Developments in the Provision of Private Client and Offshore services in the UK
Significant changes to the taxation of non-UK domiciled individuals and non-UK trusts established by non-UK domiciled individuals were introduced with effect from April 6 2017, with further changes coming into force on April 6 2018.
- In addition, from April 6 2017, all UK residential property (irrespective of value and whether it is owner occupied or let) held directly or indirectly by a non-UK domiciled individual (including property held via non-UK companies and non-UK trust and company structures) is subject to inheritance tax.
- From April 6 2019, gains made by non-UK residents on disposals of UK commercial property will become subject to UK tax. Gains on disposals of interests in property-rich companies will also become subject to UK tax.
- The inheritance tax system was reviewed in 2018.
- As of June 2017, UK resident trusts and non-UK resident trusts which are liable to UK tax must maintain a register of beneficial owners and provide Her Majesty’s Revenue and Customs with specified information on the trust and the beneficial owners.
Residence and domicile
Liability to UK tax depends on an individual’s residence and domicile.
Residence For tax years 2013-2014 onwards, UK tax residence is determined by a statutory residence test (Schedule 45 of the Finance Act 2013).
Individuals are automatically non-UK resident if they:
Individuals are automatically UK resident if they:
If none of these tests apply, whether individuals are UK resident depends on the number of UK ties that they have and the number of days that they are in the United Kingdom (see table below). A ‘day’ is counted where the individual is in the United Kingdom at midnight.
The relevant UK ‘ties’ are:
A ‘leaver’ is someone who was resident in the United Kingdom in at least one of the previous three tax years; otherwise an individual is an ‘arriver’.
|Days in the United Kingdom (in the tax year)||Arrivers||Leavers|
|0 to 15||Not resident||Not resident|
|16 to 45||Not resident||Resident if four ties are present|
|46 to 90||Resident if four ties are present||Resident if three ties are present|
|91 to 120||Resident if three ties are present||Resident if two ties are present|
|121 to 182||Resident if two ties are present||Resident if one tie is present|
|183 or more||Resident||Resident|
Individuals are generally treated as resident or not resident for a whole tax year. However, in limited circumstances they can be treated as resident for only part of a tax year.
Domicile An individual’s domicile is the jurisdiction which he or she considers to be his or her permanent home and where he or she intends to live indefinitely. This may not be the country in which he or she is resident.
Individuals are born with a domicile of origin, which is usually the domicile of their father on the date of their birth (if their parents were married). Individuals can acquire a domicile of choice in another country by being resident there with the intention of remaining there permanently. If an individual ceases to be resident and to intend to reside permanently in that country, the domicile of choice is lost. The individual will then either acquire a new domicile of choice or revert to his or her domicile of origin.
Individuals who are non-UK domiciled under general law can become deemed domiciled in the United Kingdom for tax purposes. This occurs when the individual has been UK resident for at least 15 of the previous 20 tax years. Individuals who are UK deemed domiciled are subject to tax on their worldwide income and gains, and their worldwide estate falls within the scope of inheritance tax. A UK deemed domicile can be lost if the individual is non-UK resident for at least six complete tax years.
Describe the income tax regime in your jurisdiction (including tax base, rates, filing formalities and any exemptions, reliefs or deductions).
- UK residents are subject to income tax on their worldwide income.
- UK residents who are non-UK domiciled and not UK deemed domiciled can claim to be taxed on the remittance basis. If the claim is valid, they pay income tax on foreign-source income only if it is brought to or received or used in the United Kingdom. They may have to pay an annual charge to access the remittance basis depending on how many years they have been UK resident. If no claim is made, they will be subject to income tax on their worldwide income.
- Non-UK residents are taxable on UK source income only (eg, UK bank interest and UK company dividends). This is often limited to any tax deducted at source. Deductions are made at the basic rate of 20%. This limited liability does not apply to rental income from UK real estate.
- Individuals have an annual tax free personal allowance of £11,500. However, individuals who claim the remittance basis lose their personal allowance. The personal allowance is progressively withdrawn for those with taxable income over £100,000.
Income above the personal allowance is taxed at the following rates:
|Amount of income||Dividends from UK and non-UK companies||All other income|
|£0 to £33,500||7.5%||20% (basic rate)|
|£33,501 to £150,000||32.5%||40% (higher rate)|
|Over £150,000||38.1%||45% (additional rate)|
All taxpayers have a £5,000 annual tax-free allowance for dividends; however, this was reduced to £2,000 from April 2018.
