INHERITANCE LAW IN UNITED KINGDOM

 

Inheritance law in the UK applies to all official residents, whether national or from overseas, on all of their worldwide moveable assets. If you are a non-resident who owns UK property, UK inheritance law will also apply to some of your estate.

The UK is one of three countries (along with Denmark and Ireland) that opted out of changes to EU inheritance regulations in 2015, which give citizens living abroad in the EU the choice to have their estate dealt with according to the laws of their home country or country of residence. This means that UK citizens living in other EU countries covered by these regulations will have this choice.

Inheritance laws in the UK vary in different areas. In England and Wales, there is no forced heirship and people are free to leave their property to whoever they wish by making a last will and testament in the UK.

However, in Scotland, a surviving spouse and children have a statutory claim to parts of the estate. If there are both spouse and children, both parties are entitled to a third each (one-third split equally between children if more than one) of the net moveable assets (everything excluding property and land). If there is only a spouse or children, they are entitled to 50% of net moveable assets.

What inheritance laws apply in United Kingdom?

Moveable and immovable property in UK are governed by different inheritance laws

The inheritance of moveable property is governed by the law of the testator's domicile at the date of his/her death. (In this context, domicile in very broad terms means the country or state where a person resides on a permanent or indefinite basis, although the concept, being one of private international law, has more complex angles not detailed here).

The inheritance of immovable property (which in the UK includes all interests in land, including mortgages) is governed by lex situs (the law applicable at the location of the property). Thus, for UK property rights, UK law applies even though the testator may have a foreign domicile.

UK law of intestacy applies to land and property

If a person dies without having made a will, his / her moveable property will be inherited by the persons entitled under the law of the deceased's domicile at the time of death; however the succession to immovable property of an intestate is governed by the law of the country where the immovable property is situated. Accordingly, if a person with a foreign domicile dies without leaving a will, and he/she has UK land or other UK property in his estate, UK law of intestacy will apply to that land or property.

Where the deceased is survived by a spouse and children of the marriage, UK law of intestacy provides for the surviving spouse to receive the first £125,000 of the estate and a right to income for life for one half of the remaining estate. The other one half share of the remaining estate passes to the children. On the death of the spouse the children will then receive the fund which was held for the surviving spouse for life. 

If there are no children of the marriage then the surviving spouse receives the first £200,000 of the estate plus the income of one half of the remainder with certain other relatives receiving the other one half of the remainder absolutely. If there is no surviving spouse, but there are children, they will receive the whole estate absolutely in equal shares.

A person may make a will leaving his/her estate to any chosen beneficiaries

It is advisable for all persons, including foreign nationals, persons of foreign domicile, and those permanently resident outside the UK to execute a will dealing with property located in the UK.

The formalities relating to the drafting and execution of the will should comply with the requirements of UK law, so that the will is readily admitted to probate (this being the official document which gives full recognition to a will of a deceased person). If these requirements are not satisfied, it is necessary to demonstrate satisfactorily that the testator is a person of foreign domicile, and that the will is properly executed according to the law of the testator's domicile.

The will of a person domiciled in the United Kingdom is valid if the testator has testamentary capacity i.e. is not a minor (under the age of 18) and is of sufficiently sound mind to have a proper understanding of the terms of the will when it is executed, and a genuine intention to have his / her estate devolve in accordance with its terms.

A will dealing with immovable property in the United Kingdom is valid if it conforms to the formalities of the laws of the testator's domicile, or alternatively, the internal law in force in relation to the immovable property concerned. If a person's will is valid and duly proved in the country of the testator's domicile, it is admitted to probate in the United Kingdom. The moveable property of the deceased in the UK then passes under the terms of that will. In practical terms, the terms of a foreigner will govern who inherits UK property assets, but UK property law governs the property rights which may validly be created by such a will.

A person may make a will to leave immovable and movable property located in UK to any chosen beneficiaries. There is no "forced heirship" or "reserved portion; however, if a testator domiciled in the United Kingdom dies, leaving dependents who are not adequately provided for under the terms of the will, the dependents may apply to the court to claim reasonable provision for maintenance from the estate. Maintenance may be in the form of income payments for life, or alternatively a lump sum payable from the estate.

Can A will be Revoked?

In the UK, a will may be revoked by destroying it so long as the testator has the intention to revoke it by doing so. Accidental destruction does not revoke the will and any available copy of a will accidentally destroyed can be admitted to probate.

A will is also revoked by the marriage of the testator subsequent to the date of the will, unless the will is specifically expressed to be made in contemplation of the marriage. However divorce does not have any consequence at all for a will made previously by either party to the marriage, so that their existing wills remain valid.

