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Replies To Queries 1

07 January 2003
Issue: 3889 / Categories:

Replies to Queries 1


Spanish stock

Replies to Queries 1


Spanish stock


Our client, a British subject, is resident, ordinary resident and domiciled in Spain. He owns a small property in England and has some substantial shareholdings. Our understanding is that as a non-United Kingdom domiciled individual he will be subject to inheritance tax in respect of any property in the United Kingdom. Due to the vagaries in both the Spanish and United Kingdom postal systems, his stockbrokers have suggested that he register all his shareholdings in a nominee account with them in London. This would then avoid postal delays backwards and forwards to Spain.

Our question is: does this transfer of his shareholdings to a nominee account in London make these assets potentially chargeable to inheritance tax, should our client die?

(Query T16,132) King Solomons.


 

Under section 6(1), Inheritance Tax Act 1984, 'Property situated outside the United Kingdom is excluded property if the person beneficially entitled to it is an individual domiciled outside the United Kingdom'. So the question to be answered is, just because the shares in question are held under the name of a United Kingdom based nominee, does that mean that they are now counted as situated in, rather than outside, the United Kingdom?


In connection with this question, as is stated in I9.401 of Simon's Direct Tax Services 'The inheritance tax legislation does not include general rules determining the location of property'. However, it does refer to section 275, Taxation of Chargeable Gains Act 1992 which states: 'For the purposes of this Act


(d) shares or securities issued by any municipal or governmental authority, or by any body created by such an authority, are situated in the country of that authority;

(e) subject to paragraph (d) above, registered shares or securities are situated where they are registered and, if registered in more than one register, where the principal register is situated'.



This, obviously, is only a starting point, but looking at the Revenue's Capital Taxes Office Advanced Instruction Manual, Volume 3, S.15, this covers 'Locality of assets' and 'Relevance for inheritance tax' and says: 'The locality ascribed in law to an asset is of importance in relation to inheritance tax for the following main reasons:


(a) locality outside the United Kingdom may cause the asset to be excluded property;


(b) the locality of an asset is relevant to the possibility of a credit or an exemption, in order to relieve double taxation'.



The double taxation convention between the United Kingdom and Spain was dated 21 October 1975 and so apart from the fact that inheritance tax was not included therein, S.15 continues, 'Conventions concluded since 1975 do not contain the detailed situs codes that were a feature of the earlier treaties. You will therefore need to pay regard to a treaty situs code only if the treaty with which you are concerned was concluded before 1975'.

S16.1 then mentions the 'General rule the locality, for inheritance tax purposes, of inscribed and registered securities is governed by the situation of the register, entry upon which is necessary to complete the title of the owner of the security; see Attorney General v Higgins [1857] 2 H and N 339. '.


Also taking into consideration the status of 'a nominee account in London', S.20 which, however, does deal with 'Share certificates endorsed in blank' states: ' The local situation of shares for inheritance tax purposes is determined … according to the following rules:

(a) If the registered owner is a good Marking Name, the shares are situated where the register is kept, not where the certificates are found. If the company has more than one register on which the holding could be effectively transferred, and the share certificates are found at the material time at a place where a register is located, the holding is for inheritance tax purposes situated at that place see R v Williams [1942] AC 541

(b) If the registered owner is the beneficial owner himself, or a nominee of the beneficial owner, the rules are as at (a) above. In such cases, it is considered that the legal and only title of the holder consists in his registration as owner. By bringing the certificates to the United Kingdom, he is in a position to create, in a purchaser, an equitable interest in the shares which would be situated here, but until he does so, the beneficial interest has not been severed from the legal interest so as to have a different locality.

(c) If the registered owner is neither a good Marking Name, the beneficial owner, nor any other of the persons named at (b) above, and the certificates are physically present in the United Kingdom at the material time, the shares are locally situated in the United Kingdom for inheritance tax purposes (Stern v The Queen [1896] 1 QB 211)'.

Therefore based on the above there can in some circumstances be a liability to inheritance tax on the death of the non-resident, non-ordinarily resident and non-domiciled British subject client. N.K.

 

Sections 1 to 3, Inheritance Tax Act 1984 identify the subject matter of the tax, with the important disregard of 'excluded property', namely property situated outside the United Kingdom to which an individual domiciled abroad is beneficially entitled. It is assumed that this client, although a British subject, escapes the deemed domicile provisions of section 267, Inheritance Tax Act 1984.


The Inland Revenue 1991 publication IHT1 confirmed that location of assets is a matter of general law (subject to double taxation agreements). In particular, registered shares or securities are situated where registered. This is confirmed in Publication IH718, Inheritance Tax: Foreign Aspects, under the subheading 'How do I know in which country the assets are situated?'.

It is necessary to distinguish between the legal ownership of the shares and their beneficial ownership. A nominee is a bare trustee who has no capacity to enjoy the capital or revenue flowing from the registered shares, all of which he is bound to account for to the person beneficially entitled. The definition of excluded property in section 6(1), Inheritance Tax Act 1984 specifically makes use of the expression 'the person beneficially entitled to it'.


The interposition of a nominee has rather less significance than would flow from the existence of a branch register of the overseas company in the United Kingdom. This was considered in Standard Chartered Bank Ltd v Commissioners of Inland Revenue [1978] STC 272. The point is that the shares can be 'effectively dealt with as between the [beneficial] shareholder and the company' by his requiring the nominee to comply with his wishes. M.C.N.

Issue: 3889 / Categories:
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