Employment income is usually taxed through the Pay As You Earn scheme and is paid to the employee net of income tax and national insurance contributions.
Individuals who have their main residence in Scotland, or who are most closely associated with Scotland, will pay Scottish income tax (at different rates) on most of their taxable income (other than dividend income and savings income). Different rates may also apply to non-UK residents with Scottish income.
UK income tax is levied on the basis of the UK tax year, which runs from April 6 to April 5. Income tax is generally reported as part of Her Majesty’s Revenue and Customs’ self-assessment process. Online tax returns must be submitted by January 31 after the end of the tax year to which they relate. The deadline for paper returns is October 31 after the end of the tax year to which they relate. Tax which is not deducted at source is due by January 31 after the end of the tax year to which it relates. Tax due for the next tax year must be paid on account by January 31 and July 31.
UK residents are subject to capital gains tax on any chargeable gain (broadly, the increase in value during their period of ownership) arising from the disposal of any asset worldwide. Certain assets are exempt from capital gains tax.
UK residents who are non-UK domiciled and not UK deemed domiciled can claim to be taxed on the remittance basis. If the claim is valid, they pay capital gains tax on chargeable gains arising from the disposal of assets situated outside the United Kingdom only if the sale proceeds are brought to, received or used in the United Kingdom. They may have to pay an annual charge to access the remittance basis depending on the number of years that they have been resident in the United Kingdom. If no claim is made, they will be subject to capital gains tax on their worldwide gains.
Non-UK residents are subject to capital gains tax on any chargeable gain arising from the disposal of UK residential property and any asset which is used for the purposes of a trade carried on in the United Kingdom.
Individuals have an annual allowance of £11,300 (increased to £11,700 for the 2018-2019 tax year), after which any gain is taxed at a rate of 10% or 20% depending on whether the individual is a basic or higher rate taxpayer. Capital gains arising from residential property are taxed at higher rates of 18% and 28%.
Chargeable gains are reported by individuals on their self-assessment tax return. The deadlines for submitting tax returns are the same as those for income tax returns.
Non-UK residents who dispose of UK residential property must file a non-resident capital gains tax return within 30 days of the disposal. Any capital gains tax due must also be paid within 30 days unless the individual is subject to the self-assessment regime.
Relief from capital gains tax (resulting in a full or partial exemption) is available in relation to the disposal of residential property where it was, or has been during the period of ownership, the individual’s only or main residence.
Transfers of assets between spouses or civil partners do not give rise to a charge to capital gains tax.
Relief may be available in relation to gains realised on:
Inheritance and lifetime gifts
UK domiciled or deemed domiciled individuals are subject to inheritance tax on their worldwide assets. Individuals who are non-UK domiciled and not UK deemed domiciled are subject to inheritance tax on their assets situated in the United Kingdom only.
Inheritance tax is charged on:
On death, an individual’s net chargeable estate is taxed at 40% above the available nil-rate band. The nil-rate band is £325,000; however, part of it may have been used up by lifetime transfers made within the seven years before death. An additional residence nil-rate band of up to £100,000 is also available in some circumstances. An ‘estate’ comprises all assets to which the individual is beneficially entitled, including jointly owned assets.
Lifetime gifts to individuals are not subject to inheritance tax unless the donor dies within seven years of the gift.
Lifetime transfers to close companies and most trusts are immediately taxable at 20% (subject to the availability of the nil-rate band). Additional inheritance tax is payable if the transferor dies within seven years of the transfer.
Gifts made to a spouse or civil partner during an individual’s lifetime or on death are generally exempt from inheritance tax, unless the donor spouse is UK domiciled and the recipient spouse is non-UK domiciled – in which case the exemption is limited to the amount of the nil-rate band.
Relief from inheritance tax is available for some business property and agricultural property, subject to certain conditions. These reliefs reduce the value of the relevant property by 100% or 50% for inheritance tax purposes.
Gifts to UK charities (and charities in certain other countries) are exempt from inheritance tax, whether made during an individual’s lifetime or upon death.
There is no separate UK gift tax.
- Individuals acquiring real estate in England, Wales (for acquisitions before April 1 2018) or Northern Ireland must pay stamp duty land tax (SDLT).
- Individuals acquiring real estate in Scotland must pay land and buildings transaction tax (LBTT).
- Individuals acquiring real estate in Wales (for acquisitions on or after April 1 2018) must pay land transaction tax (LTT).
