Tradition abolition – Emma Gillies and Rebecca Anstey write for STEP Journal

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Emma Gillies and Rebecca Anstey on why the proposed abolition of the UK’s non-dom regime will have little impact on many UK resident Americans.

What is the issue?

The UK government has proposed changes to the taxation of non-UK domiciled, UK residents from 6
April 2025.

What does it mean for me?

Individuals will be looking to their advisors for help navigating these changes and those advising US
citizens will need to understand how the new rules affect their clients.

What can I take away?

The interaction between US and UK tax laws means that US citizens residing in or moving to the UK may not be as concerned as others by the changes, but there are still challenges and potential planning opportunities to be aware of.

It will be old news to many that the UK government plans to introduce changes to the tax treatment of non-UK domiciled, UK-resident individuals (so-called ‘non-doms’) with effect from 6 April 2025. Although many non-doms will have concerns about the impact of the new regime, US non-doms should be sheltered from the fallout more than most.

Proposed changes to UK income tax and capital gains tax

Abolition of the remittance basis

Non-doms can currently claim the remittance basis of taxation. Those who do are subject to tax on their UK-source income and capital gains as they arise, but only on non-UK income and gains if and to the extent that they are ‘remitted’ to (broadly, brought to or used in) the UK.

It is proposed that the remittance basis will be abolished and replaced by a new ‘foreign income and gains’ (FIG) regime. Under the FIG regime, those who have not been UK resident in any of the previous ten years will be exempt from tax on their non-UK income and gains during their first four years of residence (regardless of any remittances). Thereafter, they will become subject to tax on their worldwide income and gains as they arise.

In many cases, the loss of access to the remittance basis will not be a major concern to US non-doms.
Unlike most non-doms, US citizens are already exposed to tax (in the US) on their worldwide income and gains as they arise. Fortunately, there is a treaty in place between the UK and the US that is designed to provide relief from double taxation where a liability arises in both countries at the same time. A UK-resident US citizen (with exposure to tax in both countries under domestic rules) may be able to show that they should be treated as tax resident in the US for the purposes of the treaty, at least for the early years of residence when their ties to the US remain strong. In these cases, their exposure to UK tax will be limited to certain types of UK income, with no need to claim the remittance basis on their foreign income and gains.

Where the taxpayer is resident in the UK for the purposes of the treaty, they will generally be exposed to tax at the higher of the two countries’ effective rates on a given item of income or gain. In that scenario, the utility of the remittance basis is generally limited to avoiding the risk of double taxation. This can be helpful where an item of income or gain is treated differently in the UK and the US, and treaty relief is not available. It can also assist in avoiding a higher rate of tax in the UK than is payable in the US; for example, on investment returns from US mutual funds that do not have ‘reporting’ status in the UK, which are taxed at capital gains rates (20 per cent) in the US but income tax rates (45 per cent) in the UK.

For these reasons, it is uncommon for US non-doms to claim the remittance basis beyond the point at which it comes at the cost of an annual charge (i.e., from the beginning of the eighth consecutive tax year of residence). Before that, it can be convenient to claim the remittance basis from a reporting perspective. However, using the remittance basis to defer UK tax is generally not wise for US citizens, because a mismatch in the timing of the UK and US liabilities can often cause a loss of treaty relief, resulting (ironically) in double taxation. It should only really be used where the taxpayer is confident that their foreign income and gains will never be remitted to the UK.

Removal of ‘protected settlement’ status for ‘settlor-interested’ trusts

Under current rules, where a non-dom settles assets into a non-UK-resident trust, the trust’s non-UK source income and capital gains are generally sheltered from tax unless and until a UK-resident individual receives a benefit from the trust, at which point a liability may be triggered. It looks as though the protected’ status of these trusts will no longer be available under the new regime. Instead, where the UK-resident settlor retains an interest in the trust (within the relevant statutory definitions) it is proposed that the trust’s worldwide income and gains will be treated as arising to the settlor, and will be taxed accordingly.

Again, this change will be of less concern to many US settlors, who will have deliberately put their trusts outside the ‘protected settlement’ regime, having been advised to do so on the basis of double taxation risks. These arise because most lifetime trusts settled by US citizens will be grantor trusts for US income tax purposes, meaning the income and gains of the trust are taxed on the settlor as they arise. The resulting mismatch in the timing of the tax liability (immediate in the US versus deferred in the UK) and, potentially, the identity of the taxpayer (settlor in the US versus beneficiary in the UK) will often cause a loss of treaty relief. By contrast, maximum relief should be available if the income and gains are taxed on the settlor in both the UK and the US as they arise.

Changes to UK IHT

Under current rules, non-doms who are not deemed domiciled in the UK (because they have not been resident in 15 or more of the past 20 tax years) are only subject to UK inheritance tax (IHT) on UK assets. Under the new regime, domicile will no longer be relevant when assessing IHT. Instead, a person will become exposed to IHT on worldwide assets after ten years’ tax residence in the UK.

The deemed domicile ‘tail’

Currently, where a non-dom becomes deemed domiciled, they
will continue to be deemed domiciled for IHT purposes for a
further four tax years after ceasing UK residence. Under the new
regime, it is proposed that this IHT ‘tail’ will be extended to ten
years.

Thanks to the US-UK Estate and Gift Tax Convention (the Treaty), US citizens who leave the UK to return to the US will lose this ‘tail’ much sooner than other non-doms, provided they can show they are US resident for the purposes of the Treaty (and they are not UK citizens). In that scenario, the US will have exclusive taxing rights over the estate, save for UK immovable property or business property of a permanent establishment (BPPE).

Excluded property trusts

Until now, assets transferred into trust by non-doms (including US citizens) who are not yet deemed domiciled are excluded from IHT indefinitely (hence the term, ‘excluded property trusts’).

The government has announced that trust assets will no longer be excluded from IHT. However, some US citizens may be able to rely on the Treaty to achieve the same result. The Treaty provides that no IHT is due on trust assets (other than UK real estate and BPPE) settled by someone who was domiciled in the US and not a UK citizen. If the treaty continues to apply in the same way under the new regime (with UK domicile interpreted to mean ten years’ UK tax residence), assets settled into trust by US citizens who are not UK citizens and have not yet spent ten years in the UK may be protected from IHT beyond the ten-year threshold.

Impact on advice

  • US non-doms who currently make use of the remittance basis should review their financial affair with their advisors, with the Treaty in mind.
  • US citizens moving to the UK for the first time will have four tax years to tailor their investments to account for UK tax considerations. Pre-arrival advice will still be required to avoid tripping up on UK rules affecting existing trusts, business interests and reporting obligations.
  • UK-resident US citizens approaching the new ten-year threshold for worldwide IHT exposure may still consider trust planning to protect their non-UK assets from tax. Alternatives to cover include lifetime giving, structuring wills to defer IHT until the second death of a married couple, investing in relievable assets and/or taking out life insurance to cover the bill.

