Estate planning for expats: Domicile, IHT and making a Will

Domicile and IHT
Do you know the difference between domicile and residency? If you’re an expat, you need to. Even without any UK assets, if you are still UK domiciled you can be taxed on any, and all, worldwide assets, which could mean an unexpected, and heavy, Inheritance Tax (IHT) bill for your beneficiaries and loved ones.

Simply, moving abroad does not mean leaving UK IHT behind. UK IHT depends not on where the retiree resides, but rather where they are domiciled – and this, for many British expats, is still the UK. The issue of UK domicile is a complex one. It has been defined by the courts as one’s ‘permanent home’ but care should be taken with this definition because it can sometimes be deceptive (for example, a person could be domiciled in a country which they have never visited!). This is because whilst domicile is a question of fact, it is also a conclusion of law which is determined by the application of a set of legal principles.

In addition to seeking advice on their own personal circumstances, the expat (at the very least) would need to prove that they are living abroad permanently, with no intention of returning to the UK, with clear and unequivocal evidence supporting this. Even if the expat establishes non-UK domicile, it is important to note that any change in circumstances or ties could affect or reverse this status.

Lynette Chaudhary, International Tax Manager at STM Fidecs, adds that, ‘in addition to seeking UK advice, the expat should ensure they seek advice in their new home.’

Making a will
As important as the everyday essentials such as setting up a bank account and applying for residency, are the two key concerns of revising wills and power of attorney. The latter is largely down to logistics, as power of attorney rights established in the UK may not always be accepted abroad, nor necessarily may any UK, legal documents.

Where wills are concerned, it is increasingly common for multiple wills to be drawn up, each dealing with assets in separate localities. If you’re buying a Spanish property for example and moving to Spain, but have property in the UK, it could be recommended that you draw up two wills to deal separately with the assets in each country.

In such circumstances, one major factor however is whether the wills work together. Many contain clauses revoking all other wills, so this must be omitted in the case of multiple wills. Another key consideration are contrasting legal systems, which dictate the division of estates. In the UAE, for example, governed by Sharia Law, in the absence of a will all assets will pass to the oldest male relative, who may not necessarily be the benefactor’s intended beneficiary.

Even if the expat stays closer to home, differing laws can apply. A popular destination for British expats, France operates succession laws which prevent moveable assets passing entirely to the surviving spouse, favouring instead a higher entitlement for children. Great if there’s an entente cordiale amongst family members and such matters can be resolved, but in cases where the understanding is less ‘cordial’, assets will be distributed according to the letter of the law, and not necessarily to the last wishes of the benefactor.

To add to this, it’s important that the right official is overseeing these matters. Again in France, a ‘noteur’ is different from a law firm, although some functions overlap. In each and every case, consulting an expert regarding such matters in your new country of residence is essential. And, keep reviewing your affairs. Laws regarding tax and residency change, so you need to be sure your wishes are still covered by the provisions you’ve put in place.

Not only beneficial in many ways as pension schemes in themselves, a QROPS or QNUPS could also prove to be a prudent choice for an estate planning strategy, transferring invested funds to beneficiaries or the estate in potentially non-taxable ways on death. Again with a wide choice of plans available, in a number of jurisdictions, consultation with an expert to tailor any plan to your circumstances is essential.

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