We review some important succession-planning points it may be easy for Scottish taxpayers to overlook when making a dash for England & Wales.
In December, the Scottish government announced the introduction of a new 'advanced' rate of income tax. From 6 April 2024, income tax will be charged at 45% on that slice of a Scottish resident taxpayer's income between £75,000 and £125,140. Above that upper mark, 48% tax will be charged.
For individuals resident elsewhere in the UK, a rate of 40% tax applies to income earned between £50,270 and £150,000. The income of higher-earning Scottish residents has, for many years, generally been taxed more penally than that of their English and Welsh counterparts. This is due to a combination of lower starting thresholds to income tax bands, and slightly higher percentage charges within intermediate and higher rate bands. The introduction of the new advanced rate band will however exacerbate the disparity for those individuals to an unprecedented degree.
The wider impact of this is yet to be seen. Yet the natural question arises as to whether those higher earners who can work from an alternative UK base, or are in their later years, may be tempted to move south of the border. There are a myriad of factors to consider in any such decision, as we all know. One that may easily be overlooked is estate planning and succession.
Generally speaking, whenever an individual moves from one jurisdiction to another, their personal estate takes on a 'cross-border' dimension, instantly increasing its complexity. This is the case even with a move between jurisdictions within the UK and needn't cause alarm. A full understanding of the implications of such a relocation should however be obtained before the wheels are put in motion.
So what exactly should a Scottish individual looking to move south to England (or Wales) have on their radar? We have outlined below just a few (non-exhaustive) areas in which proper advice should be considered.
A possible change of domicile
'Domicile' is still the key factor which, throughout the UK, determines which jurisdiction's succession laws apply to your estate.
Your domicile does not simply change with your residence. You are born with a domicile matching that of one of your parents (your domicile of 'origin'). During your childhood, if the domicile of your parents changes, then your domicile will generally follow suit.
As an adult, you can only independently change your domicile if you relocate to a new jurisdiction (leaving the country of your origin), and you intend to remain there permanently. This is known as acquiring a new domicile of choice.
So, if you have a Scottish 'origin' and you take up residence in Berwick-upon-Tweed, intending to stay there indefinitely, come what may, you will acquire a new domicile of choice – of England & Wales.
If however, your intention is to return north in the future (if and when income tax rates change for the better, for example) you will retain your Scottish domicile.
Succession to your death estate
Retaining your Scottish domicile in such circumstances would mean that Scots Law will continue to apply to determine succession to your liquid assets (sometimes referred to as your 'moveable' estate). The legal rights regime means that your children, and your spouse must receive a fixed share of these assets, regardless of circumstances (including, for example, a long-term estrangement).
The Scottish intestacy rules, which differ in substance from those applying in England & Wales, will determine the distribution of these assets, and any Scottish property, if you do not leave a will. Scots Law will also determine who is entitled to administer your estate in such circumstances. Again, the substance of these rules differs from those applying in England & Wales, and entitlement may be conferred on individuals who would not be recognised in the case of an English domiciliary in the same circumstances. You should understand exactly how the rules of each jurisdiction will apply on your death in your new proposed circumstances.
Real estate
Where real estate is concerned, the law of its location will apply to govern its succession. Thus, the law of England & Wales will apply to property you acquire south of the border, regardless of your domicile. This means that principles which are not recognised in Scotland may affect your interest(s) in such real estate.
Concepts such as resulting trusts, constructive trusts, and proprietary estoppel are all constructs of 'equity' in England and Wales which are unfamiliar to many Scots. The latter two doctrines are means by which third party (non-owner) individuals can attempt to assert a real right to the property concerned.
Your will
The fact that you retain a Scottish will is not necessarily a concern, even if you become permanently resident in England & Wales. However, you should keep an eye on your domicile, which, as noted above, hinges on your long-term intentions.
If you acquire a domicile of choice in England & Wales, you should consider preparing a will conforming with the laws of that jurisdiction. Otherwise, your Executors may need to obtain a formal opinion as to the document's validity when you die, for probate to be obtained in England and Wales.
Any trusts arising under your will will also be 'Scottish' in nature in these circumstances. This may not, of course, ultimately be appropriate in the scenario that your major beneficiaries are resident in England and Wales, and/or your major assets are located there.
Beneficiaries attain 'majority' age at eighteen in England & Wales, two years later than their counterparts in Scotland. This implicates advice around provision for such individuals via your will, and the appointment of guardians for them. If any of your beneficiaries are still resident in Scotland, factors like these should be considered carefully.
Trusts
The law governing any trusts you have created in life (or those featuring in your will), does not simply change with your domicile or residence. 'Scottish' trusts will remain such, regardless of whether you personally 'end up' in England. There are fundamental and far-reaching distinctions between trust law north and south of the border. Divergences relate to many key features of trusts including the office of trustee, trustee powers and their appointment, the duration of trusts, and beneficial entitlement.
The Inheritance (Provision for Family and Dependents) Act 1975 (the '1975 Act')
The 1975 Act applies to enable six prescribed classes of individuals to make a claim for provision from the estate of a deceased individual who was domiciled in England and Wales at their death. There is no directly comparable legislation in Scotland. In particular circumstances, the 1975 Act can result in the court ordering provision be made for a spouse which greatly exceeds the 'legal rights' entitlement which a widow/widower of a Scottish domiciled individual would receive in the same circumstances. Every individual moving to England & Wales should have an awareness of the parameters of the 1975 Act and its potential consequences, when considered in light of the terms of their will and their specific circumstances.
Powers of attorney
Whilst there is supposed to be automatic recognition of Scottish powers of attorney in England & Wales, and vice versa, in terms of the relevant legislation in each jurisdiction, unfortunately, the position largely depends on an organisation's (e.g. a bank) internal protocols. Best practice therefore dictates that individuals relocating from Scotland to England & Wales prepare Lasting Powers of Attorney and register these with the Office of the Public Guardian in England & Wales. If assets are retained in Scotland, distinct Scottish powers of attorney should also be prepared, or existing documents reviewed. The terms of the powers prepared in each jurisdiction must be considered carefully to ensure they dovetail neatly, and do not conflict with one another. This is a huge area which could give rise to issues in the future for individuals with connections to both jurisdictions, not least given the staggering statistics on how many of us will experience incapacity at some point in life.
Conclusion
There are numerous differences between the laws in Scotland and England & Wales relating respectively to succession, trusts, and powers of attorney, as well as wider concepts of beneficial entitlement and remedies. Any individual contemplating a move from one country to the other should not do so without knowledge of the implications of these distinctions, as applicable in their own circumstances.
Certain consequences will have immediate impact upon a shift in residence. Other key effects will perhaps only materialise at a later stage, upon acquisition of a new domicile of choice.
The new Trusts and Succession (Scotland) Bill, aimed at modernising the law of trusts and succession in Scotland, received Royal Assent recently. Whilst this legislation will actually bring some aspects of trusts and succession laws in Scotland more in line with the laws of England and Wales, the changing nature of the rules and the impact of them on your specific cross-border circumstances, makes planning even more essential, so advice should be taken at an early stage.
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