Inheritance Tax Implications for Gifts from Non-Resident Parents

Domicile is the important factor here when considering the scope of inheritance tax (IHT) in the UK so the parent’s domicile would need to be established first, then the source of the funds.

It's crucial to note that a non-resident parent might still hold a UK domicile. Furthermore, if the parent had previously resided in the UK, it's plausible that they have acquired a deemed domicile status, which remains in effect as they have not yet been non-resident for long enough.

The concept of domicile is a general law issue and HMRC provides some basic guidance at https://www.gov.uk/hmrc-internal-manuals/residence-domicile-and-remittance-basis/rdrm22000

Deemed domicile is governed by tax law specifically: https://www.legislation.gov.uk/ukpga/1984/51/section/267

See HMRC manual: https://www.gov.uk/hmrc-internal-manuals/inheritance-tax-manual/ihtm13060

If the parent is UK domiciled or deemed domiciled, then the gift is a potentially exempt transfer within s3A IHTA: https://www.legislation.gov.uk/ukpga/1984/51/section/3A

Therefore, depending on the size of the gift and other transfers made, your client may have an IHT liability if the parent were not to survive the gift by seven years.

If your client’s parent is non domiciled and not deemed domiciled in the UK, we would only be looking at any potential inheritance tax issues if the cash gift came from a UK bank account/UK fund. If this is the case, then this would be a potentially exempt transfer as per s3A IHTA 1984. Once seven years has passed this would then fall out of the parent’s estate for UK IHT purposes.

If this was gifted from an overseas bank account, then this would be treated as excluded property for UK inheritance tax purposes as per s6 IHTA 1984: https://www.legislation.gov.uk/ukpga/1984/51/section/6

This means that this would be outside the scope of UK inheritance tax.

Contacts

If you require assistance in relation to the above and/or would like to discuss anything further, please do not hesitate to contact info@act.london or your usual A.C.T. contact.