In each case, the relevant tax is payable on the consideration given by the purchaser for acquiring the property. This includes any money or money’s worth given by the purchaser or the satisfaction, release or assumption of any debt owed by the seller.
The amount of tax payable is based on the so-called ‘slice’ system, whereby the proportion of the consideration in each band is taxed at the corresponding rate.
Different rates apply for the acquisition of residential property and non-residential property. ‘Residential’ property is a building that is used, suitable for use or in the process of being constructed or adapted for use as a dwelling. ‘Non-residential’ property is any other property.
SDLT rates (as at January 1 2018) Residential
|Up to £125,000||0%|
|£125,001 to £250,000||2%|
|£250,001 to £925,000||5%|
|£925,001 to £1.5 million||10%|
|Over £1.5 million||12%|
Non-residential or mixed use
|Up to £150,000||0%|
|£150,001 to £250,000||2%|
LBTT rates (as at January 1 2018) Residential
|Up to £145,000||0%|
|£145,001 to £250,000||2%|
|£250,001 to £325,000||5%|
|£325,001 to £750,000||10%|
Non-residential or mixed use
|Up to £150,000||0%|
|£150,001 to £350,000||3%|
|£350,001 to £750,000||4.5%|
LTT rates (as at January 1 2018, for transactions on or after April 1 2018) Residential
|Up to £150,000||0%|
|£150,001 to £250,000||2.5%|
|£250,001 to £400,000||5%|
|£400,001 to £750,000||7.5%|
|£750,001 to £1.5 million||10%|
|Over £1.5 million||12%|
Non-residential or mixed use
|Up to £150,000||0%|
|£150,001 to £250,000||1%|
|£250,001 to £1 million||5%|
|Over £1 million||6%|
Where the individual owns another residential property (anywhere in the world), an additional 3% applies to the residential rates.
In relation to leasehold property, SDLT, LBTT and LTT are also payable on rent consideration, to which different rates apply.
Value added tax (VAT) may also be payable in relation to the acquisition of non-residential property. At present, the rate of VAT is 20%. Where VAT is payable, there is an additional liability to SDLT, LBTT or LTT (as applicable), as the consideration is the amount including any VAT.
Disposal of real estate UK residents are subject to capital gains tax on any chargeable gain arising from the disposal of real estate.
Individuals have an annual allowance of £11,300 (to be increased to £11,700 for the 2018-2019 tax year), after which any gain in relation to residential property is charged at a rate of 18% or 28% (depending on whether the individual is a basic or higher rate taxpayer) and in relation to non-residential property is charged at a rate of 10% or 20% (depending on whether the individual is a basic or higher rate taxpayer).
Non-UK resident individuals are subject to capital gains tax on any chargeable gain arising from the disposal of residential property (at 18% or 28%) and real estate used for the purposes of trade carried on in the United Kingdom.
Relief from capital gains tax (resulting in a full or partial exemption) is available in relation to the disposal of residential property where it was, or has been during the period of ownership, the individual’s only or main residence.
Where an individual holds real estate as part of a trading activity, the profits will be subject to income tax.
Non-real estate assets
Stamp duty applies on an instrument transferring:
Stamp duty reserve tax (SDRT) is payable on any agreement to transfer chargeable securities (eg, UK shares, non-exempt UK loan capital and units in unit trust schemes).
The rate of tax for stamp duty and SDRT is 0.5% of the consideration that is given. Where both stamp duty and SDRT apply, the SDRT charge is cancelled provided that the relevant instrument has been duly stamped for stamp-duty purposes.
VAT applies on the supply of goods and services in the United Kingdom. This is charged at the standard rate of 20%, the reduced rate of 5% or zero rate. Certain items are exempt, despite satisfying the VAT requirements.
Disposal of assets other than real estate UK residents are subject to capital gains tax on any chargeable gain arising from the disposal of most assets, although certain assets are exempt.
Non-UK residents are subject to capital gains tax on any chargeable gain arising from the disposal of an asset which is used for the purposes of trade carried on in the United Kingdom.
Where an individual holds an asset as part of a trading activity, the profits will be subject to income tax.
Other applicable tax regimes
Are any other direct or indirect tax regimes relevant to individuals?
No other regimes are relevant.
UK residents who are not UK domiciled can elect – on a tax-yearly basis – to be subject to income tax and capital gains tax on the remittance basis.
