Where there’s a will there’s (usually) a way
Current Issues | Tax | 3rd September 2015
A different destination
Even if you make a valid will, local laws of succession may change the destination of your estate. This is apart from claims that may be made by those who think they are entitled to more under your will. Your domicile, your nationality or 'habitual residence' in countries other than the UK (not necessarily the same as your UK tax residence) and the location of assets can all be relevant. For example, in most other European countries, surviving children are entited to a share in your estate; it can't all go to a surviving spouse. Even Scots law gives children certain prior rights. Note that someone domiciled in the UK is actually domiciled in either England and Wales, Scotland or Northern Ireland (each has different intestacy laws).
The EU Succession Regulations change succession law in the European Union with effect from 17 August 2015. The testator will be allowed to designate in their will the national law to govern succession as a whole. For most of those domiciled in the UK this should avoid the ‘forced heirship’ laws which prevail elsewhere in Europe. The position elsewhere in the world remains unchanged.
Being clear on your domicile
Domicile, for tax purposes, is not the same as where you live. For example, if your father is from a family that for many generations has lived in Scotland, pursued a career in Australia when you were born, but always intended to retire to Scotland, your Scottish domicile of origin comes back in to play. This will remain so until you acquire a domicile of choice elsewhere in adulthood, by settling in that country on a permanent basis. But if you cease to reside there, your domicile of origin comes back in to play. It’s very hard to shake off!
An individual is deemed to be domiciled in the UK for IHT purposes if resident here for income tax purposes for 17 out of the last 20 years – subject to double tax agreement rules with certain countries.
If you’re domiciled in the UK for IHT purposes, but your spouse or civil partner isn’t, there’s only a limited exemption for gifts and inheritance to him or her. However, since 5 April 2013 the surviving spouse may elect to be treated as UK domiciled for IHT purposes while remaining non-domiciled for income tax and capital gains tax).
More than one will
If you have assets outside the UK, consider making a separate will covering those assets, even one for each country concerned. If you’re domiciled in the UK for IHT tax purposes, your worldwide assets remain chargeable, subject to double taxation relief where tax is chargeable elsewhere.
Take note – ISAs
A surviving spouse or civil partner of someone who dies after 2 December 2014 has an extra ISA allowance equal to the value of the balance on the ISAs of the deceased at the date of death. This applies even if the original funds from the ISA were used to pay for expenses, such as funeral costs. If there are non-cash assets which are inherited from a stocks and shares ISA these too may be paid to the spouse or civil partner’s ISA, if he or she wishes. There is no requirement for the ISAs to be inherited.
Most people know they ought to make a will but this may not always be enough. Your executors' task is made much simpler if you keep a note of important matters with your will. This could range from names and addresses of your bank, accountant, solicitor, stockbroker, etc. to access details for online accounts, as well as lists of assets and liabilities (which will of course change from time to time). A model Personal Affairs Checklist is available at www.shipleys.com/resources/useful-tools.
Specific advice should be obtained before taking action, or refraining from taking action, on any of the subjects covered above. If you would like advice or further information, please speak to your usual Shipleys contact.