A quick canter through IHT matters- Home and
Away.
Kate Selway and Douglas Keel
29 February 2016
Inheritance Tax on Death and Double Taxation
Relief
(a practical guide)
Kate Selway
29 February 2016
What is double taxation relief?
• Tax relief provided by legislation where a dual (or
multiple) charge to tax arises as a result of the
imposition of both UK tax and similar foreign taxes
• Applies to numerous taxes not just IHT
• Where such a dual or multiple charge to IHT arises,
UK legislation makes provision for two kinds of relief
under IHTA 1984, ss. 158 and 159
• “unilateral” relief under s. 159
• “bilateral relief” under s. 158
3
What is double taxation relief? (2)
• Unilateral relief is available whether or not a
double taxation treaty is in force with the
other country (or countries) charging tax
• Bilateral relief is available only where there is
a double taxation treaty in force with the
government of a territory outside the UK
4
What is double taxation relief? (3)
• Section 159 sets out the conditions which have to be
satisfied before unilateral relief is available and provides
detailed mechanisms for working out the relief due
• Section 158 gives the UK government authority to enter
into a double taxation treaty with the government of any
territory outside the UK in relation to UK IHT and a
foreign equivalent
• If both kinds of relief are available, only one relief is
given: that which gives greatest benefit to the taxpayer.
Where the relief is the same under both types of relief, it
will be treated as being given under the relevant treaty
IHTA 1984, s.159(7).
5
Double taxation treaties applying to
IHT
• Only a small number of the double taxation treaties in
force today apply to Inheritance Tax:
•
•
•
•
•
•
•
•
•
•
Republic of Ireland
South Africa
USA
Netherlands
Sweden
Switzerland
France
Italy
India
Pakistan
1978
1979
1979
1980 (amended in 1996)
1981 (amended in 1989)
1995
1963
1968
1956
1957
6
How do the treaties work in principle?
• They seek to prevent or resolve situations of double
taxation which arise in a variety of circumstances, for
example:• Where the tax claims of two countries overlap (“coexistence”)
• Where two or more countries regard the deceased as
domiciled in their territory (“dual domicile cases”)
• Where (much less commonly) two or more countries
regard a certain asset as situated in their territory
(“dual situs cases”)
7
What form does double tax relief take?
Double tax relief usually assumes 3 forms:• it provides a tax credit;
• it restricts the scope of the charge to tax
• it is governed by “situs” rules
• Unilteral relief under s. 159 provides only the first
kind of relief but where bilateral (i.e. treaty) relief
applies, usually all three kinds of relief will be
available
8
Example where provision is made to give a
tax credit
• Bert died domiciled in the UK owning property
situated in both the UK and abroad, in a country
which imposes a tax similar to IHT. Under UK law,
IHT is charged on both the UK and the foreign
property. Under the law of the foreign state, tax is
charged on Bert’s foreign property. The first way in
which double tax relief could be given would be for
the tax paid in the foreign state to be allowed as a
credit against the IHT due to HMRC on the foreign
property. This would effectively prevent a dual charge
on the same property.
9
Example where the scope of the charge is
restricted
• Continuing with the above example, assume that as
well as Bert being deemed domicile in the UK under
UK law, he is also, under the law of the foreign state,
considered to be domiciled in the foreign state. In
such a case provision may be made in a Treaty so
that IHT is not chargeable on the foreign property.
Both IHT and its foreign equivalent will be charged on
Bert’s UK property, but Bert will be given a credit for
the IHT paid on that property against the foreign tax
due on it.
10
Example of the situs rules
• Situs rules may be prescribed by treaty, which will
prevent the same property being regarded as
situated in more than one place. Assume that the law
of the foreign state regards Bert’s property as being
situated in the UK whereas under UK law, the
property is regarded as being situated in the foreign
state. If situs rules are prescribed by the treaty, the
property will be regarded as situated in just one place
(be it the UK, the foreign state, or perhaps even a
third country).
11
Domicile, “situs” and “excluded
property”
• It is important to understand how the legal concepts
of domicile and situs and operate in relation to IHT
and double taxation relief
• “Excluded property” does not form part of a
deceased’s person’s death estate for IHT purposes;
see ss. 5(1) and 6(1) IHTA 1984
• Property situated outside the United Kingdom is
excluded property if the person beneficially entitled to
it is an individual domiciled outside the United
Kingdom
12
ss. 5 & 6 IHTA 1984
5.— Meaning of estate.