Tradition abolition, Emma Gillies and Rebecca Anstey, STEP Journal (Vol32, Iss5)  

The Art of The Family Office: Effective Oversight, James Brockhurst and Claris Bell write for the IFC

Abstract Building

In the evolving landscape of private wealth, the role of the family office has never been more critical. But what sets the most successful family offices apart? Private Client partner, James Brockhurst and trainee Claris Bell, share their insights in an article for the IFC Review.

Key takeaways from the article include:

  • The Importance of Governance: Discover how well-defined governance structures provide the foundation for a family office, enabling clear decision-making and alignment with family values.
  • Strategic Oversight: Understand how proactive and strategic oversight can transform a family office into a thriving organisation that adapts to changing economic climates while staying true to its core objectives.
  • Balancing Tradition and Innovation: Explore the delicate balance between preserving family legacy and embracing innovation to foster long-term growth.

Read the full article here on IFC Review to learn more about the evolution of Family Offices.

The holding pattern for non-doms – interim update but full details yet to come

Abstract Building

On Monday 29 July, the government published an update on its plans for the UK’s non-dom regime.

In a few areas, the latest proposals expand on those set out by the previous government on 6 March. For most of the detail, we will need to wait until the budget, which will be published on 30 October. While that is later than expected, it will buy the government time to follow through with its pledge to consult with stakeholders.

Income and gains – the FIG regime

The government has confirmed that it will press ahead with the four-year foreign income and gains (“FIG“) regime. This will be residence-based, with the concept of “domicile” being removed for tax purposes.

The remittance basis, whereby UK residents who are not UK domiciled are not taxed on foreign income and gains unless they are “remitted” to the UK, will be abolished from 6 April 2025.

Under the FIG regime, individuals who have not been UK tax resident in any of the last 10 tax years will be exempt from tax on their foreign income and gains in their first four years of UK tax residence, regardless of any remittances.

The previous government had stated that foreign income and gains arising in non-UK resident trusts (and distributions from those trusts) would also be tax-free during the four-year period. The latest paper is silent on this, suggesting that this part of the policy will be retained.

As announced before, anyone who is not (or ceases to be) eligible for the FIG regime, will be subject to income tax and capital gains tax (“CGT“) on their worldwide income and gains. Outside of the FIG regime, the income and gains of “settlor-interested” trusts will be taxed on settlors.

Transitional rules

The previous proposals included transitional rules for individuals who were already UK resident. Here, there are some changes:

  • Reduced rate of tax on foreign income earned in 2025/2026 – Originally, it was proposed that existing remittance basis users who did not qualify for the FIG regime on 6 April 2025 would only pay income tax on 50% of their foreign income in the 2025/2026 tax year. This relief will not be introduced.

  • Temporary Repatriation Facility – The Temporary Repatriation Facility (“the TRF“) will go ahead. This will allow those who have previously been taxed on the remittance basis and who have unremitted income and gains to remit them and pay tax at a reduced rate.
    The TRF was originally intended to be available for a two-year window from 6 April 2025 to 5 April 2027, with a reduced rate of 12%. In the latest paper, it is stated that “the rate and the length of time that the TRF will be available will be set to make use as attractive as possible.” It is, therefore, possible that we could see a lower rate or a longer period to encourage more inward investment.
    The policy paper states that the government is “exploring ways to expand the scope of the TRF, including to stockpiled income and gains within overseas structures”. This is new, as the proposals previously stated that the TRF would not be available for income and gains in trusts.
    Further details on the TRF will be set out in the October budget.

  • Capital gains tax rebasing – The proposed rebasing for CGT purposes of personally held assets is being kept. This will allow current and past remittance basis users to rebase foreign assets to their value on a specific date. This could reduce the chargeable gain if an asset is disposed of on or after 6 April 2025 and the individual is not eligible for the FIG regime.
    Originally, the rebasing date was 5 April 2019. It is now stated that the date will be set in the October budget.

Inheritance tax

As was announced in March, the abolition of the concept of domicile will also apply to UK inheritance tax (“IHT“) – again, to be replaced with a residence-based system.

This change is now due to take effect from 6 April 2025, which is sooner than might have been expected. The previous government had intended to consult on the details. The new government has stated that it will engage further with stakeholders, but does not intend to carry out a formal consultation.

It is envisaged that, from 6 April 2025:

  • An individual will become liable to IHT on their worldwide assets once they have been UK resident for 10 years. It is not clear whether these 10 years must be consecutive or cumulative over a longer period.

  • Once within the scope of IHT, individuals will remain so for 10 years after ceasing UK residence.

  • The residence status of a settlor will dictate whether non-UK assets within a trust are subject to IHT. It appears that residence will be determined at the time of a “chargeable event”. This would include the transfer of assets into trust, each 10-year anniversary of the trust, and a distribution of trust assets. It would also include the death of a settlor who could benefit from the trust.

The last of these changes will end the existing IHT shelter on non-UK assets provided by “excluded property” trusts.

Prior to the general election, the Labour Party had stated that there would be no “grandfathering” of existing excluded property trusts. The latest policy paper states that the government “recognises that trusts will already have been established and structured to reflect the current rules, so is considering how these changes can be introduced in a manner that allows for appropriate adjustment of existing trust arrangements, while ensuring that the treatment of all long-term residents of the UK is the same for IHT purposes.”

The intrigue caused by this elusive statement looks set to continue until further details are provided in the budget.

Planning ahead

The announcements on Monday confirmed the government’s intention to end the non-dom regime and the remittance basis of taxation, which have been features of the UK’s tax system since 1799.

The transitional provisions for the FIG regime, and the suggestion of concessions on the IHT treatment of existing trusts, will give some reassurance to those who have planned in reliance on the existing regime and now need to map out their future.

In each case, the path ahead will require careful consideration once further details are announced on 30 October 2024. In the meantime preparatory steps can be taken so that planning can proceed as soon as possible following the budget and ahead of 6 April 2025. Please contact the Forsters Private Client team to find out we can help.


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The future of the UK’s non-dom regime under the Labour Party

With promises of ‘change’ ringing through Westminster and across the nation, Sir Keir Starmer has been appointed the new Prime Minister of the United Kingdom. As had widely been expected, the Labour Party obtained a significant majority in the UK General Election and will have a strong mandate to govern. With a new party in Government, what does the future hold for the UK’s non-dom regime?

Background

The previous Conservative Government announced on 6 March this year that it would seek to abolish the current tax regime for individuals who are UK resident but not UK domiciled in favour of a residency-based system, which would apply from 6 April 2025.

The proposals were that, from 6 April 2025, the remittance basis of taxation, which allows UK resident individuals who are not UK domiciled to pay tax only on foreign income and gains that are “remitted” to the UK, would be abolished and be replaced with a new regime under which those who have been UK resident for at least four years would pay income tax and capital gains tax (“CGT”) on their worldwide income and gains. It was made clear that the new rules would also apply to income and gains arising within trusts, such that the generous trust protections introduced in 2017 would no longer be available to those who have been resident for four years, even if their trusts were set up before 6 April 2025.

For further details of the original Conservative proposals please read our briefing here.

Labour’s plans

Income and gains

No legislation in respect of the proposed reforms to income tax and CGT was put before the previous Parliament, and with that Parliament prorogued on 24 May 2024 (and subsequently dissolved on 30 May 2024), it will be up to the new Parliament to enact legislation to reform or abolish the non-dom regime.

