A Guide to Cross-Border Estates

The World has changed. Cross-border travel, commerce and living are part and parcel of modern life. A consequence of this is people’s lives are more fluid than ever before. A villa in Spain or a gîte in France – once the preserve of a wealthy few – are now a relatively common occurance in the estates that come across my desk. In this article I will look at the legal position for individuals whose domicile is in England and Wales when providing for overseas properties in their wills and also the reverse position – where somebody domiciled overseas owns property in England and Wales. Cross-border estates are becoming increasingly common.

What Is Domicile?

When discussing cross-border estates we first need to consider a person’s domicile. This is important for a number of reasons which will (hopefully!) become clear by the end of this article. This is a very broad and complex topic and I do not propose covering in any great detail here but in general terms one ‘acquires’ a domicile in one of the following ways:

Domicile of Origin

The general rule is that domicile of origin of a legitimate child is the domicile of the father and of an illegitimate child that of the mother. This rather arcane rule was amended slightly by Section 4 Domicile and Matrimonial Proceedings Act 1973 and provides that if the parents are living apart and the minor has his home with his mother their domicile is that of the mother. Section 3 also provides that a minor may have an independent domicile from the age of 16.

Domicile of Choice

That is, choosing to live in a different country or jurisdiction. It is worth noting that residence in a country is not necessarily enough to establish a ‘new’ domicile without evidence of intention to change domicile. Working abroad will therefore not change domicile without some further intention to remain permanently in that country.

In addition HM Revenue and Customs may treat you as retaining your UK domicile where you were resident in the UK for 15 of the last 20 tax years or, having acquired a new domicile, return to the UK for more than a year.

Domicile of Dependence

Section 1 Domicile and Matrimonial Proceedings Act 1973 amended the slightly Victorian rule that the domicile of a married woman is the same as that of her husband. For marriages after 1st January 1974 the same factors will apply to both parties to the marriage when ascertaining domicile.

Why Does This Matter?

Leaving aside the tax position (which I will touch upon later on in this article) the reason we can sometimes agonise over domicile is that this will dictate how a cross-border estate will devolve.

Cross-Border Estates with Land Situated Overseas

We next need to consider issues that arise in estates where land is situated overseas and what can be done to provide for this, before looking at the position if somebody domiciled overseas owns property in England and Wales.

Most estates contain a combination of ‘Real Property’ (i.e. land) and ‘moveable’ assets. The general rule is that a person’s moveable estate devolves according to the law of the country in which they are domiciled and the Real Property (land) according to the rules of the country in which that land is situated.

Things get more complicated when dealing with ‘real property’ (land) overseas where the owner is domiciled in England and Wales, as is the case in a cross-border estate. Here we have two different situations to consider:

EU v non-EU Property

Non-EU Property

As above the general rule is that real property (land) will, on death, be dealt with according to the law of the country in which the land is situated. Many countries around the world are party to the Hague Convention on the Conflicts of Laws Relating to the Form of Testamentary Dispositions1961 which provides that they will recognise a testamentary disposition (i.e. a will) as valid provided that it was executed in accordance with the law of the country in which is was signed.

Whether this then means that your ‘English/Welsh’ will is effective abroad will depend on the country in which the property is situated. Many countries (including almost all European countries and their former colonies) have certain rules on succession which typically mean that some people (usually children and spouses) must inherit from an estate, regardless of the contents of the will of the testator. This differs from the position in England/Wales and other ‘common law’ jurisdictions (many Commonwealth countries and the Republic of Ireland) where, broadly, there is freedom of testation.

Therefore, although the country in question may recognise your will as ‘valid’ it may be that the local laws on succession will take priority. The best approach is to take advice from a local lawyer in the country in question as part of the process of preparing your will in England and Wales.

Example 1

John dies leaving a house in the London (where he lives full time) and a second home and bank account in South Africa. He leaves a single will executed in England and Wales which leaves everything to his three children. Provided that the ‘English’ will is validly executed according to the law in England and Wales it can be admitted to proof in South Africa but the local South African rules of succession will apply to his house there (which may or may not accord with the terms of his will). His bank account in South Africa on the other hand will be dealt with according to the law of the country in which he is domiciled (i.e. England and Wales).

EU Property

The position within the EU is different as a result of the EU Succession Regulation (EU 650/2012). All of the EU member states with the exception of the UK, Republic of Ireland and Denmark agreed that testators could effectively choose the succession regime that applies to their estate. The choice is between the succession rules in the country in which the property is situated and the succession rules in the country in which the testator is domiciled.

Example 2

Julia dies leaving a house in Oxfordshire (where she lives for most of the year) and a holiday home in France. She leaves a single will stating that her estate (wherever situated) is to be dealt with according to the law in England and Wales. According to the EU Succession Regulation this is sufficient evidence of her intention that the law of England and Wales should apply to her French property and therefore the terms of her English will should apply to her French property, overriding the local rules on succession.