Property can be given away during the lifetime of the owner

UK property can be freely given away by the owner during his/her lifetime, and the gift will only be set aside (that is, declared void) if it was made to avoid the claims of creditors.

UK law includes "equitable ownership"

Under UK property law, a distinction is drawn between the legal holders of the title to land, i.e. those who are registered at the Land Registry as the owners, and the beneficial owners of the property who have what is described as "equitable ownership". The legal title holders may of course also be the beneficial owners, in which case there is no distinction between the two, but they may alternatively hold as trustee for others, in which event the rights of the beneficial owners will flow from the trust document: trusts cannot be registered at the Land Registry.

Marriage does not result in common ownership of property

On marriage, there is no automatic common ownership of UK land or property between the parties to the marriage unless they chose to put the property concerned into their joint names. In that event, the joint ownership may be one of two types, a "joint tenancy" by which the survivor of them will automatically inherit the one half share of the other, or alternatively a "tenancy in common" by which there is no automatic survivorship on the death of one party and instead each share in the property passes under the terms of the will of the deceased or in accordance with the rules of intestacy. These rules which relate to the legal title to the land apply equally to foreign married couples who own property in the UK, since they are enshrined in UK property law, but as mentioned above this does not prevent beneficial ownership from devolving some other manner under foreign law.

A trustee must be appointed to protect the property interests of minors

Persons under the age of 18 may not hold interests in UK land or property directly, but instead a trustee will hold the land for them until they attain the age of 18. The person giving the land to the child concerned may appoint anyone he chooses to be the trustee. Other persons who are incapacitated by reason of mental illness may hold property themselves but their affairs may be administered by a trustee under supervision by the Court of Protection.

UK land may be purchased through an "offshore" company.

Those domiciled outside the United Kingdom contemplating the purchase of land with substantial value in the United Kingdom are often advised to purchase the land through a company incorporated and controlled outside the United Kingdom. This substitutes the shares in the foreign company for the UK property in the estate of the owner of the company which may be beneficial both for UK inheritance tax purposes and also in terms of foreign law of succession to the shares in the company, which necessarily reflect the value of the land held within it. UK tax advice should be obtained prior to setting up any such structure.

Scottish inheritance law essentially deals with the estate in three steps, one after the other. Here’s how it works:

Step 1) Prior rights go to your spouse or civil partner first

Once all your debts have been paid, your surviving spouse or civil partner has the first claim (‘prior rights’) on your estate. Succession law in Scotland gives them :

Your interest in your home up to £473,000 (or if the house is worth more, a lump sum of £473,000 and the house is potentially sold)

£29,000 worth of the furniture and moveable household items in your home

Up to £50,000 in funds, or £89,000 if you don’t have children

If you are separated from your spouse or civil partner, but not officially divorced, they can still claim prior rights in Scotland. However, they won’t be able to take the £473,000 interest in your home unless they’ve been living there with you.

Step 2) Legal rights are then claimed by your spouse or civil partner and children

In Scottish law, children’s inheritance rights are dealt with after the prior rights of a spouse or civil partner have been settled. Once prior rights have been handed over, ‘legal rights’ are then taken from whatever moveable assets are left over.

Here’s how it works:

If you have children AND a spouse/civil partner: Your spouse or civil partner will get one third of what’s left of the moveable estate after prior rights have been sorted. The other two-thirds will be split equally between your children.

If you have a spouse/civil partner but NO children: Your spouse or civil partner will get one half of what’s left of the moveable estate. What happens to the other half will depend on step 3 below.

If you have children, but NO spouse/civil partner: Your children will get one half of what’s left of the moveable estate, divided equally between them. What happens to the other half will depend on step 3.

Step 3) The remainder of the estate is then handed out based on the order of intestate succession

With prior rights and legal rights satisfied, whatever is left over in your estate (if anything) will be given to whoever has priority according to the rights of succession in Scotland. Here’s who has priority, in order:

1) Children, or their descendants

As above, if one of your children has died already, their children can inherit their share. This combined with the legal rights above means that if you have kids or grandkids when you die, and you aren’t married or in a civil partnership, your kids or grandkids will inherit everything.

2) Parents and brothers and sisters

If you haven’t any children or grandchildren, the remainder of the estate will be split 50/50, with one half going to your parents and the other being split equally between your siblings.

If a brother or sister has died before you, their children (your nieces and/or nephews) can claim their share of your estate instead.

3) Brothers and sisters, if no parents

The remainder will be split equally between your siblings. It’s worth adding here that in current Scottish inheritance law, half-brothers and half-sisters don’t have the same rights as brothers and sisters who share both parents with you.

4) Parents, if no brothers or sisters

The remainder will be split equally between your parents.

