The role of domicile in succession planning

“Domicile” is a key concept in successful estate planning. In England and Wales, domicile has a specific legal meaning. It is often incorrectly understood to be your place of residence or nationality, but you can be a British citizen who has lived in the UK for many years and yet have a foreign domicile. The intricacies of domicile are beyond the scope of this article but broadly, it is where you consider to be your “permanent home” at the relevant time. Domicile is flexible and is affected by decisions made by you during your lifetime. When planning how to protect your wealth to pass down to future generations, it is critical to first assess your current domicile and second, determine if your future plans may change it.

Inheritance tax

Domicile plays a major role in your exposure to inheritance tax. If you are domiciled in England and Wales, HMRC will apply inheritance tax to your worldwide estate. If you are domiciled outside England and Wales, you will only have inheritance tax charged against your assets in England and Wales (although, foreign taxes may apply). With careful planning, it is possible to utilise your non-domicile status to mitigate your estate’s liability to inheritance tax.

Succession law

Your domicile can also affect how your estate passes on death. Under English law, there is a distinction between immovable assets (your home) and moveable assets (cash in the bank). On death, immoveable assets should pass in accordance with the succession law of where the asset is based; moveable assets should pass in accordance with the succession law of your domicile. Not all jurisdictions have the same level of freedom that we do in England and Wales with some imposing restrictions on how your estate can pass on death. These “forced heirship” rules are often found in civil law countries, such as Spain and France and can ultimately prevent your true wishes from being realised.

Beyond the desire to avoid such rigid succession rules, the involvement of foreign law can also generate uncertainty. Consider a person who is domiciled in Spain but lives and works in England. They own a property in London and have cash savings with a bank registered in England. Under English succession law, the property can be dealt with by a valid Will, but the cash should be dealt with in accordance with the succession law that applies in Spain. To follow this example through, the default position in Spanish law is that the whole estate should be dealt with by the law applicable to where the person is habitually resident. A circle is formed and a conflict of laws arises. However, having identified this issue, through careful planning, steps can be taken to resolve the ambiguity and ensure that person’s objectives are achieved.

If you have international elements to your estate, establishing domicile and understanding how the laws of foreign jurisdictions can come into play is key when drawing up a successful estate plan. It can be an incredibly complex process that involves coordination across borders between multiple lawyers and other professional advisers.

As a member of Eurojuris, our private wealth team can call upon other professional contacts at home and abroad to ensure you receive a complete service and holistic legal advice at all times.