Where the claim is valid, the individual will be subject to income tax on foreign-source income and capital gains tax on chargeable gains arising from the disposal of foreign assets, to the extent that they are ‘remitted’ to the United Kingdom (ie, the income or gains, or anything derived from such income or gains, are brought to or received or used in the United Kingdom).
The remittance basis must be claimed by individuals in their self-assessment tax return for the relevant tax year.
Individuals who have been resident in the United Kingdom for seven of the previous nine tax years must pay an annual remittance basis charge of £30,000 for each tax year in which they wish to claim the remittance basis. This increases to £60,000 after the individual has been resident for 12 of the previous 14 tax years.
The remittance basis is not available to individuals:
Non-UK domiciled individuals are subject to inheritance tax in relation to their UK-situated assets only. Non-UK domiciled individuals who have been resident in the United Kingdom for at least 15 of the previous 20 tax years will be UK deemed domiciled, at which point their worldwide assets will be within the scope of inheritance tax. Non-UK domiciled individuals are advised to plan ahead and take steps (eg, transferring assets into a trust) to allow for non-UK assets to remain outside the scope of inheritance tax after they become UK deemed domiciled.
Non-UK domiciled individuals typically hold substantive UK assets through foreign entities, as the assets held by the individual (shareholding in the foreign entity) would fall outside the scope of inheritance tax. Until recently, this was a common structure for holding UK residential property. However, as of April 6 2017 any interest in a foreign entity or partnership which holds UK residential property is within the scope of inheritance tax.
Trusts, foundations and charities
Trusts are recognised and the laws governing the creation, operation and taxation of trusts are well established.
The main types of trust are:
Other types of trust include:
Trusts can be established during an individual’s lifetime or by will. Discretionary and life interest trusts are commonly created by wills. Discretionary trusts give flexibility to administer a deceased’s estate in light of the circumstances at the time of death. Life interest trusts are useful where a testator wishes to make lifetime provision for an individual (eg, a spouse or other partner), but ultimately wishes for capital assets to pass to other individuals (eg, children).
Non-charitable purpose trusts generally cannot be established.
What rules and procedures govern the establishment and maintenance of trusts?
To establish a valid trust under the law of England and Wales the following certainties are required:
The settlor must also be legally capable and have the legal power to transfer the assets concerned to the trustees.
Under the law of England and Wales, trusts cannot be established for an unlimited period; there is a fixed perpetuity period of 125 years for all trusts – including will trusts – created on or after April 6 2010 (Perpetuities and Accumulations Act 2009).
Trusts can be established by oral declaration. A trust need not be in writing unless it relates to land or any interest in land.
The rules governing the maintenance and operation of trusts are primarily contained in statute. The Trustee Act 1925:
Other key statutes governing the maintenance and operation of trusts are the Trusts of Land and Appointment of Trustees Act 1996 and the Trustee Act 2000, which deals with the trustee’s power to invest the trust property.
The rules governing the creation and administration of trusts in Scotland are different.
How are trusts taxed in your jurisdiction?
Bare trusts are transparent for tax purposes (ie, beneficiaries are treated as owning the assets held for them by the trustee or nominee absolutely).
The tax treatment of other trusts depends on the type of trust and whether it is UK resident.
UK resident trusts
- Capital gains The trustees of a UK trust are subject to capital gains tax on any chargeable gain realised on the disposal of any trust asset. Trustees are entitled to an annual allowance of £5,650 (ie, half the annual allowance for individuals). Reliefs may apply on the disposal of certain assets (eg, residential property that has been a beneficiary’s only or main residence, and assets used in a business carried on by the trustees).
- Income The trustees of a UK trust are subject to income tax on all income of the trust. For a life interest trust, the trustees’ liability to income tax is limited to basic rate tax (20% for non-dividend income). Life tenants may have to pay additional tax, depending on their other personal income in the tax year. For discretionary trusts, the trustees pay income tax at the trust rate (45% on non-dividend income over an exemption of £1,000). The settlor of the trust may also be subject to income tax on income arising to the trust, depending on his or her residence and domicile status. Beneficiaries in receipt of benefits from the trust may also be subject to income tax to the extent that there is income in the trust, but may receive credit for trust paid by the trustees.
Non-UK resident trusts
- Capital gains The trustees of a non-UK trust are subject to capital gains tax on UK residential property and assets used as part of a trade carried on in the United Kingdom only. The settlor of the trust may be subject to capital gains tax on the gains of the trust as they arise, depending on his or her residence and domicile status. To the extent that trust gains are not taxed on the settlor, they may be taxed on beneficiaries who receive benefits from the trust.