(1) For the purposes of this Act a person’s estate is the aggregate of all the
property to which he is beneficially entitled, except that–
(a) the estate of a person–
(i) does not include an interest in possession in settled property to which
section 71A or 71D below applies, and
(ii) does not include an interest in possession that falls within subsection
(1A) below unless it falls within subsection (1B) below, and
(b) the estate of a person immediately before his death does not include
excluded property or a foreign-owned work of art which is situated in the
United Kingdom for one or more of the purposes of public display, cleaning
and restoration (and for no other purpose).
6.— Excluded property.
(1) Property situated outside the United Kingdom is excluded property if
the person beneficially entitled to it is an individual domiciled outside the
United Kingdom.
13
Domicile (and deemed domicile) (1)
• An extensive topic in its own right; need to understand domicile
as a matter of general English law and the law of domicile in the
relevant foreign state
• A person who is/was not domiciled in England & Wales may
nonetheless be “deemed” domiciled for IHT purposes, s. 267
IHTA*
267.— Persons treated as domiciled in United Kingdom.
(1) A person not domiciled in the United Kingdom at any time (in this section referred to as “the relevant time”)
shall be treated for the purposes of this Act as domiciled in the United Kingdom (and not elsewhere) at the
relevant time if—
(a) he was domiciled in the United Kingdom within the three years immediately preceding the relevant time, or
(b) he was resident in the United Kingdom in not less than seventeen of the twenty years of assessment ending
with the year of assessment in which the relevant time falls .
*Note that the forthcoming Finance Act 2016 is likely to amend s. 267, with effect from 6th April 2017. In
particular, the words in italics above are likely to be replaced with “for at least fifteen of the twenty tax years
immediately preceding the tax year”. Further amendments may also be possible after HM Treasury has
considered the results of the consultation exercise which they are due to publish shortly.
14
Domicile (2)
• Domicile of origin, domicile of choice and domicile of
dependence
• As to domicile of choice, the relevant principles are summarised
in Gaines-Cooper-v-HMRC [2007] STC (SCD) 23 at para. 132,
affirmed by Lewison J in [2008] STC 1665
• Evidence of intention to acquire a domicile of choice: see
(Anderson’s Executors)-v-IRC [1997] STC (SCD) 43; Sekhri-vRay [2013] EWHC 2290 (Fam); F-v-IRC [2000] STC (SCD) 1;
Moore’s Executors-v-IRC [2002] STC (SCD) 463; Civil
Engineer-v-IRC [2002] STC (SCD) 72; Surveyor-v-IRC [2002]
STC (SCD) 501; Holliday-v-Musa [2010] EWCA Civ 335
• Guidance from HMRC in its Residence Domicile and
Remittance Basis Manual; esp. paras RDRM23030 onwards;
information HMRC may seek in a domicile enquiry: long
checklist at RDRM23080
15
The locality or “situs” of assets
• The situs of property is decided by case law, statute
and sometimes double taxation treaties
• Understanding where an asset is located is important
for IHT purposes for two main reasons:1. if an asset is located outside the UK that may make it
“excluded property”
2. the location of an asset determines whether or not its value
receives relief under a double taxation treaty
• Under the common law every asset has a situs and
that situs can only be in one jurisdiction at any
particular time
16
The main rules on“situs”
•
•
•
•
•
•
•
•
Land, freehold or leasehold – the country in which the land is situated;
Chattels – the country in which the chattel is situated (even if the location is temporary);
Ships – the country of the port in which the ship is normally berthed;
Stocks, shares and other securities to bearer – the country in which the document of title
is situated;
Registered stocks, shares and other securities – generally, the country in which the
share register is required to be kept;
Currency – the country in which the coins or notes are physically situated;
Bank accounts – the country in which the branch of the bank at which the money is
payable is situated; but if the account is with a UK building society, it will have a UK situs
Debts – generally, the country in which the debtor resides, but where the debt is under seal,
the country in which the deed is situated; judgment debts, the country where the
judgement is recorded; mortgages, where the mortgagor resides unless the mortgage deed
is under seal; in the case of mortgage debts where there is no personal covenant to pay,
then the country in which the asset upon which the debt is secured is situated.
(Note that on 23rd January 2013 HMRC stated that the location of specialties would henceforth
be regarded by HMRC as located where the debtor resides. See IHTM27079.)
