18 August 2021

Citizen of the World

By Miranda Marshall, Director, Hayes + Storr.

Prince Philip was born in Greece, then educated in France and Germany before he moved to the United Kingdom, married our Head of State, and became her loyal and long-serving consort. On his death in April, Prince Philip is reported to have left a large estate which includes overseas assets.

Overseas assets add a whole further level of complication to estate planning and administration. Foreign assets can be undiscovered until after a death and cause much delay and extra cost. I sometimes jest that I like dealing with an estate containing foreign assets, as it makes my handling of the UK assets look super-efficient in comparison. There is the concern that the same asset is taxed twice.

Watch carefully the question of ‘domicile’. Domicile is a term used for the territory of which the laws apply to a person. It determines which jurisdiction’s laws govern the distribution of assets of the departed. Domicile determines the liability to different taxes. In the UK different domicile rules apply to the different taxes: inheritance tax (IHT), capital gains and income taxes. Sometime things are very ‘counter-intuitive’.

A person may have a home in several countries, but they can only ever have one domicile. It is not quick or easy to change domicile for IHT. Contrast that with the rules for ‘residence’ for income tax etc. You cannot just state the country in which you are domiciled; you also must have consistent actions and intentions with the country of your domicile. Domicile is described as a ‘nebulous’ or woolly concept; and as ‘tenacious’ or sticky.

Pre-1974 a married woman automatically acquired her husband’s domicile and, although this sounds as from another era, a woman who married before that date may well never have taken any steps to revert to or change her domicile. So, a young 1973 bride only now in her late 70s may never have given any thought to her domicile.

It is not possible to be ‘UK domiciled’; you must choose one of the three countries making up the UK, so either England & Wales, Scotland, or Northern Ireland.

If you have overseas assets you must state in your Will whether it applies to assets in England and Wales only, all worldwide assets or select the applicable jurisdictions. Some jurisdictions may not allow such instruction; it is up to that jurisdiction.

If another jurisdiction refuses to recognise the English Will, this can lead to the ‘forced heirship’ laws of that country applying, so you may not have any ‘testamentary freedom’ i.e., you must leave what you own as the legal code of the country in question requires. The EU Succession Regulations, which have not yet ceased following Brexit, enable ‘forced heirship’ rules to be by-passed. It can be complex, and advice should be taken both in the UK and overseas. If you die without a Will i.e. (‘intestate’) then it is likely to be even more complicated and unlikely to do what you would have wished.

A process known as ‘re-sealing’ i.e., the affixing of the Court Seal of authority allows the UK executor to deal with overseas assets and vice versa.

If you domiciled in one of the three UK jurisdictions, then you are liable to pay IHT on all your worldwide assets. A ‘non-UK-domiciled’ spouse married to a ‘UK-domiciled’ deceased (my apologies for lazy shorthand – see above) only gets restricted IHT spouse relief, unless they go down the complex ‘UK IHT deemed-domicile’ route. You might also need to pay an equivalent of IHT in the foreign jurisdiction. IHT Double Taxation Agreements often do not apply as generously to IHT as might be hoped.

So, be sure to take advice. Being a ‘Citizen of the World’ can be expensive. Even when you have departed from it completely.

This article is for general information only and does not constitute legal or professional advice. Please note that the law may have changed since this article was published.