small property. His worldwide estate is now less than the nil-rate band, so if he dies UK domiciled there would be no IHT to pay.

Any flaws in this scenario? On death, would the foreign transfers have to be mentioned at all to the Revenue?