Moving to the UK – Getting your estate planning arrangements in order.

Jeremy Duffy, Head of Private Wealth and Judith Fitton, Head of Family provide some pointers on which issues to focus on when moving to the UK. See the article and much more information in The 2020 Expatriate’s Guide to Living in the UK

Introduction

Moving overseas is certainly a daunting prospect. Indeed, it will be one of the most difficult milestones in your life. It will take time to come to terms with all of the nuances of the new society and culture. Unfortunately understanding your tax status and ensuring your estate planning arrangements are in order is often not a top priority when blinded by so many exciting new experiences and challenges. This article will give you a few pointers as to why you should give these issues some attention and consider whether your existing planning arrangements, such as your Will and nuptial agreements are still effective. 

What happens if you fall ill whilst you are living in the UK? We will explore some key points for you to consider. Furthermore if you take to the British lifestyle and weather you may wish to consider purchasing a UK property and putting down more permanent roots. You should always take advice on your arrangements to ensure that they meet your requirements.

Mundays is a full service law firm, and is able to advise on these issues to ensure that your move to the UK runs as smoothly as possible.

Tax planning

The UK does offer a favourable tax regime for foreign nationals relocating to the UK. This can be particularly advantageous for individuals who have non UK source income and funds held outside of the UK. It is possible to elect to pay tax on foreign income and gains only once it is remitted to the UK as opposed to on an arising basis which UK citizens are charged on.  There is also opportunity to identify ‘clean capital’ prior to your arrival in the UK. These funds can be remitted to the UK without charge. The rules are quite complex and it goes without saying that advice should be sought on this as soon as you are considering relocating to the UK, as the opportunity to identify clean capital may be lost on your arrival.  

Ownership of UK property

Buying a property in the UK can be an attractive proposition. Even more so at this time in light of the relatively weak pound. There are a number of options for owning property and, although it is beyond the scope of this article to consider them all, advice should be sought on these options as often the decisions you take at the time of purchase will have tax implications in the future. Our property team will be able to walk you through the process of purchasing a UK property.

Individual ownership

This is the most common form of ownership. Property can be purchased in your personal name; this can be as a sole owner or if you own a property with another person (such as a spouse) there are two ways this can be achieved. As ‘joint tenants’ or ‘tenants in common’.

Joint tenants means that each ‘tenant’ owns the whole of the Property, so that when one person dies the ‘whole’ of the Property passes automatically  to the surviving owner, despite any Will they may have.  Married couples often hold Property in this way.

By holding as tenants in common, each party will own a specified share in the Property which will pass in accordance with their Will and not automatically to the surviving co-owner. For people who own property in this way, it is essential that they have a valid Will which covers who their share in the Property should be left to.

The most suitable method of joint ownership for you may be based on your home country’s tax rules and we can advise you on this. For instance where a US citizen is married to a UK national it may be more beneficial for the property to be held in the name of the UK spouse. Circumstances of each family arrangement will need to be considered.

UK property is subject to UK inheritance tax regardless of your residence or domicile status. Briefly, UK inheritance tax is payable currently at 40% of the net value of a ‘death estate’ which exceeds £325,000, the current ‘Nil Rate Band’. If a Property is purchased using a mortgage to acquire it, the mortgage is a deductible liability for inheritance tax purposes as inheritance tax is payable on the net value of an estate.  The rules surrounding the use of debt to reduce the liability to UK inheritance Tax have been tightened therefore if a foreign national is considering the use of foreign debt care should be taken to ensure that the debt will be effective for estate planning purposes.

Corporate ownership

Following the introduction of the annual tax on enveloped dwellings (ATED) and higher rate SDLT charges, corporate ownership of a residential property, worth over £500,000, has become less popular. However, corporate ownership may be tax efficient for properties which are being rented out and are exempt from the ATED charge.

Trust ownership may also be beneficial and all prospective property purchasers should take specific legal advice to ensure that they purchase property in the most tax efficient way for them, taking into account their individual requirements.

Estate planning: Wills

Many people move to the UK and already have a Will in place in their home country. Will it be valid if you die whilst UK resident? Is your Will tax efficient for your needs whilst you live in the UK?

Generally, if a Will is validly executed in the country where it is made, it should be recognised and enforceable in the UK. However, from a practical perspective, if your Will is drafted in a language other than English, the UK probate office will require a certified translation and if some of the estate planning language is different to that used in the UK, it can be more difficult to obtain grant of probate to administer your estate and sell or distribute your UK assets.

When you purchase UK property it can be preferable (and is recommended) to cover this using a UK will which can be co-ordinated with your existing will in your home country (and any other wills in other countries) to prevent any delay.

In any case, having your current documentation checked can prevent problems.  For example, many US citizens have a revocable or living trust. The trust should be reviewed to see how it is treated under English trust laws, as a trust which holds UK assets are subject to the ‘relevant property regime’ – a lifetime inheritance tax charge, which is an expensive trap for the unwary.  Indeed it is often best to take advice on these matters prior to arrival in the UK.

