private client legal brief - Mackrell International

PRIVATE CLIENT
LEGAL BRIEF
In this first of a series of articles on the overseas aspects of English estate planning, Andrew
Jones considers the position of the English ex-pat.
When an English person buys a home overseas, his or her affairs can become a whole lot
more complicated, and need to be dealt with carefully. Misconceptions about the situation
abound, and this article attempts to separate some of the myths from the reality.
The biggest misconception I come across regularly is the assumption by ex-pats either:
a. that because they are English, their assets will pass on their death under English law; or
b. that because their assets are in (say) France, their assets will pass on their death under
French law.
Actually both assumptions are wrong and, if you think about it, they are inconsistent with one
another as well. The important thing is not to make any rash assumptions, and to take advice
on the actual situation. The real rule is, I’m afraid, rather more complicated than either of the
above, and it is that:
a. immovable assets (a term which more-or-less means the same as “real estate” – land and
buildings) pass under the law of the jurisdiction where the asset is situated; but
b. movable assets (any assets which are not immovable) pass under the law of the
jurisdiction where the deceased is domiciled.
A further complication is that many other jurisdictions do not have the same rule. This can
lead to an overlap (England and the other jurisdiction both claiming that their law applies) or
a gap (England and the other jurisdiction both claiming that the other law applies).
Domicile is important for another reason also: the UK charges the worldwide estates of its
domiciliaries to inheritance tax, but it only charges the UK-situated assets of nondomiciliaries
to inheritance tax. With tax at a flat 40% on all assets over £325,000, this can
make a huge difference.
That brings us to the very important question: what does domicile mean? I will have much
more to say about domicile in the subsequent articles in this series, but in summary:
a. Everybody has one, and only one, domicile at any one time.
b. When you are born, your domicile is the domicile of your father at the time of your birth
(except that illegitimate children take their mother’s domicile). This is called a domicile
of origin.
c. The domicile of origin is “sticky” – if at any time you do not have another domicile then
your domicile of origin prevails. This can produce odd results (since it is possible in
theory for your domicile of origin to be somewhere you have never been!) but can also
produce unfortunate results, from a tax viewpoint, especially for those whose domicile of
origin is English.

d. You acquire a new domicile by making a jurisdiction your domicile of choice. To do so
you have to be physically residing there and have the intention of remaining there
permanently. This question of intention is one of objective fact: merely declaring “my
domicile is so-and-so” (e.g. in your will) is not nearly good enough, although it can
certainly help. Many people have had their domicile successfully challenged by their
families or by the tax authorities. There are a large number of factors, called “badges of
domicile”, which judges use to establish what your true domicile is.
Next, we come to the deemed domicile rules. These are rules that keep you in the UK’s
inheritance tax net for longer than would otherwise be the case, by saying that if you were:
a. tax resident in the UK for 17 of the last 20 tax years; or
b. domiciled in the UK at any time in the last three years;
then you will be treated as if you were a UK domiciliary for inheritance tax purposes.
One common problem, in my experience, is that the deemed domicile rules are better known
than the actual domicile rules by international clients (and sometimes by their advisers) – and
perhaps this is because they are easier to understand and are far less woolly. It is therefore
very important to avoid the misconception that the deemed domicile rules are the rules: they
are not – they are just a limited extension to the rules and they apply for one purpose only,
namely to catch some people in the inheritance tax net who would otherwise escape it. Take
care to avoid that misconception: deemed domicile can only entangle you in the net, it cannot
release you from it; deemed domicile does not apply to any of the other taxes, only
inheritance tax; deemed domicile has no effect whatsoever on succession or family law.
Throughout this article, “England” means “England and Wales”. The law of England and the
law of Wales are the same in this respect: they are one jurisdiction, so moving across that
border has no more effect than moving from Hertfordshire to Hampshire. However, it is not
always widely realised that Scotland and Northern Ireland are different jurisdictions: so this
article does apply to an English person who moves to either of them – the only real difference
being that he or she will have moved to a jurisdiction which also has UK inheritance tax.
This problem – that somewhere which you or I might think of as one country is actually
divided into several jurisdictions – is quite common. Each state of the USA is a separate
jurisdiction, for example. So is each canton of Switzerland. Canada and Australia are divided
into a number of jurisdictions. This can affect the points analysed earlier in this article quite
considerably. For example, moving to the USA and intending to stay there permanently, but
not settling on a particular state, cannot give you a new domicile of choice.
Andrew Jones is head of Private Client at the London office of Mackrell Turner Garrett. He
can be contacted on 0207 240 0521 or at andrew.jones@mackrell.com
MACKRELL TURNER GARRETT: PRIVATE CLIENT LEGAL BRIEF FOR NOVEMBER 2009. This note is intended for general guidance
only, and not as a replacement for specific legal advice on the particular facts in every situation. Andrew Jones and Mackrell Turner
Garrett do not accept responsibility for any action taken (or not taken) in reliance on this note. We are happy to give advice on individual
situations, and usually do so in close consultation with legal advisers in the other jurisdiction(s) involved. Mackrell Turner Garrett is a
member of Mackrell International, a network of legal firms in many jurisdictions across the globe.