5) Spouse or civil partner

This means that if you are married or in a civil partnership when you die, and you don’t have kids, parents, or siblings, your spouse or civil partner will inherit everything.

6) Aunts and uncles

If one of your aunts or uncles dies before you do, their children (your cousins) can inherit their share of the estate.

7) Great-aunts and great-uncles

That is, the brothers and sisters of your grandparents. Again, if they have died before you, their children (your parent’s cousins) can inherit.

8) Other ancestors

As in your great-grandparents, then your great-great-grandparents, and so on. But before it can skip up a generation, siblings are checked for. If your great-grand parents are no longer living, but they have brothers and sisters who are, these people would inherit before a great-great-grandparent.

9) The Crown

If none of the relatives above can be found, the estate goes to the Crown.

What is the law of inheritance in England?

1) The first person in line to receive any inheritance would be the surviving wife (or civil partner if applicable). The caveat to this is that if the inheritance is less than £250,000 then it all goes to the surviving wife.

·  All assets go to the surviving partner
·  The first £250,000 of any inheritance
·  A life interest in any amount over £250,000 (cannot spend or get rid of the life interest; only receive the interest on said amount)

2) The next people in line are the children who will split any inheritance over £250,000 (less the life interest) equally. Example: if the entire estate is worth £450,000 then the surviving wife would get £250,000, the life interest would get £100,000 (£450,000 - £250,000 = £200,000/2), and the two children would split the remaining £100,000 equally. Neither child will be allowed to touch the inheritance unless they turn 18 or get married (or enter a civil union) prior to the age of 18.

These are the only people eligible (initially*) to the inheritance when a will does not exist. See the special circumstances below when other family members become eligible to an inheritance.

1) The first people in line to the inheritance if there is no surviving partner (civil or married) or children would be grandchildren, great-grandchildren, parents, siblings, nephews/nieces. I believe this is the order that the courts will follow so that would mean that parents and siblings would be after grandchildren and great-grandchildren.

2) The only way that it can get all the way to nephews/nieces is if the siblings of the deceased passed away already.

3) The next in line would be grandparents if those listed above don't exist.

4) If none of the above exist at the time of death, aunts/uncles would be next in line to receive the inheritance or cousins if the aunts/uncles have already passed.

5) The last in line (for relatives) would be half aunts/uncles or cousins

For any of the situations listed in the "other relatives" section, I don't know how the inheritance would be apportioned but I'm sure there are rules/statutes that decide this.

People not eligible:

• unmarried partners

• unrecognized civil union

• in laws

• friends

• caregivers

If there aren't any surviving relatives, then any inheritance would go to The Crown. If you are on the list of "not eligible", you can apply for financial provision to the court. In the end, The Crown and The Treasury Solicitor will be given the burden of divvying up the estate.

WILL & PROBATE

Succession Rules

What rules and restrictions (if any) govern the disposition of and succession to an individual’s property and assets in your jurisdiction?

Individuals who die domiciled in England and Wales enjoy freedom of testamentary disposition and may leave their assets to whomever they wish. There are no forced heirship rules.

However, where an individual dies domiciled in England and Wales, certain categories of people may bring a claim under the Inheritance (Provision for Family and Dependents) Act 1975 for financial provision from the deceased’s estate, if they do not consider that reasonable financial provision has been made for them, either under the terms of the deceased's will or the intestacy rules. Assets held by a deceased person under a joint tenancy automatically pass to the surviving joint owner.

Forced heirship rights apply, to a limited extent, to the movable assets of an individual who dies domiciled in Scotland. Where an individual who was domiciled in Scotland dies intestate, a surviving cohabitee may bring a claim for financial provision from the deceased’s estate.

Governing Law

What rules and restrictions (if any) apply to the governing law of a will?

A will drafted in the United Kingdom need not be governed by the law of some part of the United Kingdom.

Under the law of England and Wales, a gift of movable property in a will is valid if it complies with the law of the domicile of the testator. A gift of immovable property is valid if it complies with the law of the country in which the property is situated.

The position is the same under Scottish law.

What are the formal and procedural requirements to make a will? Are wills and other estate documents publicly available?

Under the law of England and Wales, subject to limited exceptions, to make a valid will the testator must:

• be 18 years old or over;

• intend to make a will;

• have mental capacity (the test derives from Banks v Goodfellow (1870));

• not be acting under undue influence or as a result of fraud; and

• know of and approve the contents of the will. 

• Pursuant to Section 9 of the Wills Act 1837, to be valid a will must be:

• in writing; and

• signed by or on behalf of the testator in the presence of two witnesses, who must also sign in the presence of the testator (beneficiaries or their spouses or civil partners should not act as witnesses).