17
Understanding Unilateral Relief (1)
Four conditions must be satisfied for unilateral relief
to be available:• HMRC must be satisfied that the tax chargeable in the overseas
territory under the law of that territory is attributable to the value of
property
• the overseas tax must be of a character similar to that of IHT; or
chargeable on or by reference to death (or gifts inter vivos)
• the overseas tax must have been paid by the person liable to pay it
• the IHT chargeable by reference to the disposition or event in
question must also be at least partly attributable to the value of the
property in question
18
Understanding Unilateral Relief (2)
• The relief takes the form of a tax credit against the IHT attributable
to the value of the property in question
• The credit varies with the situs of the property
• Guidance from HMRC in IHTM27186 on how to work out whether
relief is due and, if so, which provisions of s. 159 apply:
– Is the property situated in the UK under UK law?
– If the answer is ‘yes’ and the property is also situated in the foreign country
under the law of that country, relief is due under IHTA84/S159(3)(b),
– If the answer is ‘yes’ but the property is not situated in the foreign country
under their law, no relief is due.
– If the answer is ‘no’ but the property is situated in the foreign country under UK
law, relief is due under IHTA84/S159(2).
– If the answer is ‘no’ and the property is not situated in the foreign country under
UK law, relief is due under IHTA84/S159(3)(a).”
19
Unilateral Relief: Example (a)
(where property is situated in the overseas territory)
• Under s. 159(2) credit is given for all the overseas tax (up to the
amount of IHT which is attributable to the value of the property);
Example (from IHTM27187):Bernice died in September 2002 (when the NRB was £250k), leaving an apartment in
Spain valued at £50,000. Bernice’s total estate amounts to £300,000 (there were no
lifetime gifts), with total IHT payable of £20,000.
The Spanish authorities charge tax equivalent to £4,000 on the apartment on Bernice’s
death.
The IHT payable on the apartment is: £50,000 × (£20,000 ÷ £300,000) = £3,333.33
So, the double taxation credit due under IHTA84/S159 (2) is restricted to £3,333.33.
20
Unilateral Relief: Example (b)
(where property is situated in the UK)
• I.e. where the overseas territory charges tax on
property situated in the UK;
• The legislation makes no provision for this scenario i.e.
where property is situated in the UK and not in the
overseas territory charging the tax, so as a matter of
law no credit is given for any of the tax charged by that
territory
• But by concession, where shares are situated in the UK
under UK law, and the overseas territory imposes tax
for some reason other than the situs of the shares,
HMRC allows the foreign tax to be deducted from the
21
value of the shares
Unilateral Relief: Example (c)
(where property is situated neither in the UK nor the
overseas territory)
• Eg where a person domiciled in New Zealand under
New Zealand law and in the UK under UK general law
(or deemed domicile provisions) died owning property
situated in the Bahamas where there are no death
duties. New Zealand duty and UK IHT would both be
charged on a worldwide basis, with the result that the
Bahamian property would be subject to a dual charge.
• In such a case, credit is calculated according to the
formula set out in s. 159(3) ;
22
Unilateral Relief: Example (c) contd.
(where property is situated neither in the UK nor the
overseas territory)
Therefore, where the IHT is £100,000 and the New
Zealand duty £50,000, the tax credit will be:-
23
Unilateral Relief: Example (c) contd.
(where property is situated neither in the UK nor the
overseas territory)
•
Where tax is charged in the UK and two overseas territories, in one of which the
property is situated and the other of which it is not, then the position is governed by
s. 159(5): the above calculation is made after the IHT has been reduced by the
unilateral (or, if appropriate, the bilateral) credit given against the IHT for the tax
paid in the territory in which the property is situated.
Example:
Assume that the property was situated in Germany (where there are death duties) not
the Bahamas and that in addition to the UK IHT and New Zealand duty, German Tax of
£25,000 was also payable. In that case, there would be two credits: one for the German
tax under s. 159(2) and the other for the New Zealand tax) calculated as follows:
24
Unilateral Relief: Example (d)
(where property is situated both in the UK and the
overseas territory)
• This exceptional case is envisaged by s. 159(3)(b) and (4)(b).
Where this is the position, the immediately preceding formulae
apply.
