It is becoming more and more common for people to have international aspects to their private lives, which can make dealing with their estates complex. Many people now own assets in foreign countries or spend significant periods of time living or working abroad.
International estate assistance
As part of our executry service, we assist professionals or executors in foreign jurisdictions who are dealing with the estate of someone who died abroad, but had assets in Scotland. Scotland has its own legal system, and the probate process here is different from the rest of the UK. The inheritance tax system is, however, the same for all of the UK.
Even if probate is obtained in another country, it may still be necessary to apply for probate (known as “confirmation”) in Scotland or to apply to the Scottish court to have the foreign probate “resealed” here. Once confirmation has been obtained (or a foreign grant of probate resealed in Scotland), the Certificate of Confirmation will enable the executor to sell or transfer the asset situated in Scotland.
We can provide you with advice regarding the Scottish system and can handle all or any of the following steps in the process for you:
- Catalogue all assets sited in Scotland
- Arrange a valuation of all Scottish assets
- Check the will and other documentation required to apply for confirmation
- Apply for confirmation from the relevant Sheriff Court
- Issue confirmation to all relevant third parties
- Pay outstanding debts and liabilities
- Prepare an executry account
- Deal with UK income tax payable during the executry
- Prepare the UK inheritance tax return
- Transfer assets to beneficiaries
UK inheritance tax system
In some jurisdictions, an “inheritance tax” is a tax on the net inheritance received by individual beneficiaries. UK inheritance tax, however, is an “estate tax”, payable on the deceased’s net estate before it is distributed to any beneficiaries.
In summary, inheritance tax is charged at 40% on the value of all the deceased’s assets at death over the “nil rate band”. The executor must also take into account the value of any gifts made by the deceased in the previous seven years. Additionally, there is a lifetime rate of 20% which applies to certain chargeable transfers made during someone’s lifetime and a reduced rate of 36% payable on an estate where a certain percentage of assets are being left to charity. The nil rate band, being the value of an estate at which no tax is payable, is currently £325,000, and this can be combined with a predeceasing spouse’s unused nil rate band to give a total tax-free threshold of up to £650,000.
Various inheritance tax exemptions and reliefs are available, which we can provide advice on.
Inheritance tax should be paid within six months of the date of death to avoid interest payable on the tax charge and given that extensive inquiries are often required to ascertain and value all the assets, it is important to avoid any delay with the process.
Domicile and Long-Term Residence
The rules on domicile are complex, and it should be noted that there were significant changes made to domicile rules for inheritance tax purposes on 6 April 2025 and therefore the rules for determining how inheritance tax will apply to an estate will depend on whether an individual’s death took place before or after this date.
From 6 April 2025, the scope of UK IHT is no longer determined by reference to “domicile”. A new concept of “Long-Term Residence” was introduced.
An individual’s domicile will still be important to determine which country’s laws apply to the succession to their estate on death. This requires detailed knowledge of the law and the deceased’s circumstances to establish the position.
Pre-6 April 2025
If the individual’s death took place before 6 April 2025, generally, UK inheritance tax is potentially payable on all a person’s assets anywhere in the world if that person was domiciled or deemed to be domiciled in the UK. If a person is not domiciled or deemed domicile in the UK, UK inheritance tax will only be payable on assets that are situated in the UK.
Post 6 April 2025
From 6 April 2025, the applicability of UK inheritance tax is based on a residence-based system, with the individual’s domicile no longer being relevant.
If the individual has been resident in the UK for at least 10 of the last 20 years prior to the year of death they are deemed to be a “long term resident” and therefore UK inheritance tax is liable in respect of their worldwide assets – not just those situated in the UK – if their value exceeds the inheritance tax threshold. If the individual is deemed to not be a “long term resident” then, they will only be liable for UK inheritance tax on their UK sited assets, if their value exceeds the inheritance tax threshold.
The “statutory residence test” is used to establish whether they are a long-term resident or not. This sets out three “parts” to the test to determine whether a person is automatically resident overseas, automatically resident in the UK or resident based on ‘sufficient ties’ to the UK.
Siting of UK assets
The most common types of assets that will be taxable in the UK are:
- Property located in the UK
- Cash and bank notes located in the UK
- Shares and securities registered in the UK
- Bank accounts kept at a bank located in the UK
- Assets settled in a trust in the UK
Double taxation
Inheritance tax may be payable in the UK as well as in another country. Several countries have bilateral double taxation agreements with the UK, which serve to prevent or remedy double taxation. For countries with no agreement, the deceased’s country of domicile may have its own provision for unilaterally offering tax relief in respect of assets taxed in the UK. The UK has such a facility for those domiciled in the UK who incur double taxation for assets outside the UK.
Other claims against the estate
Under Scots law, certain people can claim a portion of the moveable assets in an estate even if they are not named in the will through an entitlement called ‘legal rights’. Surviving spouses/civil partners and children of a person who died domiciled in Scotland can claim as much as half of the moveable estate, depending on the circumstances. The moveable estate consists of assets other than land or buildings (which are known as ‘heritable’ assets in Scotland).
We can advise as to how legal rights operate in relation to the estate of a deceased person and can calculate the value of a potential legal rights claim. We can also write to the legal rights claimants to explain what their entitlement is and ask them if they wish to make a claim.
Claims where there is no will
If there is no will, other rights exist in addition to the legal rights described above. ‘Prior rights’ entitle a surviving spouse or civil partner to claim the dwelling house in which they were resident up to a value of £473,000 and up to £29,000 of its furnishings. They are also entitled to £89,000 of the movable estate if there are no children or £50,000 if there are children. After prior rights and legal rights are exhausted, any remaining estate passes to the children of the deceased, failing which parents and siblings, failing which just siblings, and so on, according to a list of successively more remote family connections. If none can be found, the remainder passes to the Crown.
Speak to an International Estate Specialist
If you have questions about a foreign estate with assets in Scotland, or an estate with assets abroad, contact our Personal Law team. Our team can provide clear, confidential advice tailored to your situation.