Labour’s General Election manifesto stated that they would “abolish non-dom status once and for all, replacing it with a modern scheme for people genuinely in the country for a short period.” This has been a long-standing, and much mentioned, aim of the Labour Party, but unknown is

(i) the extent to which the new regime will mirror the proposals set out by the previous Conservative Government, (ii) when we might see the detail of Labour’s proposals, and (iii) from what date the new regime would take effect.

Following the March 2024 Budget, Labour expressed broad support for the Conservative proposals, but argued that the proposals still contained a number of “loopholes”, with reference to the transitional reliefs proposed by the Conservatives.

In particular, Labour have indicated that they would eliminate the proposal that non-domiciled individuals already resident in the UK would only be subject to income tax on 50% of their foreign income in the 2025/2026 tax year. Their manifesto refers obliquely to removing the “non-dom discount loophole in 2025/2026”, which seems to indicate their intention to follow-through with the Conservative proposals with fewer restrictions and that they intend for the changes to take effect from 6 April 2025. Whether the changes will remain a legislative priority now that Labour has gained power remains to be seen.

At the same time, however, Labour have also suggested that they recognise the need to encourage UK investment and would consider additional incentives. We could, for example, see an extension or reformulation of the Temporary Repatriation Facility. This is likely to be an area where there will be extensive lobbying, so we will need to wait to see what any draft legislation looks like.

Inheritance tax

On IHT, Labour have indicated that they do not agree that trusts established prior to 6 April 2025 should continue to be sheltered from IHT.

In their manifesto, they stated that they “will end the use of offshore trusts to avoid inheritance tax so that everyone who makes their home here in the UK pays their taxes here.” From this, it would seem that Labour also intend to tie the IHT status of assets held in trusts to the residence status of the settlor or the beneficiaries of a trust.

However, Labour have not commented in detail on the Conservatives’ proposals for a reformed residency based IHT regime, so again we will have to wait for further detail on this front.

Labour were conspicuously silent on IHT generally in their manifesto and prior to the election refused to rule out reform of the regime. It has been suggested that Labour may also seek to restrict certain IHT reliefs not aimed specifically at non-doms, in particular agricultural property relief and business property relief. It has been suggested that there will be a consultation process on the IHT regime generally and the concept of domicile.

What next?

Rachel Reeves, the newly appointed Chancellor of the Exchequer, has said that there will be no “emergency” Budget and that there will not be a Budget before September, and she has stated that she would not deliver a Budget without a formal forecast from the Office of Budget Responsibility, which requires 10 weeks’ notice. Labour’s Annual Conference will take place from 22 to 25 September 2024, so it may be that any Budget is delayed until after this.

It is possible, if Labour decide to substantially mirror the Conservatives’ proposals, that we might see draft legislation prior to a Budget. However, given that there will be a summer recess (albeit there have been suggestions that the recess may be shorter than usual), and that there will be other legislative objectives, it is more likely that draft legislation will coincide with Labour’s first Budget.

It is, therefore, likely that we will need to wait a little longer to see the substantive details of Labour’s proposals.

Whilst we await the details, it is sensible to plan ahead and consider the options available. Please do get in touch with our Private Client team to find out more.  

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Alfred Liu speaks to Citywealth on NextGens and bridging the generation gap

Private Client Partner, Alfred Liu, has provided his insight to Citywealth on how families and their advisors can bridge the gap between generations to transfer wealth successfully and harmoniously.

In the article, ‘The nexus of NextGen’, industry professionals discuss the key issues, and potential solutions, for connecting with the next generation of UHNW individuals. Alfred’s key takeaways are as follows:

  1. Generational Differences:
    • Advisers working with multigenerational families must be aware of deeply ingrained generational differences.
    • These differences can lead to intrafamily disputes and disharmony, risking the fragmentation and dissipation of family wealth.
    • Advisers should help families establish common ground, identify potential generational differences, and develop constructive ways to bridge the divide.
  2. Dynamic Wealth Transfer:
    • The “Big Wealth Transfer” should not be treated as a one-off event.
    • Viewing it as a process rather than an isolated event prevents complacency.
    • Strategies and frameworks must adapt to macro issues, geopolitical changes, and evolving circumstances.
    • The planning for wealth transfer should be dynamic, regularly reviewed, and capable of evolution.
  3. Next Gen Considerations:
    • Next Gens (younger generations) have distinct experiences and relationships with wealth compared to their parents or grandparents.
    • They are often more internationally mobile, exposed to diverse cultures, and seek independence.
    • Advisers must be sensitive to these differences and support families in avoiding disputes.

Alfred reminds readers that wealth transfer is a process not a single event, and understanding the psychology of Next Gens is critical during intergenerational transitions.

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Non-dom rules to be replaced with four-year temporary residence regime

Abstract Building

The Chancellor of the Exchequer, Jeremy Hunt, has announced that the government will abolish the current tax regime for individuals who are UK resident but not UK domiciled in favour of a residency-based system, which will apply from 6 April 2025.

The proposed changes are wide-ranging and will affect both individuals currently living in the UK and those planning to move to the UK. The good news is that the 6 April 2025 implementation date gives those who are already UK resident time to take advice and plan before the changes take effect.


Non-Dom Rules Replaced


Summary

From 6 April 2025, the remittance basis of taxation, which allows UK resident individuals who are not UK domiciled to pay tax only on foreign income and gains that are “remitted” to the UK, will be abolished. It will be replaced with a new regime under which those who have been UK resident for at least four years will pay income tax and capital gains tax (“CGT“) on their worldwide income and gains.

Draft legislation has not been published, but the government has made it clear that the new rules will also apply to income and gains arising within trusts. The result is that the generous trust protections introduced in 2017 will no longer be available to those who have been resident for four years, even if their trusts were set up before 6 April 2025.

Four years of residence tax-free

  • Individuals who become UK resident after a period of at least 10 years of non-UK residence will not pay UK income tax or CGT on their foreign income and gains in their first four years of UK residence, even if they bring the income and gains to the UK.
  • This means that individuals who are only temporarily UK resident will be able to spend their foreign income and gains freely in the UK without incurring UK tax – and without the need to navigate the complicated remittance basis rules.
  • Foreign income and gains arising in non-resident trusts, and distributions from those trusts, will also be tax-free during the four year period.

Transitional rules

For those who are already UK resident, there will be several transitional rules.

Pre-6 April 2025 income and gains

  • The remittance rules will continue to apply to unremitted foreign income and gains generated prior to 6 April 2025 on assets held personally. That is, the income and gains will continue to be free of tax provided they are not remitted.
  • This will not be the case for income and gains arising in trusts before 6 April 2025, which will be taxed in full if matched against distributions made on or after 6 April 2025 regardless of whether they are remitted (though distributions made within the first four years of residence won’t be matched or taxed).
  • Those who are already UK resident may need to consider planning in advance of the changes.

