Estate Planning And Probate With Overseas Elements – Where To Begin?
When dealing with an estate, either by planning your estate through making a will or acting as a personal representative in a probate matter, it is increasingly common to encounter numerous cross-jurisdictional aspects. Brexit notwithstanding, many Britons continue to relocate temporarily or permanently abroad or invest in overseas properties. Further, the UK remains an attractive work destination and many foreign nationals move to and subsequently acquire assets here.
Understandably, each of those scenarios have distinct legal and tax implications. The purpose of this short guide is to highlight some of the issues to which you ought to be alerted when dealing with the overseas elements of an estate and the legal concept of domicile.
Domicile will have a bearing on the legal and tax position of the deceased’s estate. However, rather confusingly, there is no statutory definition of domicile which is established on a case-by-case basis depending on the facts. Domicile is also separate from the concepts of residence or nationality, although both of them will be taken into account when assessing domicile.
In general, UK common law distinguishes three types of domicile: domicile of origin, which stipulates that one’s domicile is to follow from the place of their birth, domicile of dependency, which provides that children acquire a domicile after one of their parents (the rules vary, depending on whether the parents were married), and domicile of choice which is acquired voluntarily. Domicile of origin is usually presumed to be an adult’s ‘default’ domicile unless this presumption is rebutted by evidence for another domicile of choice. The fact that a person has acquired a new domicile of choice is usually proven by showing their clear intention to change domicile permanently, such as through taking up residence and/or purchasing a property in the new country, acquiring citizenship of that country, taking permanent employment and forging other local connections.
Even when a UK domicile cannot be established based on either of the above three types, an individual may be deemed domiciled in the UK for inheritance tax (IHT) purposes if they have been a UK tax resident for 15 out of the immediately preceding 20 tax years. This rule applies from 6 April 2017 onwards and before that date 17 tax years were required to acquire a deemed domicile.
Once a person is domiciled here (whether deemed or otherwise), it will have a critical impact on the liability to IHT. Their worldwide estate will be subject to IHT. In turn, an estate of a person who was not domiciled in the UK will be only liable to IHT on their UK assets.
The legal position may be further complicated depending on the local laws of the foreign country. For example, many Britons who own second homes in countries such as France or Spain may be subject to local ‘forced heirship’ rules dictating that some of their relatives may be automatically entitled to a proportion of their property or even their entire estate in that country. Historically, these rules could be successfully addressed in a UK will by making a reference to the European Succession Regulations 650/2012, commonly referred to as Brussels IV. However, following Brexit, it remains uncertain whether a UK will suffices to achieve the same goal. Consequently, making a separate foreign will which fully complies with local laws may be the best way of ensuring that your wishes will be followed. However, it is crucial that the UK and foreign will do not revoke one another and, that is why, both UK and local lawyers should be consulted.
Insofar as IHT is concerned, if an estate may be taxable both in the UK and in the foreign state, you may wish to establish whether the UK and that country have a double taxation treaty in place and, if so, whether you may be eligible to benefit from its provisions to reduce the overall tax liability.
All told, the concept of domicile is a good starting point for estate planning or dealing with probate matters with foreign elements. However, invariably, there will be other factors to investigate, such as the exact wording of the relevant wills, local succession laws or any applicable regulations and double taxation treaties. Legal advice should be sought as early as possible to avoid uncertainties, delays or even financial penalties for incorrect tax reporting. In more complex matters, it may be pivotal to work closely in tandem with a local lawyer to ensure that the foreign assets are properly secured and the local laws are complied with.
Remember that each case will differ on its facts and the above guide must not be construed as legal advice. Our Wills & Probate Team will be happy to provide legal advice which is specific to your circumstances. If you wish to talk through your needs please call us today on 0808 271 9413 or request a call back at your convenience.