Domicile and intestacy rules applying in the UK |
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| Living |
| Friday, 16 October 2009 12:05 |
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By Susan Midha, Partner, Private Client Department, Adams & Remers Solicitors The legal system we’ve grown up with is deeply imbedded in our psyche and as long as we keep on the “right side” of it, we may feel that the law doesn’t affect us. But that could be short-sighted, as law impacts on our daily lives much more than we might think. Everyday we make numerous legal agreements (contracts), usually governed by the law of the country where we are at the time. Whether buying a house or a newspaper, taking a job, or drink in a pub or café, the contract may or may not be formal, or in writing. Just parking a car and putting money in the meter creates an agreement, the consequences of which become all too clear when we’re given a parking ticket if we overstay. And there are other important areas of our lives where the law applies, not because of any agreement made, but because of our status, commonly based on one or more of citizenship, nationality, residence, ordinary residence, the nationality of one’s parents or grandparents, or, as is the case in the UK, a peculiar concept called domicile. The areas most commonly affected by this hidden or “private” law are tax, family matters (for example, marriage, divorce, adoption and custody of children), immigration and inheritance. By and large, the ways in which status can be assessed are objective: it would be clear from your birth certificate or passport, for example, or from your address. But the test for domicile is subjective. Although it sounds like a legalistic word for residence, it isn’t the same concept. It is possible to be domiciled in England and Wales, Scotland or Northern Ireland without being resident in the UK. Broadly, if your father was domiciled in the UK when you were born, you too will be UK domiciled (with a domicile of origin here) unless (a) you live outside the UK and (b) you have made a decision to acquire a domicile in another country where you are living. Domiciliary difficulty Similarly, you can live in the UK but if you do not have a domicile of origin here and have not adopted a UK domicile of choice, then you will not be UK domiciled. How do you acquire a domicile of choice? Well, the answer may be surprising – in the light of the important consequences that it can have - but it’s a question of intention. It’s akin to “home being where the heart is”, and is judged on the facts: in which country do you spend most of your time, where do intend to retire to, or to be buried; where is your main centre of activity; which “private” law are you most closely associated with? While it is possible to be resident in more than one country concurrently, it isn’t possible to have more than one domicile (unless one is “deemed domiciled” - a concept that applies only to UK inheritance tax, the tax which applies on death and on gifts). And although we tend by way of shorthand to speak of a UK domicile, a UK domiciliary is, strictly speaking, someone who is domiciled in England and Wales, or Scotland or Northern Ireland and there are some important differences in those legal systems. The consequence of being domiciled in the UK include the following: You are taxed on your income and capital world wide; You come under UK rules for the validity of your marriage (or the registration of a same sex civil partnership), and for the adoption of children; You are within the jurisdiction of UK courts for questions of divorce and the custody of children; Both the content and the form of your Will is governed by UK law; and, If you do not make a will and so are intestate, the UK intestacy rules apply. Internationally, “tie breaks” have been devised for situations where each country claims jurisdiction. For example, a marriage between a French national and an English domiciliary, could be judged valid under English law and invalid under French law or vice versa. This is called a “conflict of laws” and private international law is the highly complex code which seeks to resolve those conflicts. Double Taxation treaties attempt to protect against two countries claiming the same tax on the same event, establishing which country is to have priority. By and large, where real property is concerned the law which governs it will be the local law, that is, the law of the country or jurisdiction in which the land is sited. So what does this mean in practice? Let’s consider Rudolf Rassendyll and his wife Flavia. He is Welsh. She is from Ruritania, which is where they met and lived for many years before deciding to come to live in the UK, in a property they own jointly. Flavia is not sure she wants to stay here permanently. Rudolph is UK domiciled because he has a UK domicile of origin and now lives in the UK. Flavia is not. UK law does not usually require us to know where she is domiciled: she is either UK domiciled or she is not. Neither of them yet has a Will. Rudolph’s entire estate worldwide (except the real estate he owns in Ruritania) will pass under the English intestacy rules. By virtue of these, only £250,000 will go to his wife outright and the balance will go into a trust between her and their children, Michael and Rupert, and Rudolph’s child from a previous relationship, Antoinette. If Rudolph makes a Will, its validity will be governed by English law. This provides that he can make a Will leaving his assets however he chooses, although the court can award funds to anyone, including his wife, for whom his will does not make reasonable provision. Because she is not UK domiciled, Flavia’s estate (except any real property she owns which is sited in the UK) will devolve in accordance with Ruritanian law. The intestacy rules there require everything to pass to the Ruritanian Fund for Poor Politicians. Her English real property will pass under the English intestacy rules. She can make a Will which decides to whom her English real estate is to go, but because she is not domiciled in the UK her other property world wide (and the Damian Hurst and other personal belongings in her new home) will not necessarily be effectively disposed of by an English Will. It depends on whether it conforms with Ruritanian law. If it doesn’t, then the poor politicians will be in for a windfall and Rudolph would not be able to challenge that in the English Courts. The Act which would allow Flavia to challenge her husband’s will does not allow challenges to the will of a non-UK domiciliary. For tax purposes, again there are differences between them. Rudolph is taxed on his income and capital gains worldwide, and, on his death, his worldwide estate will be subject to Inheritance Tax. Whereas Flavia, at least for the first seven years of residence here, will not be subject to income tax or capital gains on funds not bought into the UK. She will only be subject to UK IHT or her UK sited assets until she has been in the country for 17 years, when IHT will extend to her assets worldwide. The legal decision as to whether Flavia can adopt her stepdaughter, Antoinette, who as Rudolph’s child has a domicile of dependancy in the UK, can be taken in the English courts and when the inevitable divorce occurs (successful marriages between a Britain and a Ruritanian are unheard of) financial provision and custody of the couple’s children can, much to Flavia’s chagrin, also be decided by the English Courts (on the basis of Rudolph’s domicile here). She is by far the wealthier of the two and didn’t think to put in place a pre or post nuptial agreement before coming to the UK. In the Ruritanian courts, everyone keeps their own property, and Flavia is shocked when she is advised about the wide ranging powers that a UK court has in matrimonial proceedings where one of the parties before it is a UK domiciliary. What Flavia has learnt is that it’s easy to become UK resident – you just cross the Channel (or the Atlantic) and stay here. The legal implications of doing so, however, are largely dependant on whether you become UK domiciled. To the extent that that is a matter of choice, that choice should be based on a clear understanding of all the issues. While the UK legal system may be very different from the one which we have assimilated from our country of origin, with foresight, planning and the right advice, it may well be possible for any one choosing to settle here to achieve the best of both worlds. Susan Midha is a partner at Adams & Remers Solicitors www.adams-remers.co.uk This e-mail address is being protected from spambots. You need JavaScript enabled to view it or call 01273 480616. This article is not intended to be a full summary of the law and advice should be sought on specific issues. Add this page to your favorite Social Bookmarking websites           |
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