It must also be clear that the testator intended to give effect to the will by his or her signature (ie, the document should state on its face that it is a will).

Once a grant of probate has been issued, the will (and any codicil to it) becomes a public document. However, a letter of wishes accompanying the will remains confidential.

The formal validity of a will under Scottish law is governed by the Requirements of Writing (Scotland) Act 1995. Under Scottish law, an individual has legal capacity to make a will at the age of 12. The testator must also have mental capacity, must not be acting under undue influence or as a result of fraud, and must know of and approve the contents of the will.

Validity and amendment

How can the validity of a will be challenged? Can the will be amended after the decedent’s death?

Under the law of England and Wales, the validity of a will can be challenged on the following grounds:

• The testator lacked mental capacity. If the will is prima facie rational and the testator was normally mentally capable, there is a presumption that the testator had capacity to make the will. The onus of proof will be on the parties seeking to rebut this presumption. It is irrelevant that the testator lost mental capacity after executing the will.

• The testator lacked testamentary intention. Where a will is signed in accordance with the formalities set out in the Wills Act 1837, there is a rebuttable presumption that the testator intended to make the will.

• The testator lacked knowledge of or did not approve the will. There is a rebuttable presumption that the testator knew about and approved the contents of the will where the correct formalities are observed.

• The testator acted under undue influence or as a consequence of fraud.

• The execution formalities were not correctly observed. Where a will contains an attestation clause (ie, it states that the will has been properly executed in line with the Wills Act 1837), the presumption is that the will was properly executed and is valid.

The grounds for challenging a will under Scottish law are similar.

If a will is found to be invalid, the deceased’s estate will pass in accordance with an earlier valid will or, failing that, the intestacy rules. 

A will cannot be amended after the death of the testator. However, where an individual dies domiciled in England and Wales, the provisions of a will may be varied in the event that a successful claim is brought under the Inheritance (Provision for Family and Dependents) Act 1975, and individual beneficiaries under a will can re-direct bequests to them.

Under Scottish law, spouses, civil partners and children of the deceased can claim their legal rights under the forced heirship rules regardless of the terms of the deceased’s will. However, if they claim their legal rights, they forfeit any entitlement under the deceased’s will. Where an individual who was domiciled in Scotland dies intestate, a surviving cohabitee may bring a claim for financial provision from the deceased’s estate.

How is the validity of a will established in your jurisdiction?

Under the law of England and Wales, a will is presumed to be valid unless there is evidence to the contrary, in which case the presumption can be rebutted.

A gift of movable property in a will is valid if it complies with the law of the domicile of the testator. A gift of immovable property is valid if it complies with the law of the country in which the property is situated. The position is the same under Scottish law.

To what extent are foreign wills recognised? Do any special rules and procedures apply to establishing their validity in your jurisdiction?

Foreign wills are admitted to probate in England and Wales if they are executed in accordance with the requirements for executing a will in Section 9 of the Wills Act 1837. In addition, foreign wills are valid in both England and Wales and Scotland if they are executed in accordance with the laws of the country in which they were executed or in which the testator was domiciled, habitually resident or a national at the time of execution or death.

Foreign wills relating to immovable property are valid in relation to the immovable property if they are executed in accordance with the law of the country where the real property is situated.

The EU Succession Regulation (650/2012) (‘Brussels IV’) does not apply in the United Kingdom, but will apply to an estate that has connections to both the United Kingdom and an EU member state that is bound by Brussels IV.

Estate administration

What rules and procedures govern:

(a) The appointment of estate administrators?

Under the law of England and Wales, where a will provides for the appointment of executors, the estate will vest in the executors from the date of death. However, a grant of probate is still required to prove title.

Where no will exists (or the will failed to appoint executors effectively), the estate will vest in the public trustee until the court has issued a grant of representation authorising the personal representative (loosely, the next of kin – the exact categories of person and order of priority is set out in the Non-Contentious Probate Rules 1987) to act as an administrator. The administrator’s authority is then backdated to the time of death.

In both cases, an oath must be submitted in prescribed form in order to obtain a grant.

A grant is not generally required where jointly held property passes to a surviving joint tenant by survivorship or where the estate comprises no real property, shares or chattels.

The procedure differs in Scotland. The executors must obtain a grant of confirmation which gives them authority to deal with the deceased’s property.

(b) Consolidation and administration of the estate?

Once a grant has been acquired, the executors or personal representatives have authority to:

• collect in the assets of the deceased;

• pay any liabilities; and

• distribute the balance.

In practice, most institutions require sight of the grant of probate (or confirmation in Scotland) before assets are released to the personal representatives or executors.

However, in England and Wales, a grant of representation is not required in relation to certain assets.

