An avoidable tax?

May we all live long and healthy lives, whoever and wherever we are, but those we love will thank us for thinking about them and planning for those taxes long before they are due.

Money cash Shekels currency 521 (photo credit: Reuters)
Money cash Shekels currency 521
(photo credit: Reuters)
The news is full of reports that reputedly the richest man in Israel, Idan Ofer, is moving to the UK. One assumes he has taken tax advice from the best tax brains both in Israel and in the UK but for those aspiring entrepreneurs who are not quite in his league there are some important personal tax considerations to take into account before following his trail.
While it is true that the UK’s personal tax regime is somewhat more kindly disposed towards to ‘high flyers’ than is Israel’s, as the old saying goes there are two things you cannot avoid – death and taxes; the UK tax regime endeavors to get taxes from you even from the grave, unless that is, you plan for it.
May we all live long and healthy lives, whoever and wherever we are, but those we love will thank us for thinking about them and planning for those taxes long before they are due.
Unlike in Israel, if as a person domiciled or deemed domiciled in the UK, someone dies leaving an estate - which after all exemptions and reliefs allowed by law are taken into account is worth more than £325,000 - the UK imposes Inheritance Tax (IHT) on the value of that estate over £325,000 at 40%.
Generally liability to IHT depends on a person’s domicile at the time of death. Briefly by law you are domiciled in the jurisdiction where you intend to live permanently or indefinitely. What is more, unlike citizenship or nationality, you can only have one domicile at any given time. However, simply living in another country for a long time is not conclusive to determine your domicile.
The UK government also will also determine someone to be deemed domiciled in the UK if at the time of their death:
•    they were domiciled in the UK within the three years immediately before death, or•    they were resident in the UK in at least 17 of the 20 income tax years of assessment ending with the year in which the person died.
To be regarded as resident in the UK someone must normally be physically present in the country for periods of stay for 183 days or more in the tax year.
An illustration will help. We were recently approached by the family of someone born in Israel, let us call her “Erica." Erica married in 1970 and went to live with her husband, who was appointed the manager of a branch of a well-known Israeli company, in the UK about forty years ago. They bought a modest property in London, whose value is now around £750,000. Erica’s two children were born in the UK but subsequently moved to Israel. Erica’s husband unfortunately died in 1996 and was buried in England. Erica stayed on in London after his death. During the years she was in the UK she made infrequent trips to Israel to visit family.
About two years ago, suffering from ill health, she returned to Israel to spend her last years with her family, buying an apartment in a sheltered housing complex. Sadly she passed away last year having left the property in London unsold.
Probate to Erica’s estate will have to be obtained from the courts in England and Wales despite the fact she passed away in Israel, because the property in London may not be lawfully transferred to her heirs without it.
Notwithstanding that Erica and her family may have believed her to be domiciled in Israel, the tax authorities in the UK will in all probability, on the basis of Erica’s life history and the law, determine that at the time she died she was domiciled or deemed domiciled in the UK.
Accordingly after deduction of any reliefs and exemptions to which the estate may be entitled Erica’s estate will have to pay IHT on the balance of her worldwide assets to obtain probate. The value of her estate for probate purposes will be assessed not only on the value of the house in London but also the apartment she bought in Israel and the investments on which she lived.
Whilst this makes work for the lawyers, this problem might well have been forestalled by wise estate planning and where appropriate, the correct use of off-shore trusts; with the latter, the Israeli tax system - especially when it concerns new olim - is very accommodating.
The above is not to be relied on as legal advice and represents the writer’s understanding of the law as at May 2013. It is provided without liability whatsoever.
Norman Cohen is a senior solicitor in Asserson Law Offices, the largest UK law firm in Israel. He made aliya from the UK in 1988, worked in real estate as a partner in leading West End of London and North West of England regional law firms until he joined Assersons in 2011, where he works in real estate and has established a private client department.
Although it is based in Tel Aviv, Assersons works exclusively under English law. It was established in 2005 and is staffed by outstanding English lawyers, the leaders amongst them having been partners in leading UK law firms before making aliyah. Today there are 15 lawyers in Tel Aviv and five more at the branch office in the West End of London. ALO’s unique business model allows it to offer legal services at a higher level and a significantly lower price than firms based in London. It is uniquely placed to advise on real estate related probate issues for Anglo olim.