Dealing with complex financial matters such as estate planning is never an easy task, especially when it involves multinational jurisdictions. For UK residents with international assets, crafting a clear and legally watertight will that reflects their property overseas is not just advisable—it is essential. Failing to do so can lead to unintended consequences, including having assets distributed in a way the person would not have wanted or running into legal difficulties across borders.
In this article, we will walk through the important considerations that UK residents need to bear in mind while creating a will that includes international assets. From jurisdictional complications to tax implications and legal frameworks, this guide aims to cover all the crucial points.
When discussing international assets, we are talking about properties or financial interests located outside the UK. This can include homes, land, bank accounts, businesses, and even stocks and bonds held overseas. It is common for individuals to accumulate such assets through either inheritance, investment opportunities abroad, dual citizenship, or simply as part of a cosmopolitan lifestyle. However, international estate planning comes with its unique challenges.
At first glance, it might seem like you could include all your international assets in your UK will in the same way that you would cover domestic ones. However, things aren’t quite so simple. Different jurisdictions have different laws governing estates, inheritance, and taxation, impacting how wills are treated and enforced.
This makes careful research and planning paramount to avoid unnecessary legal headaches, disputes, or even financial loss due to complications of your foreign estate’s administration.
One of the primary complications in dealing with international assets is determining which country’s laws will apply to them upon your death. Although residents of the UK must adhere to certain principles under English or Scottish law when creating their wills, the treatment of foreign assets could differ on a case-by-case basis depending on the where these assets are located.
Most countries have their own inheritance laws regarding probate processes, taxation, and who automatically qualifies as a beneficiary. For instance, in some European countries that follow “forced heirship” rules, a certain portion of an estate must be reserved for direct heirs, regardless of the instructions left in a will.
Meanwhile, UK law allows for much greater freedom in how you distribute your inheritance. Therefore, a primary consideration is whether a foreign jurisdiction will recognise the validity and executability of a UK-drafted will as it applies to assets located inside that jurisdiction.
To bridge these complications, many individuals may have to decide between creating one global will or separate wills for different countries. There are advantages and drawbacks to both approaches.
A common question is whether someone with assets in different countries should create one will that covers all assets or have multiple wills, with each governing assets in a specific jurisdiction.
A single will is thought to simplify matters to a degree, as it allows possessions to be distributed in one clear document, thus reducing misunderstanding. However, an all-encompassing will is not always the best choice when foreign laws differ significantly from UK legal frameworks.
For example, if you choose to have just one will, but your assets are subject to forced heirship rules abroad, your intentions may end up being overruled by local legal stipulations.
On the other hand, having separate wills ensures each one adheres to the national legal requirements of the country in which the international assets are located. This can help reduce enormities like cross-border conflicts, tax overcharges, and probate delays. However, if you take this route, be mindful to ensure that the multiple wills do not unintentionally revoke or contradict each other, which would create unnecessary confusion and potential legal wrangling.
To avoid contradiction, it is critical that each will makes clear that it coordinates with any other will you may have created for international assets in other jurisdictions. Consulting with a solicitor who specialises in multinational estates is key here.
The 2015 EU Succession Regulation, also known as “Brussels IV,” introduced some clarifying measures for international inheritance where EU countries are concerned. Under Brussels IV, an individual can opt for their “last habitual residence” as the applicable law regulating their estate or choose the law of their nationality (such as UK law) to apply. While the UK officially stopped adhering to this EU regulation following Brexit, it may still be relevant if you have assets in EU nations that are signatories to this regulation.
However, not every country has ratified a cross-border agreement, meaning that throughout much of the non-EU world, different rules apply. For non-EU countries, it is essential to check how local courts handle foreign wills. For instance, in the United States, each state has its probate laws, so the acceptance of your UK will might differ from state to state.
International tax obligations are perhaps one of the most complicated, but crucial, segments of estate planning when dealing with foreign assets. Depending on where your assets are based, your estate could be subjected to both UK inheritance tax (IHT) and the equivalent tax in the foreign jurisdiction—sometimes known as ‘double taxation.’
While the UK has various double taxation treaties in place with a number of countries, these agreements do not eliminate taxes altogether, as you may still need to pay where the treaties don’t fully cover all aspects of inheritance. If there’s no double taxation agreement in place between the UK and the country where your assets are situated, you could end up paying tax twice for your overseas estate.
For instance, the UK generally applies a standard inheritance tax of 40% on estates valued over £325,000 (as of the 2023 tax year). While some countries may have a lower inheritance tax rate, others might have much higher thresholds.
One way to mitigate these tax charges and ensure your beneficiaries receive the full potential value of your estate is estate tax planning through gifts while you are still alive. Alternatively, placing some of your assets in a trust, either in the UK or internationally, could also help mitigate excessive taxation. However, these are highly specialised strategies requiring professional advice from experts in UK and overseas tax law.
Given the complexities surrounding foreign inheritance laws and taxation, it is highly recommended to consult legal experts who have experience in both UK law and international jurisdictions. This is even more important if the foreign country has unique nuances that may prevent your UK will from being applied as you intended.
Specialist solicitors with experience in cross-border estate planning can help you structure your estate in such a way that it both respects UK laws and anticipates issues posed by foreign legal systems. They can also guide the best methodologies to minimise tax exposure on your estate.
Review Your Current Will: One of the first steps involves reviewing your existing will to identify any gaps concerning your foreign assets.
List All International Assets: Begin by cataloguing your international assets, including properties, savings, investments, shares, and any pensions or businesses held internationally.
Check Local Laws: Consult with a legal expert to determine how foreign laws could affect your estate, including any limitations preventing you from distributing your assets as you wish.
Consult Estate Planners: Speak with estate planning solicitors or tax experts who specialise in international tax laws to help navigate double taxation regulations, if applicable.
Update Your Wills: Decide whether a single will or separate wills suit your circumstances best, and make sure all legal documents drafted align with both UK and foreign laws.
Make Succession Decisions Clear: In any will, include clear directions about which law should apply and ensure there’s no contradiction between multiple wills in different jurisdictions.
Appoint the Right Executor: Consider appointing someone who has experience working with international estates or who is properly informed about the complexities involved.
Creating a legally sound will that captures both UK-based and international assets is a process best approached with diligence and thorough understanding. Whether dealing with the complexity of different inheritance laws abroad or the intricacies of double taxation treaties, getting the right legal advice is instrumental.
Given the potential for misunderstandings between UK law and that of another country, individuals with international wealth should treat estate planning as a priority from the outset. Efficient planning will ensure that your will works in harmony with the hierarchy of international laws and that your wishes will be followed after your passing without unnecessary burdens on your beneficiaries.
Effective and well-considered planning not only provides peace of mind to the individual drafting the will but also eases the transition of assets to the intended heirs with minimal legal and financial obstacles.
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