Investment Offshore Guide es.c
oThis guide could be of interest to anyone, whether or not resident in the UK, although it will most likely be of more use to those who are resident or domiciled abroad.
Domicile
Domicile is a long-established concept rooted in English law. It is the fundamental concept determining an individual’s rights and duties. It is different from residence and can be defined as ‘the legal relationship between an individual and a territory subject to a distinctive legal system’. Strictly speaking therefore a person has a domicile in, for example Scotland, Wales or Northern Ireland rather than the UK, but us regarded as being UK domiciled for most purposes.
The courts of that territory may then invoke that system as the individual’s personal law – relevant, for example, to inheritance. This point is important because many ex patriots are under the misapprehension that they individually and not the courts are able to determine their domicile.
The concept of domicile is only used in the Commonwealth, US, Denmark, Norway, and Brazil. Most EU countries use nationality as the test to determine personal law.
For ex patriots, the question of domicile is particularly important in estate planning.
There are basically 3 forms of domicile;
Domicile of Origin.
This is established at birth and is the domicile of the father for legitimate children. A child will retain this domicile until he can establish a domicile of choice.
Domicile of Dependence.
Dependency on the domicile of the parent will continue until the child reaches 16 or marries, whichever is earlier (Domicile and Matrimonial Proceedings Act 1973).
Domicile of Choice.
The third form of domicile is the one which is of greatest interest to ex patriots and which can cause the most problems.
It can be very difficult to convince the courts that a new domicile has been acquired. The basic requirement is that the person should reside in the new country and intend to stay there for an unlimited period. Providing evidence of the intention to remain is difficult but could include some of the following;
- A period of residency in a new country.
- Purchase of a home there.
- Disposal of property in the old country.
- Development of business, social, religious and political interests in the new country.
- Burial arrangements in the new country.
- The making of a new will, according to local laws.
- Severance of all formal ties with the old country.
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When developing an estate plan it is vital to establish where an individual is domiciled. An individual could be deemed UK domiciled under Section 27 of the Inheritance Tax Act 1984. The effect of this would be to treat them as UK domiciled for IHT purposes if they have been resident in the UK for 17 out of the last 20 years, or UK domiciled within 3 years of the ‘relevant time’ (the time at which a transfer of value takes place).
If an individual is UK domiciled or deemed UK domiciled, they have an IHT liability on their world wide assets. If they are none UK domiciled they have an IHT liability on assets within the UK only.
If you are able to adopt a new domicile of choice you should consider the following points when building an estate plan;
- You should have a will in each jurisdiction where assets are held.
- Check if forced heirship rules apply.
- Consider using offshore companies and/ or trusts.
- For IHT location of the trust is largely immaterial if the settler was UK domiciled at set up
(same rules apply as for personally held assets).
- Check costs do not outweigh the tax saved.
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Advantages of a trust.
- Asset protection
- Tax planning
- Avoiding expense and delays of probate
- Confidentiality
- Avoiding forced hardship
- Estate planning
- Preserving family assets
- Continuing family business.
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Select a jurisdiction that;
- Has a strong tradition of enforcing trusts
- Has an English common law system
- Has an established reputation for trust business
- Has enacted modern legislation embracing newer concepts of trusts, particularly asset protection
- Has no, or low tax on trusts.
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