Temporary Repatriation Facility

  • A new Temporary Repatriation Facility will be available from 6 April 2025 to 5 April 2027. This will allow those with pre-6 April 2025 unremitted income and gains to remit them and pay tax at a reduced rate of 12%. Again, this will not be available for pre-6 April 2025 income and gains in trusts.

Reduced rate of tax on foreign income earned in 2025/26

  • Existing remittance basis users who will have been UK resident for at least four years on 6 April 2025 will only pay income tax on 50% of their foreign income in the 2025/2026 tax year.

Capital gains tax rebasing

  • Those who have been UK resident for more than four years (whether in 2025/26 or later) will be able to choose to “rebase” any assets held personally on or before 5 April 2019 to their market value on that date, so that only the post-5 April 2019 gain will be subject to CGT on a disposal.

Inheritance tax

The inheritance tax (“IHT“) regime, which is currently based predominantly on domicile, will also move to a residency-based system. The government intends to consult on the details. However, it is proposed that individuals will be subject to IHT on their worldwide assets after they have been UK resident for at least 10 years, and will remain so for 10 years after ceasing residence.

It is envisaged that the current regime will continue to apply to non-UK situated assets settled onto trust by a non-UK domiciled individual prior to 6 April 2025. For trusts established on or after 6 April 2025, chargeability to IHT will depend on whether the individual was within the scope of IHT at the time of funding the trust.

Planning ahead

The remittance basis has been a feature of the UK’s tax system since 1799. With both the government and the main opposition party now committed to its abolition, its future seems all but certain. Hopes that a replacement regime would be the subject of consultation (not just on the detail of the IHT aspects) will be dwindling rapidly. Many will be disappointed that both main political parties have committed to a limited inpatriate regime when compared to those offered by some other countries in Europe.

For those who are already UK resident, however, the transitional provisions that have been announced present opportunities that will deserve careful consideration as further details become available.

“Family Wars – lessons to be learned from conflicts” The Royal Gazette covers Nick Jacob’s STEP seminar

Abstract Real Estate

Private Client Partner, Nick Jacob, was invited to present a session at the recent STEP Bermuda Conference 2023. His session, entitled ‘Family Wars – lessons to be learned from conflicts’ has since been covered in an article by The Royal Gazette.

“No matter how big your business empire, or how tight your grip on it, you need a will and a succession plan. This was the sage advice from Nick Jacob” writes the editor.

The article highlights Nick’s top tips to avoid family conflict:

  • Facing up to potential conflict issues before they become real conflicts is absolutely critical.
  • Getting everybody in the family to buy in to the structuring and to understand why it has been set up is important.
  • Trust professionals must ensure that the structures they set up are not too complicated to understand.
  • Advisors need to think about whether what we are advising is right for the client. Are the structures going to work for that family, and are they dynamic enough to change in the future?

The full article can be read here.

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Moving to the UK

Explore our hub for everything you need to know about relocating to the UK and discover how our Private Wealth team can advise you on making the move as seamless as possible.

Moving to the UK is an exciting life event whether it be a short-term move for work to explore business prospects or a more permanent relocation with the whole family; the UK offers an eclectic range of options to live, work and learn, from the cityscapes of London to vineyards in the English countryside and historic university towns in-between. Setting up life in a new country can feel daunting too and it can be difficult to know where to start.

Wherever you are on your journey to the UK the Private Wealth team at Forsters are here to guide you through the process and to advise you on how to make the move as seamless as possible. From Singapore to Brazil, the US to the Middle East – we also have in-depth experience of integrating UK issues into a global cross-border wealth plan.

Our Moving to the UK hub provides you with an introductory resource to understand the need to know issues, including the *UK’s approach to income tax, visas and buying property, along with key terminology and FAQs.

View our Moving To The UK Hub

James Brockhurst to speak on family offices at the Global Partnership Family Office European Conference 2023

Private Client Partner, James Brockhurst, has been invited to join the expert panel at the Global Partnership Family Office (‘GPFO’) European Conference 2023, held at the Royal Society London, to an audience of representatives from global family offices.

James will be a panellist for the session entitled ‘The Evolving Jurisdictional Landscape’ which will explore the changing legal and regulatory frameworks that govern family offices in different regions and will discuss tax issues, compliance obligations and cross border issues for family offices with a global outlook. James will be sharing his expert insights on knowledge on especially on the Middle East.

Joining James on the panel are Ruth Bloch-Reimer of Bar and Karrer and Gavin st Piere, former Chief Minister of Guernsey. The session will be chaired by Lisa Cornwell of PWC.

More information about the event can be found here.

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Wealth that works: Alfred Liu joins other private wealth experts for an ESG-focussed STEP Journal roundtable discussion

Private Client Senior Associate, Alfred Liu, shared his views as a Family Governance and Next Gen adviser at the latest STEP Journal roundtable discussion, sponsored by Hawksford.

The conversation focused on sustainable investing, examining who the responsibility sits with and how trustees and advisors can manage their fiduciary duty as they balance environmental, social and governance (ESG) factors and return on investment.

When asked how ESG values and sustainable legacy considerations develop in his family governance and business advisory experience Alfred comments:

“It’s incumbent on us as advisors not to be static and to be very aware that families evolve. In turn, structures and investment strategies need to be updated. What does it take for families to consider sustainability? It tends to be the second or third generations that are driving those discussions because they’re the ones considering the implications of the structures the first or predecessor generation has picked. It’s important for us to be able to discuss and educate, help families find where the common values and disparities lie, and get consensus to preserve harmony – which is a big part of any meaningful family governance exercise”.

Click here to read more about the roundtable discussion in the STEP Journal, Issue 4 2023.

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James Brockhurst to speak on Tax issues for Middle Eastern families at Informa Connect’s Cross-Border Planning Conference 2023

Private Client Partner, James Brockhurst has been invited to speak at Informa Connect’s Conference ‘Cross-Border Planning: Wealth Management Solutions for the New Age Business Family’.

Taking place from the 25 – 26 October in Dubai, the programme will provide updates on key issues facing the internationally mobile private client, as well as provide opportunities to discuss succession planning, immigration, family governance and family offices, and business law developments.

James will be speaking at the panel discussion ‘Introduction to US, UK and Canadian Private Client Issues in the Middle East’, which will cover the following:

  • Case studies from each jurisdiction
  • Tax planning Issues with trusts
  • Residence and domicile issues
  • How do you expatriate and what is a US/UK/Canadian citizen?
  • Considerations for banking problems and FATCA/CRS

Joining James on the panel will be John Shoemaker, Partner at Butler Snow, and Reaz Jafri, Counsel at Withers.

For more information and to book a place at the event, please click here.

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Mortgages for Overseas Buyers of UK Residential Property – The Advantages and Disadvantages

We are often asked by overseas clients buying UK property whether or not they should take out a loan secured against the house or flat they are buying. Quite often buyers have the financial means to complete the purchase without a loan of any kind but nevertheless there are good reasons why they might wish to consider taking out a loan.

In fact, it is increasingly common for overseas buyers to take out mortgages and it is now less likely that they would wish to purchase for cash than was the case a few years ago.

We summarise here the principal considerations to take into account and to outline the possible advantages and disadvantages of taking out a loan.