- Income The trustees of a non-UK trust are subject to income tax on UK source income only. The settlor of the trust may be subject to income tax on income arising to the trust, depending on his or her residence and domicile status. Beneficiaries in receipt of benefits from the trust may also be subject to income tax to the extent that there is income in the trust.
Inheritance tax Most trusts are subject to:
Subject to certain exceptions, non-UK assets of a trust established by a non-UK domiciled and not deemed domiciled individual are not subject to inheritance tax.
Foundations and charities
Under the law of England and Wales, charities can be established in a number of legal forms, most commonly:
English law does not provide for the establishment of foundations.
What rules and procedures govern the establishment and maintenance of foundations and charities?
The rules governing the establishment and maintenance of charities in England and Wales are principally contained in the Charities Act 2011.
To qualify as a ‘charity’, the organisation must be established for at least one of the charitable purposes listed in the Charities Act 2011 and for the benefit of the public.
Permitted charitable purposes include:
To meet the public benefit test, there must be an identifiable benefit to the public or a sector of the public.
UK charities must be registered with the Charity Commission and Her Majesty’s Revenue and Customs.
All UK charities must:
Charities established as companies must submit accounts and annual returns to Companies House annually.
Charities are subject to regulatory oversight by the Charity Commission.
The rules governing the creation and administration of Scottish charities are different.
How are foundations and charities taxed?
UK charities are generally exempt from tax.
Gifts made by an individual to a charity are exempt from inheritance tax. Individuals who gift an asset to a charity are not subject to capital gains tax, even if the asset has increased in value. They may also be able to claim income tax relief on the gift.
Higher rate and additional rate taxpayers can also claim tax relief on cash gifts to charities.
The law does not provide for the establishment of foundations. The UK tax position of foreign foundations depends on the articles or by-laws of the foundation – they can be taxed as bare trust or nominee arrangements, or in the same way as companies or trusts.
Anti-avoidance and anti-abuse provisions
What anti-avoidance and anti-abuse tax provisions apply in the context of private client wealth management?
A general anti-abuse rule (GAAR) applies to arrangements in relation to a number of UK taxes, including:
The purpose of the GAAR is to counteract tax advantages arising from tax arrangements which are considered abusive. Whether tax arrangements are abusive is determined by the following double reasonableness test:
A similar GAAR applies to taxes that have been devolved to Scotland.
Various targeted anti-avoidance rules also apply to particular tax provisions, typically where one of the main purposes of an arrangement is to obtain a tax advantage.
In addition, over the past 30 years the UK courts have developed a statutory construction principle – known as the ‘Ramsay’ (Ramsay (W T) Ltd v IRC ((1981) 1 All ER 865)) principle – as a means of combating tax avoidance transactions which relied on the literal interpretation of tax legislation and the application of taxing provisions to individual steps. The question to be considered when construing a tax statute is “whether the relevant statutory provisions, construed purposively, were intended to apply to the transaction, viewed realistically” (Barclays Mercantile Business Finance Limited v Mawson ((2005) STC 1)). Accordingly, a purposive interpretation of a statutory provision may mean that:
Anti-money laundering provisions
What anti-money laundering provisions apply in the context of private client wealth management (eg, beneficial ownership registers)?
UK companies and limited liability partnerships, as well as Scottish limited partnerships must keep a register of people with significant control (PSC).
The PSC register must be available for public inspection and up-to-date details of all PSCs must be filed at Companies House.
‘PSCs’ include individuals who:
Where a trust meets one of the control conditions in relation to a company (such that it would be a PSC if it was an individual), the trustees may – and any individual who has the right to exercise or actually exercises significant influence or control over the trust will – be recorded on the PSC register of the company.
Trusts need not maintain a PSC register. However, as of June 2017, UK resident trusts and non-UK resident trusts which are liable to UK tax must maintain a register of beneficial owners and provide Her Majesty’s Revenue and Customs with specified information on the trust and the beneficial owners. The trust beneficial ownership register will not be publicly accessible.
The government has announced its intention to require foreign companies to provide details of beneficial ownership on a public register before they can acquire UK real estate (likely to be effective from early 2021).
Wills and probate
- Individuals who die domiciled in England and Wales enjoy freedom of testamentary disposition and may leave their assets to whomever they wish. There are no forced heirship rules.