(c) Distribution of the estate to heirs?

Under the law of England and Wales, subject to certain exceptions, the estate can be distributed to the heirs only after the issue of a grant of representation. The estate will be distributed in accordance with the deceased’s will or the intestacy rules where no valid will exists.

Under Scottish law, the estate can be distributed to the heirs after the issue of a grant of confirmation. However, a spouse, civil partner or child of the deceased can claim legal rights over the estate. Executors should obtain formal discharges of these legal rights.

(d) Settlement of the decedent’s debts and payment of any taxes and fees?

To obtain a grant (or confirmation in Scotland), the personal representatives or executors must value the deceased’s estate. Any inheritance tax must be paid to Her Majesty’s Revenue and Customs (HMRC), which will issue a receipt. If no inheritance tax is payable, HMRC will issue a certificate. No grant of representation will be issued without the HMRC receipt or certificate.

Unless the estate is an excepted estate, the inheritance tax account must be delivered within 12 months of the end of the month in which the deceased died (or within three months after the personal representative is appointed, if this is later). In most cases, any inheritance tax must be paid within six months of the end of the month in which the deceased died.

Once the inheritance tax has been paid and a grant has been provided, the personal representative can collect in the deceased’s assets and settle the deceased’s debts, including any tax owed from the deceased.

Planning considerations

Are there any special considerations specific to your jurisdiction that individuals should bear in mind during succession planning?

Gifts to spouses or civil partners are generally exempt from inheritance tax; therefore, inheritance tax is generally not an issue until the death of the surviving spouse or civil partner. Gifts made to individuals more than seven years before death escape inheritance tax. In addition, certain trusts established by will (particularly those for bereaved children) enjoy beneficial tax treatment.

Under the law of England and Wales, the marriage or civil partnership of a testator automatically revokes any will made by the testator before the marriage or civil partnership (Section 18 of the Will Act 1837). Under both the law of England and Wales and the law of Scotland, divorce or dissolution of a civil partnership does not revoke a will; the former spouse or civil partner is treated as if they had predeceased the testator.

NORTHERN IRELAND

Legal system

Common law. Northern Ireland is part of the UK but has its own separate legal system. Local laws are made by the Northern Ireland Assembly, a devolved legislature. At the time of writing, however, the Assembly is not sitting due to the failure by the main local parties to agree to the formation of an executive following the March 2017 Assembly election. Certain matters are reserved to the UK Parliament at Westminster. Currently, taxation is uniform throughout the UK and so reference should be made to the UK factfile.


Inheritance and succession

Succession

Northern Ireland succession law is governed by the Administration of Estates Act (Northern Ireland) 1955 (The 1955 Act). A person who wishes to dispose of assets on death achieves this by leaving one or more testamentary instruments. The original document is called a will. Subsequent additional written documents are called codicils. In this summary, the term ‘testator’ refers to either a man or a woman.


Where a testator does not make a will, or only disposes of part of that testator’s estate by will, then the portion undisposed of passes under the intestacy rules.

A testator has testamentary freedom subject to the Inheritance (Provision for Family and Dependants) (Northern Ireland) Order 1979, discussed here.

Family law and defined inheritance rules

Yes. Succession to real and personal property of an intestate is governed by the 1955 Act, which provides for members of an intestate’s family in such a way as the intestate might have done had a will been made. The estate of an intestate is distributed according to the surviving beneficiaries. Personal chattels are defined in the 1955 Act and include, among others, vehicles, household articles and jewellery.

Although the advice of a qualified practitioner should be sought with respect to specific details, generally the distribution scheme is as follows :

• Where spouse and one child survive: spouse receives personal chattels and net value of the remaining estate up to GBP250,000 or the first GBP250,000 and one-half of the excess, and the child receives the other half of the excess.

• Where spouse and children survive: spouse receives personal chattels and net value of the remaining estate up to GBP250,000 or the first GBP250,000 and one-third of the excess, and the children divide the remaining two-thirds excess between them.

• Where spouse survives but none of deceased’s issue survive, and the parent or parents of the deceased or their issue survive: spouse receives personal chattels and the net value of the remaining estate up to GBP450,000 or the first GBP450,000 of the net value of the remaining estate together with one-half of the excess and the surviving parent or parents or their surviving issue take the remaining excess.

• Where spouse survives but no issue and no parents or their issue survive: spouse takes the whole estate.

• Where issue survive but no spouse survives: issue take the whole estate per stirpes.

• Where no issue, spouse, parents or their issue survive: next of kin according to rank take the estate.

• Where there are no surviving next of kin, the Crown takes the whole estate.