Types of mortgages

There are clearly a huge variety and number of financial products potentially available to overseas buyers. These are likely to be different products, and perhaps at less advantageous rates, than those available to UK resident buyers who wish to purchase a property as their principal residence. The first consideration is whether the loan will be to an owner-occupier or whether it will be for the purposes of buying an investment property that will be let. The rates available to owner- occupiers are generally better than those available to buyto-let purchasers and it is likely the bank or lender will offer entirely different products in each category. The loan to value ratios are likely to be different and for buy-to-let might be only 50% or 60% of the market value of the property.

Traditional mortgages are secured by a first legal charge over the property being acquired. The mortgage deed under which this is created is relatively straightforward and will refer to a set of mortgage conditions, which tend to be fairly standard, drawn up the lender. More recently a different type of mortgage product has emerged arising from religious considerations particularly those relating to Islamic law. The traditional type of mortgage may not be acceptable for religious reasons and, as a result, a number of alternatives have been drawn up which, for example, create lease and rental agreements so that interest is not payable to the bank. Some lenders only offer Sharia compliant finance and their products are therefore available not just to Muslims but to all applicants.

UK tax considerations

UK Inheritance Tax (“IHT”)

It is likely to be beneficial for IHT reasons for an overseas buyer to take out a mortgage when buying a UK property. IHT is payable at a rate of 40% on the value of assets situated in the UK worth over £325,000 (the “nil-rate band”). A mortgage which is taken out at the time of purchase is deductible against the value of the property. Therefore, taking a loan of, say, 60% of the value of the property could reduce the exposure to IHT considerably. The following example illustrates the differing IHT treatment for an overseas owner with only one asset in the UK, a property valued at £1 million at the date of death, which was purchased for £800,000:

IHT without mortgage IHT with 60% mortgage

Gross value at date of death: £1,000,000

Gross value at date of death: £1,000,000

Less nil-rate band: (£325,000)

Less nil-rate band: (£325,000)

Taxable value: £675,000

Less 60% mortgage: (c.£480,000)

Taxable value: £195,000

IHT @ 40%: c. £270,000

IHT@ 40%: c. £78,000

Remittance basis of taxation

Buyers will also need to consider their UK tax status before importing funds into the UK for a property purchase. A remittance basis user who has to remit funds to the UK for a purchase may incur a tax charge if they do not have sufficient clean capital to bring in. In those circumstances, reducing the amount that needs to be remitted by taking out a loan would be a clear advantage (although the remittance basis user would require sufficient clean capital to service the interest on any mortgage).

Tax reliefs

While tax relief on buy-to-let properties has now been curtailed, there are still some advantages for landlords. Landlords can now claim a tax credit at 20% of the interest costs payable under their loan to set against the income tax due on the rent. A loan will make no difference to a buyer’s liability for Stamp Duty Land Tax (“SDLT”) on acquisition or Capital Gains Tax (“CGT”) on the disposal of the property.

Potential disadvantages

The most obvious potential disadvantage for an owner who is borrowing money when they do not really need to borrow it is that they will have to pay interest on the loan. As for all buyers, this may not be seen as a particular disadvantage when interest rates are low, but rates have risen considerably and it is not possible to predict how they will move in the future. Most loans have an initial fixed period at an advantageous rate but then, potentially, revert to a higher rate when that fixed period ends. There may also be penalties for redeeming a loan in an initial period.

The other main disadvantage is the potential increase in cost and delay at the time of purchase. The lender is likely to require a formal valuation of the property which it will expect the borrower to pay for and may wish to be separately legally represented.

Depending on the lender, legal fees might increase significantly particularly where a Sharia complaint mortgage is being used. There is typically a considerable delay in getting formal mortgage offers even sometimes after they have been agreed in principle, but this can vary considerably between lenders. It is worth checking at an early stage if the lender will want to use separate solicitors because this can also add considerably to delay. Sellers are generally aware of the delays and uncertainty that can be caused where a buyer requires finance and often they will prefer to accept an offer from a buyer who offers cash rather than requires finance.

A further point that should not ignored is that the lender may exert a level of control over the property during the period of a mortgage. If the buyer has taken out an owner-occupier mortgage then they will need to get the bank’s consent to then let the property; to do so without their consent is likely to be a breach of the loan conditions. Likewise, some products are specifically only for commercial letting arrangements and for the borrower to occupy the property will be not just a breach of the loan agreement but may breach the lender’s own lending licence. Borrowers are also under obligations to the lender to maintain the property, insure it, and to comply with any restrictions and with the lease terms if it is leasehold.


Moving to the UK – Everything you need to know

Moving to the UK is an exciting life event whether it be a short-term move for work to explore business prospects or a more permanent relocation with the whole family; the UK offers an eclectic range of options to live, work and learn, from the cityscapes of London to vineyards in the English countryside and historic university towns in-between. Setting up life in a new country can feel daunting too and it can be difficult to know where to start.

Moving to the UK

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STEP Asia Conference 2023 – Nick Jacob to moderate session on ensuring effective family office governance

Private Client Partner, Nick Jacob, has been invited to moderate a session on family governance at the STEP Asia Conference 2023.

The STEP Asia Conference brings together speakers and attendees from around the world to discuss cutting-edge topics relevant to the wealth management community.

Nick will be moderating the session entitled ‘Ensuring effective family office governance’ on 14 November at 12:00 HKST.

The session will see an expert panel address the following issues:

  • What are the roles of a family office and how can these be implemented, achieved and monitored?
  • What procedures need to be put in place to operate a successful family office?
  • How does one distinguish the interests of the various stakeholders such as the family and the managers?
  • Are family offices inherently inefficient compared to the discipline one would expect to see in, say, a listed company?

Joining Nick for the session are panellists Thomas Ang of Credit Suisse AG, Cynthia Lee of Central Cove and Christian Stewart of Family Legacy Asia (HK) Limited.

The Conference will run from 14-15 November 2023 at the Grand Hyatt Hong Kong. To find out more, please click here.

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Singapore’s The Business Times features Nick Jacob’s insights on succession in Asia

Private Client Partner, Nick Jacob, has been profiled by Singapore’s The Business Times, in an article entitled ‘Business families’ secret to succession is when boss/dad/mum learns to let go’.

Labelled “the godfather of Asian Family Governance work” in the Chambers HNW 2022 Guide, Nick has unparalleled experience advising high net worth clients on putting together plans that provide for family succession, the protection of the family business, the avoidance of family disputes, and all aspects of international family governance.

In a video call with Singapore’s The Business Times Nick shared his experience of working with HNW family businesses in Asia and the challenges these families must face.

In the article, Nick emphasises the importance for heads of family businesses to address conversations around succession planning earlier to preserve their dynasty for more than a generation.

He reflects on a particular case, where the client regrettably passed before finalising his succession plan, resulting in the split of the family business and a significant loss in the value of a business the client spent his entire life building. “If he had bitten the bullet 10 years earlier, it is quite possible that the business could have been saved”.

Nick explains that many families are now realising the pressures of time and describes a “definite shift from a decade ago”. Clients are now approaching him earlier than before and preparing for a “gradual changing of the guard”. He notes that “while more than half of his clients used to reject the idea of passing on elements of control, including their voting shares in the company, only one in four still take such a stand today.