- However, where an individual dies domiciled in England and Wales, certain categories of people may bring a claim under the Inheritance (Provision for Family and Dependents) Act 1975 for financial provision from the deceased’s estate, if they do not consider that reasonable financial provision has been made for them, either under the terms of the deceased's will or the intestacy rules. Assets held by a deceased person under a joint tenancy automatically pass to the surviving joint owner.
- Forced heirship rights apply, to a limited extent, to the movable assets of an individual who dies domiciled in Scotland. Where an individual who was domiciled in Scotland dies intestate, a surviving cohabitee may bring a claim for financial provision from the deceased’s estate.
What rules and procedures govern intestacy?
Where an individual dies fully or partially intestate, statutory intestacy rules dictate how his or her estate (or the part of the estate which is not dealt with by a valid will) must be distributed.
The intestacy rules applicable in England and Wales are set out in the Administration of Estates Act 1925 (as amended by the Inheritance and Trustee Powers Act 2014). If the deceased was survived by a spouse or civil partner and there are no children, the spouse or civil partner will receive the whole estate. If there are children:
If the children are under 18 years old, this will be held on trust for them until they are 18.
Where there is no surviving spouse or civil partner, the estate will pass to the deceased’s surviving children in equal shares on reaching 18 years old. Where there are no children or the children die before reaching 18 (or marrying), leaving no children of their own, the estate passes to the deceased’s parents in equal shares or, failing that, the deceased’s siblings in equal shares.
Different provisions apply in Scotland. The Succession (Scotland) Act 1964 sets out how an intestate estate is distributed under Scottish law.
What rules and restrictions (if any) apply to the governing law of a will?
A will drafted in the United Kingdom need not be governed by the law of some part of the United Kingdom.
Under the law of England and Wales, a gift of movable property in a will is valid if it complies with the law of the domicile of the testator. A gift of immovable property is valid if it complies with the law of the country in which the property is situated.
The position is the same under Scottish law.
What are the formal and procedural requirements to make a will? Are wills and other estate documents publicly available?
Under the law of England and Wales, subject to limited exceptions, to make a valid will the testator must:
Pursuant to Section 9 of the Wills Act 1837, to be valid a will must be:
It must also be clear that the testator intended to give effect to the will by his or her signature (ie, the document should state on its face that it is a will).
Once a grant of probate has been issued, the will (and any codicil to it) becomes a public document. However, a letter of wishes accompanying the will remains confidential.
The formal validity of a will under Scottish law is governed by the Requirements of Writing (Scotland) Act 1995. Under Scottish law, an individual has legal capacity to make a will at the age of 12. The testator must also have mental capacity, must not be acting under undue influence or as a result of fraud, and must know of and approve the contents of the will.
Validity and amendment
How can the validity of a will be challenged? Can the will be amended after the decedent’s death?
Under the law of England and Wales, the validity of a will can be challenged on the following grounds:
The grounds for challenging a will under Scottish law are similar.
If a will is found to be invalid, the deceased’s estate will pass in accordance with an earlier valid will or, failing that, the intestacy rules.
A will cannot be amended after the death of the testator. However, where an individual dies domiciled in England and Wales, the provisions of a will may be varied in the event that a successful claim is brought under the Inheritance (Provision for Family and Dependents) Act 1975, and individual beneficiaries under a will can re-direct bequests to them.
Under Scottish law, spouses, civil partners and children of the deceased can claim their legal rights under the forced heirship rules regardless of the terms of the deceased’s will. However, if they claim their legal rights, they forfeit any entitlement under the deceased’s will. Where an individual who was domiciled in Scotland dies intestate, a surviving cohabitee may bring a claim for financial provision from the deceased’s estate.
Under the law of England and Wales, a will is presumed to be valid unless there is evidence to the contrary, in which case the presumption can be rebutted.
A gift of movable property in a will is valid if it complies with the law of the domicile of the testator. A gift of immovable property is valid if it complies with the law of the country in which the property is situated. The position is the same under Scottish law.
Foreign wills are admitted to probate in England and Wales if they are executed in accordance with the requirements for executing a will in Section 9 of the Wills Act 1837. In addition, foreign wills are valid in both England and Wales and Scotland if they are executed in accordance with the laws of the country in which they were executed or in which the testator was domiciled, habitually resident or a national at the time of execution or death.
Foreign wills relating to immovable property are valid in relation to the immovable property if they are executed in accordance with the law of the country where the real property is situated.