In Northern Ireland, no spouse or child has an absolute entitlement to a share of an estate, but if anyone satisfies the definition of claimant in the Inheritance (Provision for Family and Dependants) (Northern Ireland) Order 1979, this individual may be able to claim all or part of the estate. In Northern Ireland, the term spouse includes civil partners, following enactment of the Civil Partnership Act 2004, which relates to same-sex couples.

 

Probate process

If a deceased dies with a will, having appointed an executor, application for a Grant of Probate may be made. If the deceased has not appointed an executor or has died intestate, application for letters of administration may be made.
 In all cases, an account setting out details of the assets of the estate must be furnished to Her Majesty's Revenue and Customs (HMRC).

Executors and administrators must undertake to collect all the assets of the estate and to distribute those assets in accordance with the law.

The most common forms of grant, known as grants of representation, are:

• Grants of probate issued to executors of a will.

• Letters of administration with will annexed issued to an administrator appointed by the courts, where no executor is willing or able to act or where no executor was appointed by the will.

• Letters of administration intestate, where the deceased died intestate.

HMRC do not charge any fee for processing an inheritance tax account. The Probate Office charges a fee for all grants of representation. The fee is levied at a flat rate of GBP237 regardless of the size of the estate. An executor or administrator is usually not entitled to charge fees for extracting a grant of representation or for administering the estate, unless a charging clause allowing the executor or administrator to charge such fees is included in the will.

Assets not requiring probate

In principle, no assets may be dealt with without a grant of representation. In practice, financial institutions may agree to hand over monies without a formal grant of representation, subject to an appropriate indemnity from the person to whom the assets are handed over. Such ‘small estates’ must be less than GBP10,000 although some financial institutions may extend this limit at their discretion.

Where the deceased before death nominated a beneficiary to obtain an asset, the asset may be passed in those circumstances. This normally applies in the case of a joint deposit account or insurance products. An individual may make a gift of assets to a beneficiary in contemplation of death. This is known as a donatio mortis causa. It applies where the deceased physically passes an asset to a beneficiary.

Certain assets, such as some pensions, death-in-service benefits, property subject to a joint tenancy, nominated assets and trust assets do not form part of a deceased person’s estate for probate purposes.

Estate planning

Use of trusts in estate planning

The law relating to trusts in Northern Ireland largely mirrors that of England and Wales and so reference should be made to the England and Wales factfile. Following enactment of the Perpetuities and Accumulations Act 2009 in England and Wales the principal difference between the jurisdictions is that the usual maximum perpetuity period allowable in Northern Ireland is 80 years, rather than 125 years as in England and Wales.

Use of foundations in estate planning

NOT APPLICABLE.

Types of entities

NOT APPLICABLE.

ENGLAND AND WALES

Inheritance and succession

Succession

In England and Wales, persons or ‘testators’ are free to leave their estate to anyone they choose, subject to the court’s powers to consider a claim under the Inheritance (Provision for Family and Dependants) Act 1975 (the 1975 Act). The 1975 Act allows, where a deceased died domiciled in England and Wales, certain categories of person to make a claim against the estate if they have not been left anything or they do not consider they are receiving a sufficient portion of the estate. The claim is based on the concept of reasonable financial provision.

Family law and defined inheritance rules

For a will to be in valid form it must be made in accordance with the rules of the country in which the deceased died domiciled, habitually resident or a national at the time the will was executed, or in accordance with the law of the country where it was executed.

i) Requirements for a valid will

In order to create a valid will or codicil, the document must conform to legal requirements and the testator must have capacity to make a will. The testator must be over the age of 18 years; there are special rules, which apply to a testator in the Services.

The test as to mental capacity to make a will is that the testator understands the nature of the act and its effects, the extent of the property being disposed, and claims on the estates, and does not have a disorder of the mind influencing or distorting their actions. Mere eccentricity does not make a will invalid. A testator who is a patient under the Mental Health Act 1984 can make a valid will in a lucid interval.

Where a testator does not have the mental capacity to make a will, an application can be made to the Court of Protection to make a will on the testator’s behalf. The Court has no jurisdiction to make a will for a minor, nor can the will validly dispose of movable property outside England and Wales.

ii) Forms/types of wills

There are specific requirements relating to the validity of wills that can be found in the Wills Act 1837, as amended, including that the will is in writing; the will is signed (name, initials or mark) by the testator, or by some other person in the testator’s presence and at the testator’s direction; and, the testator intends by signature to give effect to a valid will. There are also provisions as to attestation regarding how the testator’s signature should be made or acknowledged in the presence of two independent witnesses.