He recommends that “the heads of families should have succession plans by the time they are 70 at the latest. The patriarch will be seen to have enough influence, that he will not allow himself to lose face, or will not allow himself to be demoted to second division, and the family respects that”.

The article also features interviews with the founder and executive chairman of the Banyan Tree Group, Ho Kwon Ping and other prominent advisors in the industry.

The full article can be read here, behind the paywall.

To find out more about International Succession Planning and Family Governance you can read Nick’s article here. Please do get in touch with Nick to discuss the issues raised in these articles.

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James Brockhurst to speak on Middle East structuring at the International Trusts & Private Client Conferences 2023

Private Client Partner, James Brockhurst, has been invited to speak at the International Trusts & Private Client Conferences 2023 in Jersey and Guernsey.

The conference, targeted at private client advisors, offers insights from expert speakers and sessions tailored to tackle the full scope of contentious, estate and tax planning issues facing the Channel Islands.

James will be presenting the session entitled ‘Market Insight: Trends in Middle East Private Wealth Structuring’, alongside Katie Cooper, International Wealth Advisor at Barclays, Daniel Channing of Crestbridge, and Hugh O’Donnell of Highvern.

Places can be booked for the Guernsey Conference (20 June) here, and the Jersey Conference (22 June) here.

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Avoiding Unwanted Tax Liabilities When Buying a Home in the UK – Xavier Nicholas writes for Abode2

Alongside identifying quality support on conveyancing, it is essential that international buyers seek legal advice on the tax implications of acquiring a home in the UK.

Unexpected tax liabilities can surprise the unprepared, while well-advised buyers will have the best chance of limiting their exposure.

The main concern will be inheritance tax (IHT). Non-UK domiciled individuals are subject to IHT at a rate of 40% to the extent that the value of their UK estates exceeds the tax-free ‘nil rate band’ allowance (NRB). At a modest £325,000 (or in some cases, £500,000), the limited scope of the NRB can come as a shock to those relocating from (say) the US, where the amount that can pass free of federal estate tax is currently $12.92m.

Owing to significant changes in legislation over recent years, the options for mitigating IHT are limited. Good advice is needed to navigate the rules successfully and ensure that ownership arrangements are tax efficient. Planning might include securing the exemption that applies to transfers on death between spouses and civil partners, using debt to reduce tax exposure, specialist life insurance, and (in some circumstances) co-ownership of a property with children.

In all cases, buyers should take advice before completing a purchase, as some forms of planning may not be effective if put in place later on.

Special attention is needed for those who will continue to be subject to tax in another jurisdiction. Double taxation agreements and cross-border reporting may add to the need for a pre-purchase check-up. For those with a US connection, acquiring a property in the UK makes specialist advice on US-UK estate planning a must-have.

UK tax legislation, with all its complexity and intricacies, has a habit of leading the way in making the case for fact-specific legal counsel. Pre-purchase tax advice should be at the top of the to-do list for those thinking of acquiring a home in the UK.

This article was first published for the Abode2 luxury property publication, which can be accessed here.

For more information on our services for individuals and families relocating to the UK, see here.


Moving to the UK – Everything you need to know

Moving to the UK is an exciting life event whether it be a short-term move for work to explore business prospects or a more permanent relocation with the whole family; the UK offers an eclectic range of options to live, work and learn, from the cityscapes of London to vineyards in the English countryside and historic university towns in-between. Setting up life in a new country can feel daunting too and it can be difficult to know where to start.

Moving to the UK

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International Buyers Continue To Seek UK Homes Despite UK Economy Concerns – Charles Miéville writes for Abode2

Despite the UK economy and house prices in many sectors currently falling, prime residential property is a sector of the market which continues to flourish as a popular choice for international HNW and UHNW clients looking to relocate or invest.

Whilst these properties have predominantly been in prime Central London, there’s also a keen interest in trophy assets located outside of the capital, although, through a lack of supply, particularly in the countryside, these transactions are undoubtedly fewer in number.

Why is the UK such an attractive place for international buyers?

There are several reasons for this stable trend. One explanation for those moving from overseas is the UK offers an advantageous time zone, being roughly equidistant between North America and Asia.

For all international buyers, English Law is viewed as a safe, stable and secure system under which to buy and own assets, both from a financial and family perspective. The schooling system is also favoured by many international families who then require a bolt-hole in the UK whilst their children are based here.

One huge attraction for US citizens, in particular, is the property tax benefits. State property taxes in the US, particularly in New York and California, are very high. Compare this to the UK, where acquisition taxes are far higher (in the form of stamp duty land tax), but the holding costs are far lower (being limited to council tax and service charge for flats), meaning if US buyers are holding their UK assets for any length of time, it may prove a cheaper alternative to US real estate.

Will the housing market prices dip for high-value houses?

Having spoken to several agents over the last few days, they are still seeing that there is a healthy appetite from individuals in the Middle East, the States and Asia. It is likely that throughout 2023 we will continue to see premium sales continue apace and valuations continue to hold, particularly while stock remains low.

This article was first published for the Abode2 luxury property publication, which can be accessed here.

For more information on our services for individuals and families relocating to the UK, see here.


Moving to the UK – Everything you need to know

Moving to the UK is an exciting life event whether it be a short-term move for work to explore business prospects or a more permanent relocation with the whole family; the UK offers an eclectic range of options to live, work and learn, from the cityscapes of London to vineyards in the English countryside and historic university towns in-between. Setting up life in a new country can feel daunting too and it can be difficult to know where to start.

Moving to the UK

Charles Mieville
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Why Family Governance is Important – Patricia Boon speaks to Jersey Finance

Private Client Partner, Patricia Boon, speaks to Jersey Finance about what Family Governance means and why it is so important for wealthy families in Asia.

Speaking to Business Development Consultant, Maria McDermott, Patricia explains the concept of family governance and shares why it is so important in succession planning, particularly in times of divorce or conflict.

The video can be viewed here.

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Charlotte Evans-Tipping to speak at ThoughtLeaders4: Wealth/Life Middle East conference

Private Client Senior Associate, Charlotte Evans-Tipping, has been invited to speak at the ThoughtLeaders4: Wealth/Life Middle East Conference.

This exclusive event for international private client advisors has been curated ‘by the experts for the experts’ and will span across two days. Charlotte will be speaking at the session entitled ‘Working with Family Offices: Should you have one? Setting One Up? Client, Obstacle or Threat?’ alongside Krya Motley of Boodle Hatfield and Sally Tennant OBE of Acorn Capital Advisors.

The conference will take place from 15 to 17 November 2022. You can view the full agenda, and register to attend here.

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Family Governance as a Tool of Next Gen Wealth Planning in Asia – Patricia Boon writes for Thought Leaders 4

Private Client Partner, Patricia Boon, has authored an article for Thought Leaders 4 on next gen wealth planning in Asia.

The article was first published in Thought Leaders 4 Private Client Magazine ‘Next Gen Wealth’ in August 2022 and can be read in full below.