The EU Succession Regulation (650/2012) (‘Brussels IV’) does not apply in the United Kingdom, but will apply to an estate that has connections to both the United Kingdom and an EU member state that is bound by Brussels IV.
What rules and procedures govern:
(a) The appointment of estate administrators?
Under the law of England and Wales, where a will provides for the appointment of executors, the estate will vest in the executors from the date of death. However, a grant of probate is still required to prove title.
Where no will exists (or the will failed to appoint executors effectively), the estate will vest in the public trustee until the court has issued a grant of representation authorising the personal representative (loosely, the next of kin – the exact categories of person and order of priority is set out in the Non-Contentious Probate Rules 1987) to act as an administrator. The administrator’s authority is then backdated to the time of death.
In both cases, an oath must be submitted in prescribed form in order to obtain a grant.
A grant is not generally required where jointly held property passes to a surviving joint tenant by survivorship or where the estate comprises no real property, shares or chattels.
The procedure differs in Scotland. The executors must obtain a grant of confirmation which gives them authority to deal with the deceased’s property.
(b) Consolidation and administration of the estate?
Once a grant has been acquired, the executors or personal representatives have authority to:
In practice, most institutions require sight of the grant of probate (or confirmation in Scotland) before assets are released to the personal representatives or executors.
However, in England and Wales, a grant of representation is not required in relation to certain assets.
(c) Distribution of the estate to heirs?
Under the law of England and Wales, subject to certain exceptions, the estate can be distributed to the heirs only after the issue of a grant of representation. The estate will be distributed in accordance with the deceased’s will or the intestacy rules where no valid will exists.
Under Scottish law, the estate can be distributed to the heirs after the issue of a grant of confirmation. However, a spouse, civil partner or child of the deceased can claim legal rights over the estate. Executors should obtain formal discharges of these legal rights.
(d) Settlement of the decedent’s debts and payment of any taxes and fees?
To obtain a grant (or confirmation in Scotland), the personal representatives or executors must value the deceased’s estate. Any inheritance tax must be paid to Her Majesty’s Revenue and Customs (HMRC), which will issue a receipt. If no inheritance tax is payable, HMRC will issue a certificate. No grant of representation will be issued without the HMRC receipt or certificate.
Unless the estate is an excepted estate, the inheritance tax account must be delivered within 12 months of the end of the month in which the deceased died (or within three months after the personal representative is appointed, if this is later). In most cases, any inheritance tax must be paid within six months of the end of the month in which the deceased died.
Once the inheritance tax has been paid and a grant has been provided, the personal representative can collect in the deceased’s assets and settle the deceased’s debts, including any tax owed from the deceased.
Gifts to spouses or civil partners are generally exempt from inheritance tax; therefore, inheritance tax is generally not an issue until the death of the surviving spouse or civil partner. Gifts made to individuals more than seven years before death escape inheritance tax. In addition, certain trusts established by will (particularly those for bereaved children) enjoy beneficial tax treatment.
Under the law of England and Wales, the marriage or civil partnership of a testator automatically revokes any will made by the testator before the marriage or civil partnership (Section 18 of the Will Act 1837). Under both the law of England and Wales and the law of Scotland, divorce or dissolution of a civil partnership does not revoke a will; the former spouse or civil partner is treated as if they had predeceased the testator.
Capacity and power of attorney
Loss of capacity
What rules, restrictions and procedures govern the management of an individual’s affairs where he or she loses capacity and the grant of power of attorney in such cases?
Individuals who lose capacity may no longer be able to manage their own affairs.
Under the law of England and Wales, if they have made a lasting power of attorney (LPA), their appointed attorneys can make decisions on their behalf. If they have made no LPA and decisions must be made for them, the UK court of protection will appoint a deputy to manage the individual’s affairs and make decisions for him or her.
There is an LPA for property and financial affairs and an LPA for health and welfare. The former can be effective immediately or on loss of capacity, and appoints one or more attorneys to make decisions on financial matters (eg, bank accounts and investments).
The LPA for health and welfare enables the attorneys to make decisions on matters such as where a person lives, his or her diet and exercise, and the types of medicine that he or she receives. This type of LPA also enables the donor to allow his or her attorneys to decide on life-sustaining treatment (eg, cardio-pulmonary respiration).
LPAs must be in a prescribed form and registered with the Office of the Public Guardian. The fee for registration is £82.00.