The costs of administering an estate are payable out of the estate before it is distributed o the beneficiaries. In the event that there are insufficient assets in the estate to pay all liabilities, funeral and administrative expenses and the legacies, then the legacies will be abated in accordance with a set formula.

iii) Intestacy rules

In the event that a deceased person has not made a valid will or has made a will that does not dispose of part or all of the estate, the estate will be intestate.

The Administration of Estates Act 1925 sets out a prescribed list of people who can benefit from an intestate estate in order of priority. The first four categories are: spouse/civil partner; issue; parents; brother(s) or sister(s) of the whole blood (ie having both the same mother and father as the deceased) and their issue.

iv) Spousal/civil partners’ rights on death

A surviving spouse/civil partner does not have automatic entitlement to a share of a deceased’s estate. Under the 1975 Act, however, a surviving spouse/civil partner is entitled to a higher level of financial provision than another claimant as the standard by which reasonable financial provision is measured in the case of a spouse/civil partner is such financial provision as would be reasonable for the spouse/civil partner to receive. With other applicants, the standard is based on what is reasonably required in the circumstances for their maintenance.

Probate process

On the testator’s death it is the duty of the testator’s executors to administer the estate. In order to collect assets, pay liabilities (including taxes) and distribute the estate in accordance with the will it is usually necessary for executors to obtain a Grant of Probate.

The process involves the executors, confirming that they are willing to act and, having previously obtained details of the assets, liabilities and any tax due in an estate, swearing a prescribed form of oath containing these details. Depending on the size and nature of the estate, it may also be necessary to give details of it to HMRC.

If a person dies intestate or makes a will where none of the executors is able or willing to act, then statute prescribes a list of people who may apply to administer the estate. In this case, application to the Probate Registry is for a grant of letters of administration.

If a deceased owned assets in other jurisdictions it may be necessary to obtain probate in those jurisdictions also and local advice should be sought.

Other assets, such as certain pensions; death-in-service benefits; joint property held as ‘joint tenants’ that passes by survivorship; nominated assets; and trust assets may pass on death but not in accordance with a will or intestacy. These assets do not require probate.

Estate planning

Use of trusts in estate planning

The tax legislation in the UK favours outright gifts to individuals. In appropriate circumstances a trust arrangement may nonetheless be suitable. They can be established during the settlor’s lifetime or under their will. In addition, in certain circumstances, a trust will be created under the rules relating to intestacy.

There are various anti-avoidance provisions where lifetime trusts are established and the settlor, their spouse/civil partner and/or dependent children may enjoy certain benefits under the trust. Different provisions apply for income tax, CGT and IHT purposes. Additional complex anti-avoidance provisions apply if the trustees are resident outside the UK. Further complications arise where the settlor and/or beneficiaries are domiciled or resident outside the UK.

As explained in the UK jurisdictional information, significant changes regarding offshore trusts and certain foreign domiciliaries were enacted by Finance (No 2) Act 2017 (these changes being effective from 6 April 2017) and Finance Act 2018 (these changes being effective from 6 April 2018).

Advice should always be taken:

• to ensure the position with respect to the trust being established is clearly understood; and

• where an individual is a settlor or beneficiary of a trust and is going to become UK resident.

In addition, trustees of offshore trusts, foreign domiciled settlors and beneficiaries should take advice in connection with the changes.

There are two main types of voluntary private trust: interest in possession (IIP) and discretionary/accumulation trusts.

• IIP trusts can be established where there is a need to provide a beneficiary with income as it arises or the use or enjoyment of trust property, as of right, rather than as a result of the exercise of a discretion by the trustees. Such rights are commonly conferred for life or until remarriage. Trustees are usually given dispositive powers to distribute or apply capital to or for the benefit of a class of beneficiaries.

• Discretionary trusts are for when it may be preferable to withhold any benefits as of right but to confer dispositive powers on the trustees over capital and income.

For income tax purposes there are separate regimes for taxing property in respect of which a beneficiary has an interest in possession and property over which the trustees have discretion. Trustees of discretionary/accumulation settlements are subject to tax at the special trust rates. For 2018/19 and 2019/20 these are 38.1 per cent for dividend income, and 45 per cent for all other income. The first slice of the trust rate income (referred to as the standard rate band) is, however, subject to tax at lower rates, being 7.5 per cent for dividend income and 20 per cent for all other income. The standard rate band is GBP1,000 but this is subject to anti-fragmentation provisions that reduce it proportionately if there is more than one trust established by the same settlor in the tax year. The minimum the standard rate band can go down to is GBP200.

Trustees of interest in possession trusts are taxed on dividend income at the dividend ordinary rate (10 per cent) and on all other income at the basic rate (20 per cent). The exceptions to this general rule are capital receipts taxed as income. These receipts, regardless of the type of private trust, are subject to tax at the special trust rates.

