If your family affairs are sufficiently complex, then planning your estate in such a way as to minimise your tax obligations and ease the transition in the event of your departure is essential. But if your family is based in more than one country, it can be difficult to know exactly what an optimal solution should look like. Whose tax laws should you abide by?
Understanding Domicile and Residency
Two terms worth understanding are ‘domicile’ and ‘residency’. The former, generally speaking, applies to your long-term home; the latter applies to every particular tax year. You might stay in the UK for six months and become a resident – but not a domicile. For inheritance tax purposes in the UK, it’s where you are domiciled that matters.
Navigating Tax Implications
What if you hold assets in two or more countries? In the UK, this might expose you to inheritance tax. In the US, estate tax is what applies. In this case, there’s a special treaty that will help judge which tax you’ll come under, called the US/UK Estate and Gift Tax Treaty. This agreement contains a number of ‘tie-breaker’ provisions that will help settle ambiguities.
By rearranging your affairs, you could take advantage of ‘treaty-protected’ trusts, which, thanks to the law in the UK on Inheritance Tax, will be legally protected. It’s worth noting that UK law is subject to change. The new Labour government has promised to tighten the rules around so-called ‘non-doms’. These changes are set to come in 2025.
Drafting Valid Wills in Multiple Jurisdictions
In some cases, it might be necessary to draft multiple wills. Both the UK and the USA have slightly different legal requirements, and covering all of your bases will often require two wills. You can use one will to cover your assets in the first country, and another to cover your assets in the second. You might also use two separate sets of legal professionals – or a single legal group with in-depth knowledge of the law in both territories.
Seeking Professional Advice
You can easily spend decades learning about tax law in one country. When you have two of them to worry about, the importance of professional help becomes paramount. Look for professionals specialising in cross-border estate planning. If you’re unsure of who to trust, you might look at the Society of Trust and Estate Practitioners, whose database includes thousands of members from around the world.
Conclusion
Cross-border taxation and estate law can be extremely complicated, and it’s worth consulting with experienced experts. It might be that, by moving parts of your estate from one country to the other, you can appreciably reduce your liability – and you might not actually need to do any physical moving to make this happen.
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