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Unplanned IHT Image

Domicile Confusion Could Result In Unplanned IHT

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Unplanned IHT Image

A leading Island tax advisor has warned that many businessmen and women currently working in the Isle of Man could be unintentionally within the scope of UK Inheritance Tax (IHT) – because they haven’t grasped the difference between tax residence and tax domicile.

UK IHT potentially applies just as much to Manx born residents holding UK investments as it does to those originating from the UK.

That’s the stark message from Kevin Loundes, Associate Director at Abacus, one of the Island’s longest established corporate service providers, where he heads up the firm’s dedicated, in-house tax team, providing comprehensive tax services.

“Simply ceasing to be tax resident in the UK isn’t the same as relinquishing a UK domicile. It’s an individual’s domicile position which is the key to establishing whether there’ll be a UK IHT liability on death,” explained Kevin, who has a wealth of experience advising high net worth individuals on residence and domicile issues.

“If an individual relocating to the Island were to displace a UK domicile of origin with a domicile of choice in the Isle of Man, it could result in considerable UK IHT savings.”

The key to UK IHT is an individual’s domicile at the time of their death and domicile is a very different concept from tax residence. “You may have moved from the UK and been living and working in the Isle of Man for many years, but that doesn’t automatically mean you’re no longer UK domiciled and free from the clutches of UK IHT,” he observed, adding that “people born in the Isle of Man may also not be totally free from UK IHT if they hold UK assets, such as property or shares in UK companies.”

Current UK IHT legislation has a nil rate band up to £325,000 on an estate. Anything above that figure is potentially taxed at 40%. By comparison, there is no IHT in the Isle of Man.

Kevin continued: “Briefly, each person is born with a domicile (a domicile of origin). An individual’s domicile of origin continues throughout their life, but may be displaced by a domicile of choice. As such, if an individual relocating to the Island were to displace a UK domicile of origin with a domicile of choice in the Isle of Man, it could result in considerable UK IHT savings,” he said. “In this scenario, simple tax planning could be undertaken to protect any UK assets (other than UK residential property) from UK IHT, without the need to sell such assets.”

“Proving an individual’s intention is notoriously difficult and requires significant evidence.”

“Adopting an Isle of Man domicile of choice would, generally, require an individual to relocate to the Island with an intention to remain on the Island permanently or indefinitely and to reside here as an inhabitant. Proving an individual’s intention is notoriously difficult and requires significant evidence,” said Kevin.

The onus of proof rests with the taxpayer or the executor of the estate – and not HMRC. “So individuals should take steps to ensure family members or executors are aware of evidence supporting a non-UK domicile claim in the event of HMRC challenge,” Kevin advised.

He also pointed out that changing your domicile to the Isle of Man from the UK wouldn’t bring immediate respite. In the eyes of the UK tax authorities, a person would still be deemed UK-domiciled for a further three years.

“It can be tricky demonstrating evidence of intention and, given someone’s estate would continue to be subject to UK IHT even if they died within that initial three-year period, it can really pay to consider the issue of domicile alongside the location of an individual’s assets sooner rather than later,” he concluded.

Financial Services Malta

Choosing Malta as a Financial Services Domicile

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financial services

Malta, as a small island in the heart of the Mediterranean, has become one of Europe’s most attractive domiciles for companies established in the financial services industry.

Malta became a Member State of the European Union in 2004 and a member of the European Monetary Union in 2008 when it adopted the Euro as its currency. The Maltese economy is based on tourism, manufacturing and financial services, which is becoming one of the main pillars of the economy. Malta has been a member of Commonwealth since 1964 and is also a member of the Council of Europe, Organization for Security and Co-operation in Europe, United Nations and World Trade Organization.

The Malta Financial Services Authority is the sole financial services regulator, responsible for the supervision and enforcement of regulations.

The Maltese regulatory framework is a secure and stable framework for prudential and conduct supervision, consumer protection, market surveillance and prevention of money laundering. The financial services sector in Malta is regulated by a regime which incorporates all EU financial services legislation and consequently operators benefit from the single market passporting rights under freedom of services and freedom of establishment.


As an EU Member State, Malta transposes and implements all the Directives of the European Union, European regulations are directly applicable in Malta, whereas Guidelines or Technical Standards issued by the European Supervisory Authorities are transposed within the national legislation. In Malta, English is the language of financial services business and hence all financial services legislation is in English.

Malta is very pro-active in the EU financial services sector and has always maintained timely implementation of internal market rules for financial services.

The key to Malta’s success in the insurance sector lies in its EU membership, which allows licensed companies in Malta to write business directly into any of the EU and EEA member states. However, Malta’s success in the financial services sector is also widespread in the gaming, trusts, investment services and pension transfers industries.

Malta’s sophisticated finance infrastructure enables a variety of insurance structures including Affiliated Insurance Companies (Captives), Protected Cell Companies and Incorporated Cell Companies. Malta has a solid legal foundation, an approachable regulator and competitive regulatory fees.

Malta can be considered an ideal outsourcing destination, mainly as a result of an efficient infrastructure and a multi-lingual workforce; a high educational system and a wealth of insurance, legal and accounting professionals. Moreover, it offers a varied advisory network, including the global big four accountancy firms. Malta is a hub, in the middle of the Mediterranean, with easy flight connections to the EU mainland and Eastern European countries with major airlines, making it easier for foreign investors to choose Malta.

Malta also allows the migration from other jurisdictions. The Continuation of Insurance Companies Regulations 2003 enables captives to be easily relocated from other jurisdictions which have similar legislation.

When Malta joined the EU in May 2004, it had already taken steps to implement an effective and responsive regulatory framework that operated to EU standards and could accommodate insurance companies. Malta is worth considering as the location for a captive where the ability to issue policies directly into the EU/EEA may provide significant savings on fronting and collateral costs.

This offers cost saving advantages to Multinationals with operations in EU locations; UK corporations paying significant Employers’ Liability and Motor Third Party premiums and also Companies using captives to provide insurance to their customer base, for instance travel, warranty, credit protection, room cancellation insurance.

Malta is also one of the very few domiciles which allow a Protected Cell Company (PCC) structure in the insurance sector. A protected cell in Malta allows a cell owner to insure directly own risk in the EEA and sell insurance to third parties in the EEA. The PCC structure can be applied to both insurance companies and insurance broker companies.

The latest form of insurance legislation which has been issued by the MFSA and which could be highly interesting to companies considering setting up an insurance vehicle in Malta, would be the new legislation regarding Reinsurance Special Purpose Vehicles and Insurance Linked Securities, which include the ways of securing capital for insurance entities.

These benefits characterise Malta as an attractive domicile for insurance companies and brokers.