It should be noted that the changes to the dividend tax regime removed the dividend tax credit from UK residents. This is not the case for non-UK resident trusts subject to income tax on UK dividend income.

In contrast to the income tax provisions, there is just one CGT regime applicable to trustees, with a fixed CGT rate of 20 per cent, with an additional 8 per cent being applied on the disposal of carried interest and residential property (that does not qualify for principal private residence). In general, trustees of interest in possession settlements have better access to CGT reliefs. CGT may be payable when chargeable assets are settled into or distributed in specie from trusts. In some cases reliefs may be due and advice should be taken.

There is a special elective income tax and CGT regime for ‘vulnerable beneficiaries’ (broadly, trusts involving disabled persons or minor children who have lost a parent). Advice should be taken where the trust qualifies to see if the election would be beneficial.

A lifetime transfer of value to a settlement will be a chargeable lifetime transfer, unless it is to a qualifying disabled settlement. As such, if property in excess of an individual’s nil-rate amount is settled on trust (other than a bare trust) there may be IHT charges (again reliefs may be available and advice should be taken). The trust will be a relevant property trust so the trustees may be liable for IHT (at a maximum rate of 6 per cent) on the value of the trust property at every 10th anniversary of the establishment of the trust and also on the value of capital distributions out of the trust.

There are certain trusts established by will or intestacy that will not be relevant value trusts. Broadly, these are:

• Immediate post-death interest trusts, where the value of the trust property is deemed to be within the estate of the life tenant for IHT purposes.

• Certain trusts for bereaved minors (the trust must provide for absolute vesting by the age of 25). Where there is absolute vesting at or under the age of 18, there will be no IHT when property ceases to be held in the trust. Where there is an age 18-25 trust and vesting at 25, the maximum rate of IHT will be 4.2 per cent, with a lower IHT rate for vesting between the ages of 18 and 25.

From 6 April 2017 IHT has applied to:

• UK residential property owned by foreign domiciliaries (or trusts settled by foreign domiciliaries) through a foreign company or partnership;

• relevant loans (broadly, a loan where the amount lent has been used for the acquisition, enhancement or maintenance of a UK residential property or a loan to repay any loan used for such purposes); and

• security, collateral or a guarantee given in connection with a relevant loan.

Use of foundations in estate planning

NOT APPLICABLE

Types of entities

This summary addresses voluntary trusts, rather than constructive, implied or resulting trusts.

i) Valid constitution

A voluntary trust is created where:

• the settlor intends to create a trust orally, by conduct or by writing (no special words are necessary), and the trust property and the beneficiaries are identifiable;

• some person is able to benefit under the trust and enforce it;

• it is completely constituted, through a declaration of trust of property by the settlor or by proper transfer of property to the trustees with declaration of the applicable trusts.

A trust may be set aside by the court if the trust instrument was executed under duress, under a mistake or procured by fraud, misrepresentation or undue influence.

ii) Duration and termination

The duration of a trust is restricted by perpetuity rules: for any trust created since 6 April 2010 interests must vest within 125 years. Subject to that, a trust terminates when:

• the trusts are carried out;

• there is no longer any property subject to the trusts;

• any power of revocation is exercised; or

• all beneficiaries of full age and capacity direct a transfer of the property by the trustee.

In relation to any trust created after 6 April 2010, accumulations of income are unrestricted.

iii) Beneficiaries

During administration of the trust, beneficiaries have the rights given to them under its terms. A beneficiary of an IIP trust is entitled to net income of the trust fund and may be entitled to occupy trust land. An object of a discretionary trust has a right to be considered as a potential recipient of benefit by the trustees and a right to have their interest protected by a court of equity. At the end of the trust, beneficiaries interested in the capital are entitled to call for a transfer of the assets.

iv) Trustees

The settlor appoints the initial trustees, who assume office on acceptance, either express or implied. No more than four persons may be appointed as trustees of land. Fewer than two trustees of land cannot give a valid receipt for capital money arising on a disposition of land, except in the case of a trust corporation.

v) Protectors

Protectors are not commonly used for trusts where the trustees are resident in England and Wales. Provision for a protector is more common for offshore trusts governed by the law of England and Wales. Where provision is made for such an office, the trust instrument defines the powers and duties.

vi) Role of public trustee or guardian

The public trustee may act as an ordinary trustee, a judicial trustee or a custodian trustee, either alone or jointly with others, but not of certain trusts, including those that are for charitable purposes or involve the carrying on of business. A judicial trustee may be appointed by, and under the control of, the court, when administration of the trust has broken down. A custodian trustee, which must be a trust corporation, holds trust assets and documents while others carry out the administration of the trust.

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