(The exceptional case could arise because under English law it is possible in
certain circumstances for the same property to be situated in two different
places e.g. where a bill of exchange is transferable in the UK and the debtor
is resident abroad the bill itself is situated in the UK but the debt is situated at
the debtor’s residence; or because of a conflict between a law of the UK
(which would regard the property as situated here) and that of an overseas
territory charging tax that the property is situated there.)
25
Bilateral / treaty relief
• Example: France
The approach of the Treaty is to treat the deceased as
having been domiciled in only one of the states for Treaty
purposes; and by giving the state in which property is
situated the primary right to tax that property, with the
country in which the deceased was domiciled giving credit
for that tax.
Dual domicile cases arise easily under the French Treaty
because of the wide definition of French domicile and the
tenacious nature of domicile under UK general law.
26
Bilateral / treaty relief
• Example: USA
The Treaty came into force in 1979 and avoids double
taxation in two ways:
- in certain circumstances it provides for one state to have
exclusive taxing rights;
- in the event that both states are entitled to charge tax, it
applies a system of tax credits.
Again, dual domicile cases arise easily.
27
Obtaining the credit from HMRC
• Taxpayer or agent must produce evidence of payment
of foreign tax paid – in the form of a formal assessment
of the foreign tax and the official receipt
• France: practical guidance from HMRC in two
situations: (1) where the deceased died Treaty
domiciled in France and French succession duty is
paid: and (2) where the deceased died Treaty domiciled
in the UK and IHT is paid – see IHTM27174
• USA: guidance from HMRC at IHTM27170
28
Kate Selway
Radcliffe Chambers
11 New Square
Lincoln's Inn
LONDON
WC2A 3QB
+44 (0)20 7831 0081
+44 (0)20 7405 2560 (fax)
www.radcliffechambers.com
[email protected]
29
The New Residence Nil Rate Band
All You Need To Know
The European Succession Regulation
Douglas Keel
29 February 2016
What is the New Residence Nil Rate Band?
• A pop group from the nineteen sixties?
• A political gimmick to make it look as if the middle classes are
getting something that they are not?
• A sophisticated and well thought through plan to honour an
election pledge?
• A piece of legislation designed to exemplify the tax simplification
credo?
• Something that may require practitioners to review the Wills of
their clients?
• Something that will change the way in which Will Trusts are
used?
• The bad news that all governments like to get out of the way as
soon as they take office?
31
Some New Terminology
Or Some You may not remember
• VT = value actually transferred under section 4 IHTA 1984
• RNRA - Residence nil-rate amount calculated by ss 8E-G
• RE -Residential enhancement - section 8D(5)(a) - £100k for
2017-18, £125k for 2018-19, £150k for 2019-20 and £175k for
2020-21
• TT = taper threshold section 8D(5)(b)
• E = value of the person’s estate immediately before death
• DA - Default allowance = residential enhancement at death +
brought forward allowance under section 8G from spouse/civil
partner
• AA - Adjusted allowance = DA less one half of (E-TT)
• QRI -Qualifying residential interest = interest in a dwelling
house used as the person’s residence
32
Residence nil rate band – key features 1
• section 8D applies if death occurs on or after 6 April 2017
• in addition to the general nil-rate band now fixed at £325k until 5
April 2021, but used first
• RNRA where interest in home goes to descendants - section 8E
• RNRA where no interest in home goes to descendants - section
8F
• Brought forward allowance - section 8G of up to £100k applies if
first death is before 6 April 2017
• relief only for QRI and for closely inherited property
• if net estate value exceeds £2m RNRA reduced at the rate of £1
for every £2 above the threshold
33
Residence nil-rate amount – interest in
home goes to descendants – Section 8E
• if the P’s estate immediately prior to death includes a QRI and N%
of the QRI is closely inherited
• then if the value of P’s estate immediately prior to death E < the
Taper Threshold TT, and N% of the QRI is closely inherited then
P’s RNRA is N% times the transfer of value V under section 4
attributable to the QRI and if it is < than P’s DA, then an amount
equal to the difference between this figure and P’s DA (RE figure
for year of death less P’s brought forward allowance) is available
for carry forward -section 8E(2)
• where E < TT and N%V > to P’s DA then P’s NRNA is equal to the
DA and there is no carry forward - section 8E(3)
34
Residence nil-rate amount – interest in home
goes to descendants – Section 8E (2)
• Where E > TT and N%V < than P’s AA (DA less one half of Estate
value minus TT – nil if this is zero or less) then P’s RNRA is equal
to N%V and an amount equal to the difference between P’s RNRA
and P’s AA is available to carry forward - section 8E(4)
• Where E > TT and N%V is > to P’s AA, P’s NRNA is equal to P’s