It is well-documented that a good number of high-net worth Asian families are on the cusp of a very significant inter-generational transfer of wealth as, over the course of the next decade, we will see the ownership and stewardship of family wealth and family businesses pass from the hands of the wealth generators/creators of Generation 1 to Generations 2 and 3.

The families standing at the precipice of this change will, in some cases, not yet have considered the implications of this inter-generational wealth transfer or, if they have, may be uncertain as to how to deal with them. Family businesses are at their most vulnerable at the point of this transition, particularly when the business founder/wealth creator is still the person at the helm. For such families, family governance planning can enable them to meet the challenges that this transition to the next generation poses.

The main challenges facing families in this position are:

  • to ensure that the value that has been generated by Generation 1 can be preserved, grown, and perpetuated for the benefit of future generations and/or for philanthropic purposes; and
  • to equip the next generations to deal with the businesses, assets, or structures that have been passed on to them so as to avoid a diminution in the value of the business or dissipation of the wealth.

There are further sub-sets of challenges within these categories, including the risk of inter-generational and cross-generational conflict, risks to family harmony as the number of family members grows and becomes more disparate, and the risk of divorce.

If these challenges are to be navigated successfully, it is essential for Generation 1 to look carefully at how to involve Generations 2 and 3 in their succession planning and to obtain the next generation’s contribution and buy-in to the philosophy that will shape the family’s management of their businesses and assets for the medium to long-term. However, it is often difficult for Generation 1 to let go of the reins; of the respondents to the PwC Global NextGen Survey 2022, 45% said that they found it difficult to prove themselves as a new leader or board member in the business. In this context, family governance planning has an important role to play, as the implementation of a governance framework for families to manage succession to the business and/or control of family assets is a key way to involve the next gen today and to minimise the risk of dispute and wealth dissipation tomorrow.

Using a Family Governance framework to involve the next gen

The aim of any family governance strategy should be to ensure that there is a robust and flexible succession plan in place for Generations 2 and 3 (and beyond) to play their part as stewards of the family wealth and assets.

Good communication is essential to mitigating the risk of disputes and conflict, as it encourages transparency, minimises suspicion, and offers the opportunity for the stakeholders to have their say.

Where the family is at the start of the governance exercise, it may be helpful to have a third-party, such as the family’s trusted advisor, to co-ordinate the discussion process, meeting together and individually with Generation 1 and members of Generations 2 and 3. This is an important step to flush out areas of frustration, that are ripe to develop into points of conflict between the generations, so that these can be discussed and addressed openly at the outset. It is noteworthy that, in the studies looking at the difficulties inherent in inter-generational wealth transition, many next gens of business families who are surveyed cite their frustration that they are unable to have a voice. Consequently, open dialogue is a crucial part of allowing the next generation to feel involved and engaged.

The creation of a family council can ensure that each family branch has a voice and representation. Where there are family trusts, the family council can act as an interface with the trustees, ensuring a regular flow of information to the family members. The family council can also act as a ‘training ground’ for the next gen, making clear the expectations there will be of any family member who wishes to work in the family business, any requirement to have undertaken particular work experience within or without the family business, and/or setting out criteria that must be met for a family member to be considered eligible to work in the business.

A family council may also allow the next gen to:

  • observe the workings of the family council before assuming a formal role;
  • receive training in understanding the family business, responsibilities and duties of office-holders and shareholders, and financial statements.

Such training can help to identify at an early stage the leaders of the future who have the relevant qualities and skills to contribute to the business.

Where there are multiple shareholders, shareholders’ agreements are a valuable tool which can be used to educate the next generation in relation to shareholder co-operation. They are also useful for focusing the attention of Generation 1 as to whom shares should be transferred.

The involvement of experienced and trusted non-family management and advisors has a role to play, as these individuals can offer objectivity and can act as a sounding board to the different generations, as well as assisting in the transition of Generation 1 out of day-today control into an ‘oversight’/advisory role.

There is no ‘one size fits all’ solution to sorting out the myriad issues that business and wealth transfer will bring to the fore between family members.

However, what is self-evident is that a failure to consider succession planning and the involvement of the next generation (and beyond) in a timely fashion will increase the risks of family conflict and fragmentation of wealth to the detriment of all of the family members.

This makes it vital for wealth creators to recognise the value of involving the next generation in their succession plans early on, and to understand the means available to them to achieve this.

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A guide for British Expats in Singapore: Estate & Wealth Planning Post-Divorce

Your divorce is now final. What next? The last thing on your mind may be to consider your estate and wealth planning, and the prospect of dealing with lawyers again so soon after your divorce can quite understandably be unappealing for some!

However, there is a good chance that your existing planning arrangements (if any) are no longer appropriate for your post-divorce circumstances. They may be overly reliant on your ex-spouse, or too intertwined with their planning and not reflective of your individual wishes. Perhaps they do not cater for any post-divorce obligations you may owe to your ex-spouse or are wholly inadequate for the significant windfall you received from them.

Doing nothing or waiting too long to redress these sorts of issues may lead to serious and unintended consequences that could adversely affect any or all of your children and the rest of your immediate family in the event of your death or loss of mental capacity. Now is therefore the most critical and opportune time to start afresh with your estate and wealth planning and give yourself peace of mind after going through such a major life event.

This article serves to highlight the key areas of planning to consider, which are equally applicable to either party to a divorce and to British expats residing in jurisdictions other than Singapore. UK tax considerations in a divorce scenario are also critical given that estate planning and tax (particularly UK inheritance tax if a person is UK domiciled) go hand-in-hand and cannot be compartmentalised. Further details of such considerations can be found here but suffice to say tax advice should always be sought when embarking on any aspect of estate and wealth planning.

Please note that references in this article to England or English law should be understood to also include Wales but not Scotland and Northern Ireland whose laws differ to that of England and Wales.

The first step – review your estate

Your estate may have significantly changed as a result of the dissolution of your marriage. Therefore, the best starting point is to review it, and prepare a general inventory of your current worldwide assets and liabilities.

Not only will this help to identify what is in your estate, but it will also focus your mind on your succession objectives and help to establish your thoughts on important issues, such as:

  • any particular wishes you have regarding the devolution of specific assets;
  • assets of sufficiently high value that require bespoke succession arrangements;
  • how to deal effectively with any digital assets or cryptocurrency you own;
  • any family inheritance you are due to receive; and
  • liabilities (particularly any owed to your ex-spouse pursuant to the divorce) and how they may need to be dealt with following your death.

Such a review should also establish if you have a life insurance policy or pension (either privately or through your employment in Singapore or elsewhere) and whether pay-outs to nominated beneficiaries require updating if you had previously nominated your ex-spouse.

Cross-border estates

Living in Singapore, you may have an international lifestyle and perhaps own assets located in multiple jurisdictions. You may even have acquired a foreign asset from your ex-spouse as part of the divorce settlement.

In these circumstances, you have a cross-border estate, which will add a level of complexity to your wealth and succession planning if ‘conflict of law’ issues arise. Broadly, conflicts may arise between the laws of different countries when determining which law should ultimately govern the succession of your assets at death. To resolve such conflicts, countries have developed domestic ‘private international law’ rules to determine which law should apply in different circumstances. This is a particularly complicated area of law and beyond the scope of this article, so formal legal advice should be sought if such rules may be relevant to you.

