Advising on UK/South Africa double tax convention, domicile and inheritance tax

We have recently acted for the executors of a South African domiciled individual’s estate.

The deceased was born and spent the majority of his working life in England.  The deceased met his wife, who was South African domiciled, and moved over to South Africa on a permanent basis during the later years of his life.

The deceased kept his wealth in both England and South Africa.  Throughout his time in South Africa the deceased retained significant links to the UK.  During his later years, the deceased started to collect in his UK assets and made significant gifts to his adult children from the proceeds of his UK assets.  The deceased died following a short illness and at the date of his death still held circa £1m in the UK.

We have assisted the executors and advised on the following points:

1. On the deceased’s domicile. Running an argument with HMRC that the deceased was South African domiciled at the date of his death and all assets held in a foreign jurisdiction were considered excluded property.  By successfully running the South African domicile argument, this ensured the spouses’ domiciles were aligned and the availability of spouse relief became unlimited. The deceased had ties with both countries and a comprehensive argument needed to be put forward to satisfy HMRC of the South African domicile.
2. On the most suitable grant application based on the documents already issued in South Africa. A rule 30(1)(a) NCPR 1987 application was successfully applied for on an urgent basis particularly as the deceased had accepted an offer on a parcel of UK land before his death.
3. Reliance on the Double Taxation Relief (Taxes on Estates of Deceased Persons and on Gifts) (Republic of South Africa) Order 1979 (the DTC). Article 5 of the DTC removes the UK’s taxing rights on specific types of assets and allowed the deceased’s failed potentially exempt transfers to his children to be excluded from the UK taxing rights.  Within the DTC there are separate domicile tests specifically relating to the taxing rights on different asset classes.
4. By relying on a combination of the reliefs available within the DTC, the availability of Business Relief (BR) on certain qualifying investments, the deceased’s non-domicile status and spouse relief, the estate was kept free of UK inheritance tax.
5. Throughout the matter, there was a clear strategy in place ensuring that if HMRC did not accept the positions as declared, to avoid the estate suffering UK inheritance tax. The potential of the surviving spouse making an election to be domiciled in the UK for IHT was also explored as a final fall back although the risks of this changed considerably throughout the matter following the Autumn 2024 budget.