AA and no amount is available to carry forward - section 8E(5)
• Section 8E(7) – where P’s RNRA as calculated before this
subsection >VT then in subsections (2)-(5) VT replaces N%V and
where E< to TT an amount equal to the difference between VT and
P’s DA is available for carry forward and where E > TT an amount
equal to the difference between VT and P’s AA (as amended by
clause 44 and the Schedule)
35
Residence nil-rate amount – no interest in
home goes to descendants – Section 8F
• The section applies where P’s estate
immediately prior to death does not include a
QRI or includes one but none of the interest is
closely inherited
• P’s NRNA is nil
• An amount equal to P’s DA or if E>TT equal to
P’s AA is available for carry forward
36
Brought forward allowance
• Section 8G provides that for a person P who dies on or
after 6 April 2017 the person’s DA [section 8D(5)(f)]
includes their brought forward allowance calculated as
follows:
– Identify each amount available for carry forward from the death of a
related person – prior death and P was the spouse or civil partner
immediately before prior death
– Express each such amount as a percentage of the Residential
Enhancement at the death of the related person concerned
– Calculate the percentage that is the total of those percentages, and
– the amount that is that total percentage of the residential enhancement
at P’s death is P’s brought forward allowance or, if greater than 100%
P’s brought forward allowance is the amount of the residential
enhancement at P’s death
37
Residence nil rate amount
Qualifying residential interest QRI
•
•
•
•
section 8H IHTA
an interest in a dwelling house in relation to a person
which has been the person’s residence
at a time when the P’s estate included that, or any other,
interest in the dwelling house
• Where P’s estate immediately before the death includes
residential property interests in just one dwelling house
(RPI), the person’s interests in that dwelling-house are a
QRI in relation to the person
• Where the estate includes more than one RPI the
personal representatives nominate one (and only one)
dwelling-house, that RPI is a QRI in relation to the person
38
What is a dwelling-house?
• Includes any land occupied and enjoyed with it as its
gardens or grounds, but
• does not include, in the case of any particular person,
any trees or underwood in relation to which an
election under section 125 (woodlands relief) as it
applies in relation to that person’s death
• where a person resides in job related accommodation
and intends in due course to occupy the dwellinghouse as their residence section 8H applies as if the
dwelling house were at that time occupied as a
residence
39
What is inherited? - 1
• Section 8J provides whether a person (B) inherits for the
purposes of sections 8E and 8F, from a person (D) who
has died property which forms part of D’s estate
immediately before D’s death
• B inherits the property if there is a disposition of it
(whether effected by Will, under the law relating to
intestacy or otherwise) to B
• B does not inherit a) if the property becomes comprised in
a settlement on D’s death unless B becomes beneficially
entitled to an interest in possession as an IPDI or a
disabled person’s interest or the property becomes settled
property to which section 71A or 71D applies and held on
trusts for the benefit of B
40
What is inherited? - 2
• B does not inherit if b) immediately before D’s death
the property was settled property in which D was
beneficially entitled to an interest in possession
unless B becomes beneficially entitled to it on D’s
death – but note section 91 IHTA
• Where the property forms part of D’s estate
immediately before D’s death as result of the
operation of section 102(3) FA 1986 (gifts with
reservation) in relation to a disposal of the property
made by D by way of gift, B inherits the property if B
is the person to whom the disposal was made
41
Closely inherited
Section 8K provides that
• In relation to the death of a person D something is closely inherited
for the purposes of section 8E and 8F if it is inherited for those
purposes (section 8J) by
– A lineal descendant of D
– A person who, at the time of D’s death is the spouse or civil partner of a lineal
descendant of D, or
– A person who at the time of the death of a lineal descendant of D who died no
later than D, was the spouse or civil partner of the lineal descendant, and has
not, in the period beginning with the lineal descendant’s death and ending with
D’s death, become anyone’s spouse or civil partner
• The following are treated as a child of the person, a step child, an
adopted child, a foster child, and any child the guardian or special
guardian of whom was that person, and any lineal descendants of
that child shall, whenever born, be treated as lineal descendants of
42
the person
Downsizing Addition
• Clause 44 and its Schedule to the 2016 Finance Bill
were published in draft for comments in December
2015 and cover some amendments to section 8D, 8E
and 8F as well as new sections 8FA to 8FE.