I am pleased to say that the following advice is not subject to the dreaded ‘B’ word as the regulations apply to anybody owning property within the EU, even persons domiciled in a third party state.

Cross-Border Estates & “Non-Doms”

Much of the previous section dealt with the position where persons are domiciled in England and Wales but have assets overseas. I will now look at the position where persons are not domiciled in the UK but own property here.

Obtaining a Grant of Probate in the UK

Where there is ‘real property’ (i.e. land) in England and Wales in the sole name of the testator a grant of probate will be required. The rules on applications for a grant are slightly different for ‘overseas’ estates (that is, for people who die domiciled outside of England and Wales as is the case in a cross-border estate) and, as one would expect, slightly more complex. I will deal with them briefly here but you should seek independent legal advice should you find yourself in the position of having to make such an application.

If the will is in the English or Welsh language the person or persons named as executor is accepted as having the full rights of executorship. Many foreign wills expressly use the term ‘executor’ but where they do not it will be sufficient to prove that the person named is an executor according to the ‘tenor of the will’ (that is, the role is sufficiently defined even if the term ‘executor’ is not used).

Where the will is in a foreign language then a certified translation into English is required and the person entrusted with the administration of the estate ’according to the tenor of the will’ may obtain probate, provided that the will (which must be translated into English) is sufficiently clear in its terms to appoint the applicant as executor.

Alternatively the person entrusted by the court in the country in which the person was domiciled at the date of their death may apply for a grant of probate. Therefore if that country has issued a grant of probate this can be submitted to the court in England and Wales as evidence that the applicant has been entrusted to deal with the estate in that jurisdiction.

I should add that there may be several reasons (not related to ownership of real property) why one might require a grant of probate in the UK, not relating to the ownership of real property.

Re-Sealing

As an alternative to obtaining a ‘fresh’ grant of probate in England and Wales it may be possible ‘re-seal’ the grant issued in the country in which the deceased was domiciled. Where the deceased was domiciled in one of the countries to which the Colonial Probates Acts 1892 and 1927 apply it is often possible to apply to re-seal that grant in England and Wales. The Colonial Probates Act applies to many Commonwealth countries and the full list can be located online under Statutory Instrument 1965/1350 (Colonial Probates Act Application Order 1965).

Inheritance Tax (IHT) position

As a general rule, where a person dies domiciled outside of the UK only those assets situated in the UK need to be assessed for IHT purposes. The tax regime is broadly similar to that of a person who dies domicile in the UK (i.e. the UK estate is entitled to an allowance of £325,000 in the 2019/20 tax year in the same way as you would were you domiciled in the UK at the time of your death).

There may be Double Taxation Conventions in place so the estate is given ‘credit’ for tax paid in any other country on the same asset.

This is particularly important where a testator dies with a large amount of ‘worldwide’ assets and only a small amount of assets in the UK. If the testator is deemed to be domicile in the UK at the date of their death then inheritance tax will be payable on their estate (real property and personal property) wherever it is situated, not only on those assets in the UK. Where the person in question dies in a ‘low tax’ jurisdiction this can mean the difference between paying a hefty UK inheritance tax bill (if deemed domicile in the UK) or little or no tax at all (if domicile overseas).

Famously Richard Burton was deemed by HMRC to be domicile in the UK at the time of his death despite dying in Switzerland and having lived in the USA for many years prior to this. The case is shrouded in myth (much like his coffin was said to be shrouded in a Welsh flag and various other tales that seem to get taller with every re-telling) but whatever the truth HMRC was successful in its claim that he had not successfully ‘shaken off’ his domicile of origin and the estate was liable to pay inheritance tax in the UK. It is important to take professional advice on this point as the rules are complex and will depend on your personal circumstances.

One final point…

Inheritance (Provisions for Family and Dependents) Act 1975

This is a piece of legislation that attracts a fair bit of press attention as it allows persons who have not been provided for to seek some form of redress. It is important to note that such claims can only be made against those estates where the deceased is domiciled in England and Wales at the time of their death.

Get In Touch Regarding Cross-Border Estates

Domicile is a complicated area. As I hope I have shown here when discussing cross-border estates, whether it is advantageous to retain your UK domicile or acquire a new domicile will depend on a range of factors and on your own personal circumstances and it is important to weigh these up carefully.

If any of the issues discussed in this article affect either your estate or you as an executor, please contact Tom McInerney at tmcinerney@se-solicitors.co.uk.

*Disclaimer: While everything has been done to ensure the accuracy of the contents of this article, it is a general guide only. It is not comprehensive and does not constitute legal advice. Specific legal advice should be sought in relation to the particular facts of a given situation.