WHY IS DTMS NOT WORKING?

The concept of "Death Tax" is not new. For centuries, civilizations have imposed some form of inheritance or estate tax upon the transfer of wealth from one generation to another. In recent years, however, the complexity of global investment holding structures has caused a rash of high-profile cases where parties thought to be non-domiciled found themselves owing large sums in death taxes to jurisdictions in which they thought they had no liability. The UK government responded by introducing the Domicile Trust Mutual Scheme (DTMS) in 2007. The DTMS was intended to allow expatriates and non-domiciled individuals to pass their overseas assets on to future generations without attracting UK inheritance tax, regardless of their domicile.

What is DTMS?

The DTMS is a set of rules that allow certain offshore trusts to be exempt from UK inheritance tax, even if the settlor is UK domiciled. This is an exception to the general rule that UK-domiciled individuals are subject to UK inheritance tax on their worldwide assets. To qualify for the DTMS, the trust must meet certain conditions.

• The trust must be created by a non-UK domiciled individual
• The settlor must not be UK-domiciled at the time of death
• The trust must be an offshore trust
• The trust must have been created before 2008
• The trust must have entered the DTMS before 2011

Why is DTMS Not Working?

The DTMS has not been without its critics.

• The scheme is complex and difficult to understand.
• The rules are constantly changing, making it difficult for trustees and beneficiaries to keep up.
• The DTMS is expensive to operate.
• The scheme is unfair to UK-domiciled individuals who are subject to UK inheritance tax on their worldwide assets.

What are the Alternatives to DTMS?

There are a number of alternatives to the DTMS that can be used to mitigate UK inheritance tax liability.

• Individuals can hold their overseas assets in non-UK trusts that are not subject to UK inheritance tax.
• Individuals can give away their assets during their lifetime to reduce the value of their estate.
• Individuals can take out life insurance policies to cover the potential inheritance tax liability.

The Future of DTMS

The future of the DTMS is uncertain. The government has been reviewing the scheme for a number of years and has indicated that it may be abolished in the future. This would have a significant impact on wealthy non-domiciled individuals who have used the DTMS to protect their assets from UK inheritance tax.

Conclusion

The DTMS is a complex and controversial scheme that has been criticized for being unfair and expensive. The future of the scheme is uncertain, but it is likely that it will be abolished in the future. Individuals who are considering using the DTMS should seek professional advice to ensure that they understand the risks and potential benefits of the scheme.

FAQs

1. What is the Domicile Trust Mutual Scheme (DTMS)?
   The DTMS is a set of rules that allow certain offshore trusts to be exempt from UK inheritance tax, even if the settlor is UK domiciled.

2. Why is the DTMS not working?
   The DTMS has been criticized for being complex, difficult to understand, and expensive to operate. It is also unfair to UK-domiciled individuals who are subject to UK inheritance tax on their worldwide assets.

3. What are the alternatives to the DTMS?
   There are a number of alternatives to the DTMS that can be used to mitigate UK inheritance tax liability, such as holding overseas assets in non-UK trusts, giving away assets during one's lifetime, and taking out life insurance policies.

4. What is the future of the DTMS?
   The future of the DTMS is uncertain, but it is likely that it will be abolished in the future.

5. Who should seek professional advice about the DTMS?
   Individuals who are considering using the DTMS should seek professional advice to ensure that they understand the risks and potential benefits of the scheme.