• Entitlement to Downsizing addition in calculating P’s
RNRA if each of conditions A to F in section 8FA are
met:
• Condition A - P’s RNRA is given by section 8E(2) or (4), or P’s estate
immediately before death includs a QRI but none of it is closely
inherited, and where E < TT, so much of VT as is attributable to P’s
QRI is < P’s DA or where E>TT so much of VT as is attributable to P’s
QRI is < P’sAA. Section 8E(6) and (7) do not apply and any
entitlement to a downsizing addition is to be ignored when deciding
whether the first part of condition A is met.
• Condition - B Not all of VT is attributable to P’s QRI
43
Downsizing addition (2)
•
•
•
•
Condition - C P has a qualifying former residential interest QFRI – new section
8H(4A)
Condition - D the value of the QFRI > so much of the VT as is attributable to
P’s QRI section 8FE(2) – the value of the QFRI is the value of the interest at
the time of completion of the disposal of the interest
Condition - E At least some of the remainder (meaning everything included in
P’s estate immediately before P’s death other than P’s QRI) is closely inherited
Condition - F A claim is made for the addition in accordance with section 8L(1)
to (3) – two years from the end of the month of death or if later three months
after the personal representatives first act.
Where there is an entitlement as a result of section 8FA the addition
is equal to the lost relievable amount LRA section 8FE, if that amount
is less than so much of VT as is attributable to so much of the
remainder as is closely inherited, and otherwise to so much of VT as
is attributable to so much of the remainder as is closely inherited
44
Downsizing addition (3)
Entitlement: no residential interest at
death
• Under section 8FB there is also entitlement to Downsizing addition
if all of conditions G to K are met
•
•
•
•
•
Condition G is that P’s estate immediately before death does not include a
residential property interest (as in section 8H(2))
Condition H is that VT is greater than nil
Condition I is that P has a QFRI
Condition J is that at least some of the estate is closely inherited
Condition K is that a claim is made for the addition in accordance with section
8L(1) to (3):
• Where there is entitlement under this section the addition is equal
to the lost relievable amount if that amount is less than so much of
VT as is attributable to so much of the estate as is closely
inherited, and otherwise is equal to so much of VT as is attributable
to so much of the estate as is closely inherited
45
Downsizing addition (4)
Effect: section 8E case
• If as a result of section 8FA there is entitlement
to a downsizing addition in calculating P’s
RNRA and the RNRA is given by section 8E it
has effect as if in subsections (2) to (5) of that
section each reference to N%V were a
reference to the total of N%V and the
downsizing addition
46
Downsizing addition (5)
Effect: section 8F case
• If as a result of section 8FA there is entitlement to a downsizing
addition in calculating P’s RNRA and if apart from this section the
RNRA is given by section 8F this section will apply instead of
section 8F and the RNRA is equal to the downsizing addition.
Where E is < to TT and the downsizing addition is equal to P’s DA
or E> TT and the downsizing addition is equal to P’s AA no amount
is available for carry forward
• Where E< to TT and the downsizing addition is less than P’s DA an
amount equal to the difference between the downsizing addition
and P’s DA is available for carry forward
• Where E>TT and the downsizing addition is < P’s AA an amount
equal to the difference is available for carry forward
47
Downsizing addition (6)
Calculation of lost relievable amount
section 8FE
• Used to calculate P’s lost relievable amount for section 8FA(8) and
8FB(7)
• The value of P’s QFRI is the value of the interest at the time of
completion of the disposal of the interest
• In this section P’s former allowance section 8FE(3)is the total of
•
•
•
The residential enhancement at the time of completion of the disposal of the
QFRI
Any brought forward allowance that P would have had if P had died at that
time, having regard to the circumstances of P at that time and
If P’s allowance on death includes an amount of brought forward allowance
which is greater than the amount of brought forward allowance given above,
the difference between those two amounts.
