The business of winding up an estate can be challenging for all concerned and involve multiple moving parts. This is the case for most estates but can be particularly so for those estates which include an international or cross border element.
It is becoming increasingly common for people to spend a portion of their lives in a country which is different to that they were born in, and some may even decide to live and die in that country. A natural consequence of this is that individuals may die with assets in more than one country which can add complexity to the process of arranging for the succession to those assets on death. Below we highlight some of the key issues to be kept in mind when dealing with cross-border estates.
1. Understand which rules are important and how they work
Cross border estates often (for various reasons) involve multiple wills, with each will dealing with the assets in the corresponding jurisdiction. In that situation, including where a Scottish will is involved, it is best that all wills are looked at together to see how each document interacts with the other. A point to note is that a will, assuming that it has been appropriately drafted under the relevant country's laws and is not revoked by a version in another jurisdiction, will deal with how the assets in that country are inherited.
The tax treatment of assets in an estate is another matter. For individuals domiciled in Scotland, their worldwide estate will be subject to UK Inheritance tax (IHT). That is not to say however, that for assets located in another jurisdiction, that foreign country will not look to apply its own version of IHT or other form of tax.
2. Be aware of the potential liabilities
The difficulty with cross border estates is that, where IHT is due, it may be that the lion's share of the wealth is located outside of the UK. IHT which is found to be due is payable, at the latest, six months from the end of the month when the deceased died. There is a risk that it may not be possible (for reasons discussed later) to access foreign funds to settle the IHT liability in good time. If IHT is not paid by the deadline, interest will be applied to the outstanding tax which will increase the overall liability to be settled in the UK.
Notwithstanding the tax liability which may be owed in the UK, there is also the distinct possibility that assets abroad may be subject to a foreign country's own version of IHT or tax chargeable on account of the deceased's death. There is then the possibility that liabilities begin to arise on multiple fronts and thought needs to be given to how those will be settled timeously.
3. Understand the impact of the international element
If there are assets in another jurisdiction that need to be accessed from Scotland e.g., because succession to them is governed by a Scottish will, they are needed to settle IHT or otherwise / all of the above, the likelihood is that there will be a need to involve that jurisdiction's court system. For estates in the UK, there will generally be no scope to access assets without court approval. The same will likely be the case for assets located abroad and that can add to the time required, and parties needing to be involved, in winding up the estate. The process that needs to be followed to access foreign assets will change depending on the country involved – every country has its own process for granting access to assets following a death.
4. Take advantage of reliefs were possible
The potential for taxes to be payable in the UK and elsewhere is not unknown, and there has been an attempt to simplify matters in that situation. The UK has entered into treaties with some other countries to agree what is to happen in the event that both countries attempt to tax the same asset by virtue of the same event i.e., death. Those treaties are designed to prevent the occurrence of double taxation however, they are few in number and not always easy to understand. Where there is no such treaty, there is scope to explore what is known as 'Unilateral relief' in the UK i.e., the UK's tax authority gives credit against IHT for tax charged by another country on assets in that that country's territory.
The management and administration of cross border estates is complicated, and every situation will be different depending on the countries involved. However, every such case warrants the involvement of advisers who understand the relevant issues and are able to guide clients through what can appear to be an overwhelming process.
This is a condensed version of an article first featured in the Law Society of Scotland.
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