Lasting Powers of Attorney (LPA)

What happens if I become seriously ill or lose my ability to make decisions whilst I am UK resident? Making a LPA ensures that you choose who you trust to make decisions on your behalf when you are no longer able to.  There are two types of LPAs:

  • A Property and Financial Affairs LPA, which gives your Attorney/Attorneys authority to deal with your property and finances, as you specify;
  • A Health and Welfare LPA, which allows your Attorney/Attorneys to make welfare and health care decisions on your behalf, but only when you lack mental capacity to do so yourself. You can also decide whether you want them to be able to give or refuse consent to life sustaining treatment.

An attorney (you can have up to 4) basically ‘steps into your shoes’ and makes decisions on your behalf.  Attorneys can be appointed jointly (so that they have to make decisions in agreement) or jointly and independently. LPAs are useful to ensure that if you or your spouse falls ill whilst in the UK, your chosen attorney will be able to make decisions for you and this prevents what is normally a costly, time consuming and stressful formal court application which is the only alternative.

Family law

Whilst many expats will view the UK as their home and integrate into the English way of life, the majority will still retain strong connections with their homeland.  Nevertheless in the event of you either marrying or your current relationship breaking down there will be additional legal issues over and above the routine ones to deal with.  International family law is a highly complex and specialist area. Any husband or wife with international connections should take legal advice from a solicitor here who specialises in international family law. 

Pre-nuptial Agreements

Pre-nuptial Agreements aim to set out how assets are shared between a couple in the event they get divorced.  They are common place in many Countries and binding. This is not the case in England and Wales although their status has increased considerably in recent years and there is a growing recognition of their important role in society. For couples who wish to have a Pre-nuptial Agreement then the current guidance is that each seek independent legal advice as to what would be a fair and reasonable provision in the event of a divorce. It would be prudent to include a review clause in the Agreement in the event of children being born. In addition you must provide full details of your respective wealth and ensure that any agreement is signed by you both well ahead of the wedding.  Providing these guidelines are followed the presence of a Pre-nuptial Agreement in the event of a divorce will be a factor that the Court will give consideration to and potentially considerable weight. 

Divorce

In the unfortunate situation where you believe that your marriage has “irretrievably broken down” then you will need to be able to demonstrate that you are both habitually resident here or at least one of you is or you are domiciled here.

It is imperative that you seek specialist legal advice about where you can start Divorce Proceedings urgently as these are legal terms which you would need to consider to establish whether you will meet the criteria to commence proceedings here. The English Courts will have a different approach to divorce and family law to the American States. The choice of Country (and State) can have a huge impact on the outcome of financial arrangements. Your English solicitor will want to speak to their counterpart in the States to establish the range of financial orders available to you in either Country so that you are fully equipped to make an informed decision.  If there is an English divorce then the English court will only apply English law and consider all of your worldwide assets. The English Courts have long enjoyed a reputation for being financially generous to wives. It would be wise to also consider the practicalities of commencing proceedings in another Country especially if there will be Court Hearings that you will need to attend. 

Children

In the event of a breakup of a relationship you may wish to return to your homeland with the children.  If this is the case then careful thought and preparation must be made.  In the event that your Partner does not agree to you moving back then you will need to seek the permission of the Court.  The Court will base any decision on what is in the best interests of the children. You will need to show the Court that you have considered where you will live, where the children will go to school and what are your proposals for the children to see their other parent. These are a few crucial considerations to address. If the children are old enough then their views will also be taken into account.  It can take a long time to resolve any disputes and this will affect any final financial settlement that is granted. 

It is crucial that you either obtain consent from your Partner to return home (or stay longer here, if they have returned first) or obtain a court order. Failure to do so could see you inadvertently committing child abduction which is a criminal and civil offence. The UK is a signatory to the 1980 Hague Convention which enables co-operation between signatory countries to facilitate the swift return of an abducted child. In the event you think there has been an abduction then it is imperative that you take prompt legal advice from a family solicitor.

Judith Fitton is a Partner and Head of the Family law team at Mundays, she is a Resolution accredited specialist in high net worth divorce and cohabitation disputes and is named as a Leading Individual in the region by The Legal 500 directory. Clients of the team have access to considerable international expertise, further accredited specialists, mediation and collaboratively trained solicitors. Contact judith.fitton@mundays.co.uk tel: 01932 590557.

Jeremy Duffy at Mundays advises on tax, trust and estate planning for individuals and trustees, with an emphasis on advising non-domiciled clients and work with an international element.  Contact jeremy.duffy@mundays.co.uk tel: 01932 590597.

The contents of this article are intended as guidance for readers. It can be no substitute for specific advice. Consequently we cannot accept responsibility for this information, errors or matters affected by subsequent changes in the law, or the content of any website referred to in this article. © Mundays LLP.

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