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Downsizing addition (7)
Calculation of lost relievable amount section
8FE(9)
• Steps required to calculate P’s lost relievable amount
•
•
•
•
Express the value of P’s QFRI as a % of P’s former allowance but take this as
100% if it would otherwise be higher
Express so much of VT as is attributable to P’s QRI as a % of P’s allowance
on death, but take that percentage as no more than 100%
Subtract the percentage found in step 2 above from the % found in step 1
above but taking any negative result as 0%, the result being P%
P’s lost relievable amount is equal to P% of P’s allowance on death
• Where as a result of section 8FB there is an entitlement to a down
sizing addition in calculating P’s RNRA take the following steps
•
•
Express the value of P’s QFRI as a % of P’s former allowance but take not
higher than 100%
Calculate that % of P’s allowance on death, the result being P’s lost relievable
amount
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THE EUROPEAN SUCCESSION REGULATION
Reg No 650/2012 of 4 July 2012 aka Brussels
IV
• Clarifies which EU Courts have jurisdiction to deal with
inheritances and which law the courts will apply
• Under the new rules the courts of the EU country where the
deceased habitually lived at the time of their death will deal with
the inheritance and will apply the law of that country
• However citizens can chose the law of the country of their
nationality to apply to their estate whether it is an EU or Non EU
country
• Judgments on inheritance in one EU country will now automatically
be recognised in other EU countries
• In addition a European Certificate of Succession enables people to
prove in other countries that they are the heirs, legatees, executors
of the Will or the administrators of the estate
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THE EUROPEAN SUCCESSION REGULATION
Reg No 650/2012 of 4 July 2012
• National laws on Inheritance still apply to govern
•
•
•
Who is to inherit and what share goes to the spouse and the children
Property law and Family law
Tax issues related to the succession assets
• Who does it apply to? The new rules apply in all EU countries
except for the UK, Denmark and Ireland
• People living in these opt out countries are not subject to the new
rules, however UK Danish and Irish citizens can benefit from the
new rules
• What is not covered by the Regulation?
•
•
•
•
Matrimonial property regimes
Trusts
Taxes
Companies
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THE EUROPEAN SUCCESSION REGULATION
Reg No 650/2012 of 4 July 2012
• Property in the UK, Ireland and Denmark is not affected by the
Regulation
• It is no longer the law of the situs of immovable property that
governs succession within the EU apart from the opt out countries
• As from 17 August it is the law of the State of habitual residence of
the deceased that applies unless a choice of law has been made in
a current will or can be inferred from a former will
• A will drafted and executed prior to 17 August 2015 which takes no
account of the Regulation or only partly does so may not be
effective to deal with property in another State
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THE EUROPEAN SUCCESSION REGULATION
Reg No 650/2012 of 4 July 2012
• Position of UK individuals
• Non UK EU assets governed by Article 21 of the Regulation and
subject to the law of the State in which the individual was habitually
resident – a non defined term, but Art 21(2) provides an exception
where, from all the circumstances of the case, the deceased was
manifestly more closely connected with another State, whose law shall
apply
• Article 22 provides for a choice of law of the State of nationality eiher
at the time of choice or at the time of death. Where multiple
nationalities are held a choice may be made at either time.
• Choice is made expressly by declaration in the form of a disposition of
property upon death or demonstrated by the terms of such a
disposition Art 22(2)
• Any previous wills dealing with such EU assets must be reviewed for
their effect post 17 August 2015
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THE EUROPEAN SUCCESSION REGULATION
Reg No 650/2012 of 4 July 2012
• Position of UK individuals (2)
•
•
•
•
The law applicable to the succession of EU Property interests held in a non UK
structure eg usufructs, assurances vie, fidei commisum etc which HMRC have
tended to regard as settlements may therefore be dealt with under the law of
the state of habitual residence or the state of nationality. The legal basis on
which HMRC base such conclusions is arguable.
The Regulation may make it easier, together with CJEU rulings, and freedom of
movement in capital arguments to argue that the determination of the nature of
the interest is a local law matter from which HMRC can decide how it should be
treated rather than a UK law matter that HMRC decide for themselves.
Likewise the relevance of domicile for UK IHT in relation to non UK EU assets
may change as a result of the Regulation where the deceased’s habitual
residence was outside the UK
The private international law effects of the Regulation in the UK or parts thereof
as a result of the opt out and the direct effectiveness of Article 34 remains the
subject of some speculation and will inevitably be litigated.
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Douglas Keel
Radcliffe Chambers
11 New Square
Lincoln's Inn
LONDON
WC2A 3QB
+44 (0)20 7831 0081
+44 (0)20 7405 2560 (fax)
www.radcliffechambers.com
[email protected]
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