Domicile and inheritance tax implicaitons

Domicile and inheritance tax implications

Carmen Acuyo, Associate in the Russell-Cooke Solicitors, private client team.
Carmen Acuyo
3 min Read

Private client associate, Carmen Acuyo, explores the impact of domicile on inheritance tax and whether English succession can apply to your will.

Perhaps you have spent years of your life working and finally find yourself moving abroad for a well-deserved retirement. Or you are relocating to another country to pursue your career or to move closer to family.

These are not uncommon scenarios for many of our clients with cross-border links who, for example, were born in another country, have family abroad or own properties and assets overseas. It is, therefore, crucial to understand the succession and inheritance tax implications associated with their domicile, being the jurisdiction that a person ultimately treats as their permanent home. 

What is 'domicile' and how does it affect inheritance tax?

Your domicile at birth is inherited form your parents, but can change over time. Having an English domicile makes your worldwide estate subject to inheritance tax (currently set to 40% on non-exempt assets). However simply moving to another country is, in itself, insufficient to change your domicile. It is also not common knowledge that changing away from an English domicile (or any domicile within the UK), even with a firm and provable intention to move away, typically leaves the worldwide estate still subject to inheritance tax for three (sometimes more) years. Furthermore the law in this area is complex and bridled with double tax treaties across the globe. The end result can be that inheritance tax is applied to all the worldwide assets of someone who has moved away from England and subsequently died abroad. 

Equally, a gift to a charity (which would previously have been exempt from inheritance tax in the UK) by a person who wanted to benefit a European charity may now be subject to inheritance tax following the Chancellor’s Spring Budget 2023. This confirmed that EU and EEA charities will have their recognition as a charity for UK tax purposes withdrawn. Wills should be reviewed to see whether amendments are needed.

Can you choose English succession law to apply in your will?

When administering an estate with an international element, it is important to carry out an analysis of which succession rules will apply to the property and assets concerned, and the effect in relation to any Will. Expert advice when drafting your Will is important so that an informed decision can be made and potential pitfalls can be avoided. Some countries, such as France and Spain, have so-called forced heirship regimes which give specific classes of family members an entitlement to a share of the estate. Some of these countries, are also, since 17 August 2015, subject to the EU Succession Regulation (Reg. 650/2012) which allows individuals to choose the succession law of their nationality in their Will and so exclude the forced heirship provisions. For example, a UK national most closely connected with England who owns a property in France can choose English succession law to apply to their Will gifting the French property to their spouse. English succession law has testamentary freedom and, therefore, no forced heirship entitlement for family members (for example entitling the children to a share on the death of their parent) would generally apply.  Care and advice is needed however as certain jurisdictions (including France) have brought in laws which seemingly counter the effect of such elections, and treatment of these elections can generally vary between countries.

How can the Russell-Cooke private client team help?

Life takes many turns and we are here to help with the unexpected. Whether you are considering a move, or a family member with assets overseas has passed away, Russell-Cooke has cross-border specialists complete with a dedicated French team, who can provide much needed guidance and expertise in this area including estate planning, Will drafting and estate administration. Having your affairs in order will give you peace of mind and an ability to plan for life’s turns and that pesky lurking tax shadow.

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Briefings Individuals & families Private client Private client legal news and updates—October 2023 Domicile Inheritance tax English succession law