Where there’s a will there’s (usually) a way


Where there’s a will there’s (usually) a way

This page was last updated on July 30, 2019

This article is an updated version of one in the summer 2015 edition of Shipshape 

Updated 30 July 2019

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 entitled to a share in your estate; it can’t all go to a surviving spouse.  Note that someone domiciled in the UK is actually domiciled in either England & Wales, Scotland or Northern Ireland (each has different intestacy laws).  Furthermore, under Scots law, even if there is a Will, the surviving spouse or civil partner or children cannot be denied their legal rights by any provision in the Will.  These rights are limited to the moveable estate.

EU changes

The EU Succession Regulations changed 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 the EU. 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 into 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 revives. It’s very hard to shake off!

Someone is treated as domiciled in the UK for inheritance tax (IHT) purposes at a particular time, subject to double tax treaties with certain countries, if,

  1. The individual was domiciled in the UK within the three years immediately preceding the relevant time;
  2. The individual is resident for income tax purposes in the UK (‘tax resident’) and was born in the UK with a domicile of origin in the UK.
  3. The individual was tax resident in the UK for at least 15 tax years out of the 20 tax years immediately preceding the relevant time and for at least one of the four tax years ending with the current tax year.

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.  This is a lifetime limit of £325,000.  Thus, the ‘spouse exemption; available at death cannot exceed £325,000 less the total of all amounts given in the testator’s lifetime that were exempted as transfers to a spouse or civil partner.  However, 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).  The election ceases to have effect once the surviving spouse or civil partner has not been UK tax resident for four successive tax years.

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. passwords required to order to access 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/resource-category/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.

Copyright © Shipleys LLP 2019

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