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 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. The nil rate band is expected to increase to £329,000 in 2015.
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.
The rules on domicile are complex and require detailed knowledge of UK tax law and HMRC rules in order to correctly establish UK tax liability. It should also be remembered that domicile for tax purposes can be different for domicile under common law.
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 in the UK, UK inheritance tax will only be payable on assets that are sited in the UK.
A person will have deemed domicile in the UK if they were domiciled in the UK within three years of the death (or chargeable transfer), or they were resident in the UK for at least 17 of the last 20 years.
Siting of UK assets
The most common types of asset 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
It is possible that inheritance tax will be payable in the UK as well as in another country. A number of 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 moveable 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.