15 September 2023
The death of a loved one is one of the hardest things most of us will ever experience. This is often made worse by the fact that it is at this point that families have to deal with the complexities of implementing the terms of the deceased’s will. Even a straightforward inheritance can be challenging at a time when everyone’s emotions are raw, but for families with assets spread over different countries, the pain can be magnified.
With this in mind, it is important for anyone who owns assets in different countries to plan ahead for the consequences of their eventual demise.
International inheritances come in many shapes and sizes. Inheritance of a holiday home in Spain, a bank account in Switzerland or a farm in Nigeria all create different challenges, but there are some common actions you can take, and traps to avoid, to make life as easy as possible for your family when you die.
One of the easiest mistakes to make is not to plan ahead at all. In theory having a single will in the UK may be sufficient to allow your executors to obtain probate in other jurisdictions, but in practice even transferring ownership of a single bank account can take many months in such cases, creating significant practical difficulties.
Another common problem arises where assets are situated in a country that applies ‘forced heirship’ rules. These include Sharia law, but also exist under civil codes such as French law. Where forced heirship rules apply these will often take priority over the terms of a UK will, requiring assets to be shared between wider family members even if this goes against the wishes of the deceased.
In many cases, it is possible to avoid these problems by thinking ahead. For example, having a Swiss will can speed up the process of getting access to a Swiss bank account, while French assets can be inherited in accordance with English laws if the owner makes the appropriate election. The important point is to put the right structure in place during your lifetime.
Planning ahead is not only a question of avoiding problems, however. There are situations where foreign ownership of assets can actually increase tax efficiency on death.
A good example of this is where an individual has a ‘domicile of origin’ in France, India, Italy or Pakistan, but has lived in the UK for long enough to become ‘deemed domiciled’ here for tax purposes. In many cases, people in this situation are not subject to UK inheritance tax (IHT) on their foreign assets held on death if these are subject to a non-UK will. As an example, consider an individual who is Indian domiciled but UK deemed-domiciled. If she makes a gift of £1m from a Swiss bank account to her children and dies shortly afterwards, after deducting any unused nil rate band the whole gift is subject to IHT in the UK at 40 per cent. By contrast, if the money was inherited under a Swiss will and passed on her death, no UK IHT would be payable on it at all, although the Swiss tax position would also need to be considered. In cases like this, the normal rule of making gifts early is reversed, and it can be better to retain assets until you die.
Plan to avoid unintended consequences
International estate planning can be complex, but the consequences of doing nothing and relying on your UK will can be severe, increasing the tax payable in the UK or abroad, creating stress and upset for your family, and resulting in assets being inherited in ways you never intended. Anyone who owns assets outside the UK can be affected, and taking advice early can save a lot of distress later, at a time when your family is least well able to deal with it.
For more information, please get in touch with Andrew Robins or your usual RSM contact.