Beware – domicile and residence are not the same. They are two different concepts and complex rules apply when determining a client’s domicile or residence status.
Again, as the financial planner, I have sufficient knowledge to raise awareness with the client and point out considerations but advice should always be referred to a specialist.
A brief re-cap: generally speaking, if a client is UK domiciled then they are liable to IHT on all of their assets, wherever in the world the assets are formally held; however, if the client is domiciled in another country, then they are only liable for (UK) IHT on the assets that they hold in the UK.
Note that although double tax relief in theory removes double tax charges on the same property, for IHT purposes this may not always be the case. In appropriate circumstances, it may be preferable to own overseas property through an intermediate vehicle.
This, while not directly affecting any UK IHT charge, may remove not only any overseas IHT charge but may also mitigate any local forced heirship laws for example, if your clients own a Spanish holiday home through a UK registered company.
Foreign assets may be subject to IHT in their country of situation and also in England. Credit may be given for capital taxes paid in one jurisdiction against capital taxes due in another, but often there is double charge to tax so the need for proper IHT planning is even greater.
In many countries, a transfer into a trust attracts some form of transfer/gift tax, but with care that can be eliminated or reduced by making a sale of the assets.
Adding foreign assets to UK wills
Where purely UK assets and (UK) residence and domicile are involved, be this in England & Wales, Scotland or Northern Ireland, the construction of a will should be reasonably straightforward, but adding anything foreign could lead to a dramatic increase in complexity.
However, a will written in England & Wales does not usually determine what happens to foreign owned ‘immoveable’ property, which generally needs to be covered by a ‘local’ will, for example, one written in the jurisdiction where the asset is held.
In this case, the ‘local’ will covers the foreign assets while the ‘English will’ would likely state that it covers ‘my estate except for that part of my estate covered in my Italian will’.
Note that any ‘moveable’ property, such as bank account deposits, shares and investments, chattels, is subject to their English will (unless the local Will says otherwise). It is important to take legal advice not only in England & Wales but also in the relevant foreign jurisdiction.
