Solicitor and Notary Public Inheritance System in United Kingdom General Position and Taxation of Inheritance Comparison with the Netherlands, the Succession Regulation (EU) No. 650/2012 and existing and future Private International Law issues Thursday 14th September 2017 Richard Frimston Solicitor and Notary Public England & Wales

The United Kingdom Scotland Northern Ireland England & Wales Not Channel Islands Jersey Guernsey Alderney and Sark Isle of Man

Private International Law Connecting Factors for Succession and Capacity Immovable Property Situs Movable Property Domicile Domicile not identical to habitual residence, but where a person intends to remain permanently or indefinitely

Private International Law Formal Validity of Wills Hague 11, Convention of 1961 Revocation by marriage or civil partnership, of person domiciled at the time of the marriage or registration of partnership in England & Wales or Northern Ireland, but not Scotland Position in England & Wales is currently subject to review by the Law Commission

Applicable Law - Renvoi For Succession Law, UK is schismatic and uses total renvoi or the foreign court theory UK accepts multiple renvoi and applies the law applied by the foreign court under its private international law rules: of the lex rei sitae for immovables of the lex domicilii for movables

EU Succession Regulation Applicable Law - Renvoi Does Art.34 abolish renvoi? If so – internal law only, but if the applicable law is that of a third State, the private international law rules of that third State are included in so far as they make a renvoi back to the law of a Member State or the law of another third State which would apply its own law Is the use of the singular limiting? It is presumed that Denmark, Ireland and UK will be regarded as third States, by CJEU for purposes of Art.34 No renvoi for Art.22 professio juris or Art 21.2 closest connection (and some other matters)

UK Applicable Succession Law Intestacy law in England & Wales (since 1 October 2014) £250,000 to surviving spouse or civil partner balance divided half to spouse / civil partner and half to children

UK Applicable Succession Law Deceased dying domiciled in England & Wales, spouse or civil partner and dependants including co-habitants, children can make a claim under Inheritance (Provision for Family and Dependants) Act 1975 Deceased dying domiciled in Scotland, movables are subject to (legitim) prior rights for spouse and legal rights for children

UK Property Law Succession only relates to the assets of the Deceased at date of death and property passing through the estate Succession does not apply to: property gifted before death assets held outside the ownership of the deceased, such as life insurance, death in service benefits and pension rights which are normally held in trust property passing by survivorship such as joint accounts and immovable property held as joint tenants or with a right of survivorship

UK and Matrimonial Property Regimes Since 1882, marriage no longer has any effect on property rights for persons domiciled in England & Wales The Matrimonial Property Regime of the law of a couple’s domicile at the time of their marriage is recognised and enforced in the UK in relation to movables Uncertainty as to immovables Slutsker v Haron Investments Ltd & Anor [2013] EWCA Civ 430 if couple have different domiciles or in relation to mutability and change of regime

UK Inheritance Tax (IHT) UK situs assets always subject to IHT on death Worldwide estate of a person dying domiciled or deemed domiciled in UK subject to IHT on death Nil rate band of estate not heirs = £325,000 Residential nil rate band = £100,000 (if estate <£2m) Above that estate IHT of 40% Exemptions for: Spouses / registered partners Charities Agricultural Property Business Property

UK Inheritance Tax (IHT) Changes from 6 April 2017 Deemed domiciled rules changed from 17 tax years out of 20 to 15 tax years out of 20 Deeming applies for all tax purposes All UK residential immovable property subject to IHT even if held by a non UK structure

UK Inheritance Tax (IHT) Lifetime gifts generally not subject to IHT unless donor dies with 7 years or retains a benefit and dies Gifts always subject to capital gains tax on deemed gain Lifetime Gifts into trust / usufruct trigger immediate 20% IHT Warning: gifts of structures holding UK residential immovable property will now generally trigger UK IHT

UK / NL Double Tax Agreement NL/UK Treaty (SI 1980/706 with amending protocol 1996/730) Article 4 tie breaker rules: NL has taxing rights in relation to its residents or those treated as residents UK has taxing rights in relation to persons who are UK domiciled or deemed domiciled.

UK / NL Double Tax Agreement NL/UK Treaty (SI 1980/706 with amending protocol 1996/730) Arts. 5, 6 & 7 if NL or UK does not have primary taxing rights they may generally only tax immovable property, sited in there. These articles apply if one of the states defines the assets as being in that state. Do the changes made in the UK since 6 April 2017 actually define residential property as being in the UK if held through a non-UK structure? The Treaty if applicable may therefore remove the ability for the UK to charge inheritance tax

UK / NL Double Tax Agreement NL/UK Treaty (SI 1980/706 with amending protocol 1996/730) Article 12 entitles a spouse to an exemption of 50% of the value of the property passing as against the usual £325,000 UK or the usual NL spouse exempt amount in relation to non-community property taxed under Articles 5, 6 or 7.  Article 13 means that IHT resulting from a failed PET is attributed to the gift and not the death.  

Richard Frimston Partner +44 20 8394 6217 richard.frimston@russell-cooke.co.uk