As a general overview, if you are domiciled in England at the time of your death, then English private international law rules will apply to the succession of your estate. Having British nationality and a British passport does not automatically mean you have a domicile within one of the countries of the UK. The concept of ‘domicile’ under English law is rather nebulous and made up of a variety of relevant factors that seek to draw out a person’s strength of connections to a particular jurisdiction and their current and future intentions. It is important to bear in mind that domicile can differ for succession purposes and UK taxation purposes.

If you have an English domicile, the general rule is that ‘moveable’ assets (e.g. paintings, jewellery, shares etc.) devolve in accordance with English law, whereas the succession of ‘immoveable’ assets (e.g. real estate) is governed by the local laws in which the asset is situated. Under English law, a person generally has complete testamentary freedom to dispose of their entire estate on death provided they have a valid and effective English Will in place. This widely contrasts with the rules in civil law jurisdictions (such as countries in Europe) where a system of ‘forced heirship’ operates which dictate that a certain portion of a person’s estate must devolve to certain family members in prescribed percentages and cannot be altered by a Will.

A situation could occur where your English Will governs the succession of your worldwide estate, but it does not when it comes to your holiday home in France, for example. The EU Succession Regulations were introduced in 2015 to avoid these types of situations and harmonise succession laws for cross-border estates involving EU countries by enabling a person to choose whether the law applicable to their whole estate wherever situate and whether moveable or immoveable should be that of either their habitual residence at the time of their death (the default position) or their nationality, which must be elected in a Will to override the default position. Therefore, if you own real estate in an EU country, you have the option to elect in your Will that English law governs the succession of that property on the basis of your British nationality. Brexit has had no impact on your ability to make such an election.

Nonetheless, this only applies to assets situated in EU countries. Conflict of law issues will still exist if you own assets in other civil law countries with forced heirship such as Vietnam, the Philippines and Japan. Careful planning will be necessary for such assets, particularly if they are valuable

Wills

Both England and Singapore are common law jurisdictions and therefore provide for testamentary freedom facilitated by a valid and effective Will. If a person dies without one, then the relevant intestacy rules will apply to the succession of their estate. Such rules dictate who can inherit from the estate and in what manner, which are likely to be contrary to the deceased’s wishes. To avoid this situation occurring, it is vital that a person has a Will regardless of their circumstances.

Being newly divorced, it is critical that you update your Will if you have one already. For example, it may leave everything to your ex-spouse and appoint them as an executor of your estate, which is a common and appropriate arrangement for married couples but not for divorcees.

If you are domiciled in England and have an existing English Will, divorce does not revoke it. Your ex-spouse is treated as if they had died at the date of the decree absolute. This could inadvertently result in an intestacy situation if your existing Will leaves everything to your ex-spouse but is silent on what should happen in the event of their death. Problems can also arise if your ex-spouse is named as the sole appointed executor and trustee in your existing Will and fails to appoint substitute executors and trustees in the event of their death.

If you are not domiciled in England, then your Will could create a discretionary trust over your estate for the benefit of your children (but not for your ex-spouse). This may be very useful in long term tax planning for any of your children (and successive generations) who may live in the UK in the future and therefore have a UK domicile; it avoids your assets and wealth your children may not immediately need from falling into their own individual estates for UK inheritance tax purposes.

Minor children

If you have minor children, an important question will be: who should be their guardian(s) if both you and your ex-spouse pass away while they are still minors? This can be a tricky and highly emotive issue but if you and your ex-spouse are able to agree on a guardian in this scenario it is best to record this in a separate document signed by you both rather than leaving it to be stated in your respective Wills (which is common practice), one of which could be changed without the other’s involvement or knowledge.

Another important consideration is that if your ex-spouse does become your children’s sole guardian following your death, they could have absolute control over any wealth your children inherit directly from your estate until they reach 18 years old. Any risk that your ex-spouse may abuse their position and enrich themselves from your wealth may be mitigated if under the terms of your Will, you create a trust over it for the benefit of your children to be managed and controlled by independent trustees appointed in your Will.

Lifetime trusts

Singapore has a thriving and robust professional trusts and fiduciary services industry and a modern trust law. If your estate is of significant value with surplus wealth, you might wish to create a discretionary trust during your lifetime as part of your estate planning. A discretionary trust is so-called because it is made by the ‘settlor’ (you) in favour of a class of potential beneficiaries (for example your children and immediate family). The appointed trustee(s) have absolute discretion to determine how much (if anything), when and in what manner potential beneficiaries receive funds from the trust.

Discretionary trusts are flexible and enable the trustees to take into account the changing circumstances of the beneficiaries. It is usual for the settlor to write a non-legally binding letter of wishes to the trustee(s) to provide guidance on how the trustee(s) should consider exercising their discretion and manage the trust. This is a flexible mechanism, as a letter of wishes can be changed from time to time without any legal formality.

Holding assets through a trust structure can be advantageous for a number of reasons:

  • it allows you to plan for the succession of assets for the benefit of future generations of your family;
  • it avoids the need to go through the probate process on death for assets held in the trust;
  • it may assist with asset protection and tax planning for your family; and
  • it may help in family governance or business succession planning.

Trusts are not appropriate in every case for particular reasons. For example:

  • a core feature of a trust is that the settlor gives up a significant degree of control over the trust assets, which some may not find comfortable (although there may be ways to mitigate this to some extent);
  • the creation of a trust is likely to give rise to UK inheritance tax consequences if you are UK domiciled (or deemed to be so domiciled for tax purposes), or if you are non-UK domiciled but transfer UK assets (or non-UK companies owning UK residential property) into a trust; and
  • other rules regarding the UK taxation of offshore trusts may apply if beneficiaries of the trust are UK tax resident (for example, children being educated in the UK) or you plan to relocate to the UK in the future. These rules can be complex, and you may decide that the cost and effort of navigating the complexities is disproportionate to the non-tax advantages of a trust.

Incapacity planning

A growing feature of estate planning is to ensure arrangements are in place to deal with the eventuality of a person becoming mentally incapable. Given your connections to the UK and Singapore, you may have created Lasting Powers of Attorney (LPAs) in each jurisdiction already, whereby you appoint someone as your attorney to make decisions on your behalf regarding the management of your personal affairs if you lose mental capacity.

There are two forms of LPA available in England, one relating to property and financial affairs, and the other dealing with health and personal welfare. During your marriage, you may have created one or both types of LPA, and perhaps appointed your ex-spouse as an attorney. Your divorce will have had the effect of terminating their appointment, which could have the wider knock-on effect of terminating the LPAs entirely depending on how attorneys are appointed. For this reason, it is advisable to review and update your existing English LPAs following your divorce. This is also advisable if you have an LPA in Singapore or its equivalent in any other jurisdiction where you have assets.

The article was first published on 25 April 2022 by Expatriate Law as part of their ‘Guide to British Expats in Singapore’ e-book.

Alfred Liu
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