As an alternative to enabling attorneys to make decisions on life-sustaining treatment, individuals can opt to make an advance decision. This is a written expression of their wishes regarding the circumstances in which they would not like to receive life-sustaining treatment. Provided that the expression is drafted in accordance with the Mental Capacity Act 2005, it continues to be effective after an individual has lost capacity.
Under the law of Scotland, a power of attorney must comply with the Adults with Incapacity (Scotland) Act 2000 and be registered with the Office of the Public Guardian to remain in force after the individual loses capacity. If a person who is habitually resident in Scotland loses capacity and does not have a power of attorney, an application can be made to the court for a guardianship order or intervention order.
What rules, restrictions and procedures govern the holding and management of a minor’s assets until the minor reaches the age of capacity?
Under the law of England and Wales, individuals under the age of 18 are considered minors and are unable to give good receipt for assets. Minors cannot hold assets in their own right, enter into contracts or deeds, or carry out litigation in their own name.
Another individual (usually a parent) can hold assets to which the minor is beneficially entitled on bare trust until the minor reaches the age of 18. This is effectively a nomineeship and the minor becomes absolutely entitled to the assets as soon as he or she reaches 18 years old. Statutory powers are available to enable the trustees (usually the parent or guardian) to apply income and capital from such assets for the benefit of the minor.
In Scotland, a child is considered to be an adult when they reach the age of 16 and can enter into any transaction (the Age of Legal Capacity (Scotland) Act 1991). Minors can hold assets and from the age of 12 have legal capacity in relation to certain transactions, including making a will.
Marriage and civil partnerships
There is no community of property or matrimonial property regime in England and Wales. Instead, the family courts have wide powers to make orders for the division of property between the parties on divorce or dissolution of a civil partnership.
Nuptial or marital agreements are not contractually binding in England and Wales. The family courts retain an overriding discretion when considering the financial arrangements to apply on divorce. However, following Radmacher v Granatino ((2010) UKSC 42), the family courts in England and Wales have been increasingly inclined to take account of and give effect to appropriately prepared nuptial agreements when exercising this discretion.
The position is broadly the same under the law of Scotland. However, a spouse or civil partner has certain occupancy rights in the matrimonial home, even if it is owned solely by the other spouse. There is also a principle of fair sharing (which usually means equal sharing) of matrimonial property on divorce.
The Family Law (Scotland) Act 1985 provides that the court will have regard to (among other things) the content of any agreement entered into by the couple when it comes to the ownership or division of matrimonial property. For a nuptial or marital agreement to be robust to legal challenge:
Are same-sex marriages and/or civil partnerships recognised in your jurisdiction?
Same-sex marriages and civil partnerships are recognised in England and Wales and in Scotland.
The Civil Partnerships Act 2004 gave effect to civil partnerships for same-sex couples and afforded civil partners the same rights and obligations under the law of England and Wales as married couples.
The Marriage (Same Sex Couples) Act 2013 permits same-sex couples to be married under the law of England and Wales.
In Scotland, civil partnerships between same sex-couples are recognised under the Civil Partnership Act (Scotland) 2004, and marriage between same-sex couples is recognised under the Marriage and Civil Partnership (Scotland) Act 2014.
Is there a legal distinction between legitimate and illegitimate children in terms of estate and succession planning?
Under the law of England and Wales, the words ‘child’, ‘descendant’ and ‘issue’ are deemed to include children, descendants and issue born outside of marriage (Sections 1 and 19 of the Family Law Reform Act 1987).
Individuals who wish to exclude illegitimate children from benefitting under their will must make this an express term of the will.
Where an individual dies intestate (ie, without a will), legitimate and illegitimate children and issue are treated in the same way. The Family Law Reform Act 1969 gives illegitimate children the right to inherit on the death of a parent and the Family Law Reform Act 1987 extends this right to enable them to inherit on the death of a sibling.
Under the law of Scotland, as a result of the abolition of illegitimacy by the Family Law (Scotland) Act 2006, legitimate and illegitimate children and issue are treated in the same way.
Is there a legal distinction between natural and adopted children in terms of estate and succession planning?
There is no distinction between natural and adopted children under the law of England and Wales. For the purposes of estate and succession planning, a child who has been formally adopted is treated as a child of the adopting parents from the date of the adoption (Section 67 of the Adoption and Children Act 2002 and Section 39 of the Adoption Act 1976).
Under the law of Scotland, an adopted child is treated as a child of the adopting parents (Adoption and Children (Scotland) Act 2007).