A surprising number of our clients have property abroad, usually holiday property they’ve bought themselves, but sometimes family property they’ve inherited. Does this matter to us when we are looking at Wills and Estate Planning? It matters a great deal!
Most of our clients are “domiciled” in England and Wales, and domicile is very important to UK Inheritance Tax liability and also to some inheritance issues.
“Domicile” is not the same thing as “residence”
[As an aside – The rules around domicile are very complicated, but domicile is not the same thing as being resident in a particular country. We have a client who has just returned to the UK from the USA after more than 50 years; she has continued to be domiciled in England & Wales all the time that she was in the States – without her knowing it!
Generally speaking, the assumption under UK law is that you are domiciled throughout your life under the legal jurisdiction in which you were born. Again speaking generally, changing that domicile (to what lawyers call a domicile of choice) requires you to (a) move permanently to another country (b) sever practically all financial, property and other ties with the country you have left behind and (c) positively acquire permanent ties in the new country. Even then there are specific tax rules (called deemed domicile) which may treat you as domiciled here, even if legally you are domiciled elsewhere.]
Inheritance when domiciled
Anyone domiciled here is assessed for Inheritance Tax (“IHT”) on all their assets anywhere in the world. However, if local death-duty taxes are paid overseas then some credit will usually be given against UK IHT.
Protecting assets when not domiciled
Anyone not domiciled (or deemed domiciled) here is only assessed for IHT on their assets in the UK. People intending to be long-term residents here will be deemed domiciled after 17 years – which means that we can protect their non-UK assets from IHT if they see us before the 17 years are up.
Do you need a foreign Will?
The second important factor is whether your UK Will is valid in regards to non-UK property (particularly house and land property) or whether you need a foreign Will as well. It’s also important to change the standard wording used to make sure a UK Will does not revoke a non-UK will – and vice versa!
When looking into making a foreign Will, it is important to consider that many foreign jurisdictions require fixed proportions of the Estate to pass to children or other family members; the non-UK assets of a person domiciled here may have to respect those forced heirship rules.
Changes to the law around foreign estate inheritance
There have been some recent changes to the Law under the principles of the Hague Convention. This allows a person domiciled in one country to elect that their whole estate is distributed in accordance with the laws of that country.
Very technical – but obviously thrilling to Wills, Probate and Trusts Lawyers!
Your questions answered
To be on the safe side when inheriting holiday homes abroad or when adding one into your own Will, it is worthwhile to check everything over with our Wills, Trusts and Probate specialists. Bray & Bray have three main offices across Leicestershire, feel free to phone or pop in to talk to our solicitors.