The world is becoming smaller, and many clients may have lives and arrangements which are more 'international' than they realise. This could affect not only who would inherit their property on their death, but also how much of it would be left after tax. In this article James Denker highlights some of the most frequent international estate and tax planning issues faced by private clients.
Do you have a holiday home or other assets in a 'forced heirship' jurisdiction?
Patricia Garcia has just looked at recent changes to the tax implications of owning property in Spain, but tax is only one of the factors to be considered when choosing an ownership structure for overseas property. Most European jurisdictions have 'forced heirship' rules. These mean that certain members of the family have an automatic right of inheritance regardless of what the deceased person's Will says. Some jurisdictions accept that if you are a foreign citizen your assets will not be affected by these rules, but not all do so. For example, under French law if a person dies owning immovable property such as a house or an apartment in France, that property will almost always be subject to the forced heirship rules. It is sometimes possible to make arrangements which will avoid these rules, or at any rate reduce the tax which may be payable.
Have you come to the UK from a foreign country?
If you have come to the UK from a country with forced heirship rules, some or all of your assets may still be affected by these rules. If you live in England and English law regards you as still 'domiciled' in a foreign country, this can sometimes be attractive from a tax standpoint, but you may be surprised to learn that the succession rules of that country of domicile may govern who is to benefit from all your English assets, other than immovable property. If this is not what you would wish, it may be possible to do some planning during your lifetime. At the time you got married, were you domiciled in a country with community of property rules? Have you lived in a US state with community of property rules?
If, at the time of your marriage, you were domiciled in a continental European jurisdiction, you may find that, if you did not have a written marriage contract, ownership of your own and your spouse's property is automatically governed by the matrimonial 'legal regime' laid down by that law. This will usually be some form of community of property regime and it may still apply even though you have left that jurisdiction and moved to England. If you have lived with your spouse in one of the nine American states with community of property rules, again you may own assets subject to these rules even though you have left that state.
Do you have a separate Will (or Wills) for foreign assets? Should you?
Sometimes it can be very practical to have more than one Will, each Will dealing with assets in a particular jurisdiction. Care must be taken to ensure that the Wills dovetail and that all assets are covered once, but no assets are covered twice.
For some testators it is more efficient to have only one Will, dealing with all assets in all jurisdictions. This Will usually needs to be checked with a lawyer in each of the other jurisdictions in which assets are held, however, to ensure that the Will makes sense under the laws of those other jurisdictions. Otherwise, there could be problems when your executors or heirs try to carry out your wishes. Very careful planning is therefore needed when there are assets in several jurisdictions.
Are you or your spouse a US citizen?
Although you may have lived in the UK for many years and pay tax here, if you are a US citizen you will still be subject to US income tax and estate tax rules. The double taxation treaties between the US and the UK may however offer some help and these should be looked at carefully.
Your estate planning should be arranged with the laws of both the US and the UK in mind. If you are a US citizen but your spouse is not, you should be aware that the normal US marital deduction rules will not apply for US estate tax purposes.
If you are domiciled in the UK but your spouse is not, then the UK spouse exemption rules relating to inheritance tax will apply only to a very limited degree. Your arrangements will need to be looked at from the standpoint of the tax laws of both jurisdictions.
Are you a beneficiary of any foreign trusts?
If so, then, depending on your domicile income and capital gains which you receive from that trust. Alternatively, you may only be taxable on income remitted to this country. If you are UK resident and UK domiciled, then, even if you do not receive capital, you may be liable to capital gains tax on any 'benefit' (in the widest sense) received in the UK from such a trust. The foreign trust assets may or may not be liable to UK inheritance tax, depending on the domicile of the settlor at the time when the trust was made. If you are the beneficiary or the settlor of any foreign trust, the tax implications are complicated and advice should be sought. Even if the person who made the trust had no connection with the UK, if a benefit is received in the UK or is received by a UK domiciled person, then tax may be payable
Moving abroad or coming to the UK? Will it have a tax effect on trusts of which you are a trustee?
Most individuals who either take up residence in the UK, or leave the UK to go abroad, are well aware that good advice can maximize the tax benefits and minimize any tax detriments that might be in store for them. They can sometimes be less aware that their personal change of residence can have an effect on the residence and taxability of a trust of which they are a trustee. For example, the simple act of their retiring to Spain, say, might trigger a capital gains tax charge on all the trust's assets. Anyone who is a trustee and is thinking of changing their personal tax residence, whether to or from the UK, needs to consider the personal tax aspects, and the trustees of the trust also need to be advised well in advance about whether there are any implications for the trust.