8 April 2019

Inheritance in the Twenty-First Century

Michael Armstrong, Senior Associate in our Private Client team, has written an article for Charles Stanley’s series on inherited wealth. The article, reproduced below, explores how the increasingly free flows of data and people across the globe will affect the transfer of wealth to the next generation.

Information and individuals can now travel across the globe with an ease barely conceivable a generation ago. These increasingly free flows of data and people have significant implications for both families looking to pass wealth down the generations and their advisors. Young people who establish new lives overseas on a permanent basis may be able to assert non-UK domiciled status, which has significant tax and other legal effects. In addition, the pressures generated by new technology seem to be having an impact on young people's mental health. There are also significant consequences for privacy.

Citizens of nowhere?

Overwhelmingly, those under twenty-five voted to remain within the open borders of the European Union. Nearly five million Britons now live overseas. This mirrors a wider global trend: people under the age of forty are increasingly moving across global borders in search of new economic opportunities. The UN stated in a 2017 report that international migration now “touches nearly all corners of the globe”: it found that 258 million people lived outside their countries of origin in 2017, an increase of 85 million people since the millennium.

From a legal perspective, the trend towards emigration from ancestral homelands will have a considerable impact on the next generation’s domicile and that of their children. Broadly speaking, an individual’s domicile is the place that they regard as their permanent home. Domicile remains conceptually rooted in the nineteenth century, and is one of the few areas of English law in which legitimacy still matters.

Everyone is born with a “domicile of origin” at birth, which will be the same as that of their father on the day he is born if his parents are married. If not, or their father has died before birth, it will follow that of their mother when he is born. Mentally capable adults can replace this with a “domicile of choice” in another jurisdiction by establishing a permanent home there instead. It is up to the individual concerned to prove that his domicile has changed. This requires proof of a clean break with the domicile of origin.

Domicile can determine a range of important matters including succession to assets, exposure to certain taxes, and the forum in which divorce proceedings may be brought. In the UK, fiscal questions are perhaps most pertinent: a non-domiciled individual is not usually exposed to UK inheritance tax on his non-UK assets, and is (at least for a time) able to claim the remittance basis to shelter his non-UK income and gains from UK taxation.

Given the value of non-UK domiciled status, attempts to claim it are ripe for challenge. As the UK population grows older and the tax burden falls on fewer people of working age, the UK government is increasingly keen to avoid what it regards as leakage of underpaid tax. Since 2009, HMRC has employed a specialist unit of over 400 staff specifically to review the affairs of wealthy individuals and ensure that they pay all the tax they owe. The unit claims to have raised an additional £416 million in the 2015/16 tax year.

Enquiries into domicile are a major weapon in the unit’s arsenal. Domicile is a qualitative concept, and so a wider range of factors than are usually relevant to tax matters may be taken into account when establishing a person’s domicile. For example, the location of an individual's home(s), the clubs and societies to which they belongs, where they vote, the identity of their preferred political causes and even the sports teams that they support may have a bearing on matters.

Domicile challenges by HMRC are becoming more common, and this trend seems likely to continue as more people establish long-term homes abroad. Individuals should preserve any evidence of any intended clean break with their domiciles of origin when moving overseas on a permanent or indefinite basis.

The ease of modern electronic communications may pose future problems on this front. If required, memberships of traditional clubs and societies can be resigned. On the other hand, a life lived online can arguably be lived anywhere. Regular contact with old friends via video calls and WhatsApp, and membership of Facebook groups tied to a domicile of origin could be used by HMRC to assert that no clean break has occurred with a taxpayer's domicile of origin. It will be interesting to see how the law in this area develops.


In the space of twenty years, the nature of bank statements, photographs, videos and even cash itself have all changed beyond recognition. These were all once exclusively solid items, but have largely now been dissolved into electronic data flitting between computers. Information is now created and exchanged at an astonishing rate: on average, in each minute of the day Snapchat users send 527,760 photos, 456,000 tweets are sent on Twitter, and there are 803,000 comments and statuses updated on Facebook.

While details are shared of holidays, engagements, achievements and days out, discussing financial information in public remains taboo. People who will report medical conditions online in intimate detail would not dream of stating their salary in the same forums. Despite the fashion for sharing information, a desire to protect financial privacy remains constant.

Unfortunately, once created, data is simple to replicate and share, but incredibly difficult to control. Large data leaks remain a real risk: for example, the "Panama Papers" leak of 2016 involved 2,660 gigabytes of data (i.e. 11.5 million documents). Once published electronically, information also remains potentially available on an indefinite basis. For example, despite the best efforts of Clarence House, it remains perfectly possible to obtain the tips on food, fashion and meditation that the Duchess of Sussex published online while she was still Ms. Meghan Markle.

Younger clients already seem more aware of these risks than their parents: as a generation who grew up with the internet, asking their advisors to provide details of their cybersecurity arrangements seems natural. Given the pace of technological change, families and their advisors will need to keep these under review and adapt to counter new electronic threats as they emerge.

There is also more concern about the adverse publicity that can arise when details of perfectly legitimate tax planning are leaked. The Duke of Westminster's trustees provide a high-profile recent example: documents obtained by the Guardian suggest they felt that the reputational risk arising from any use of complex offshore trust structures would outweigh any tax saved. Others have voiced similar concerns regarding tax planning that falls within the rules. Nonetheless, this trend has developed in a relatively benign fiscal environment. Whether it will persist if taxes increase significantly remains to be seen.

Paying the price?

Diagnoses of mental ill health among young people are rising, and so planning for incapacity is ever-more important, regardless of age. Our understanding of mental illness changed for the better in the last century. Importantly, the law now looks to an individual’s mental capacity i.e. a person’s ability to retain information and use it to reach informed decisions at a given point in time.

Traditionally, questions of capacity have been targeted at the elderly. However, an uncertain economy and social media together place young people in the UK under significant psychological pressure. A mental health crisis is emerging among the young: 22% of women over age fourteen have reportedly self-harmed, while suicide is the most common cause of death in British men under forty.

This is perhaps unsurprising, given that young people are seeking jobs in the most uncertain market for a generation. Many are becoming accustomed to a world of considerable student debts, precarious self-employment and little hope of property ownership without parental assistance. These undoubted pressures are intensified by social media, as young people see their peers’ lives through the filters of Facebook, Instagram and Snapchat.

On current trends, people of all ages should plan for periods of mental ill health. In particular, UK residents (or holders of substantial UK assets) should consider putting lasting powers of attorney for both health and financial matters. These will enable suitable attorneys to be appointed to assist individuals who cannot make decisions for themselves. People of all ages should consider putting these or equivalents in place in every jurisdiction in which they have significant assets: the alternative is likely to be a costly and slow court application by other family members at an already stressful time.


Despite the pace of change, Benjamin Franklin’s well-worn observation about the inevitability of death and taxes continues to hold true. When planning for the transfer of wealth to the next generation, families and their advisors need to consider the context in which it will take place. On current trends, planning for changes of domicile, and to counter both electronic security risks and bouts of mental ill health are likely only to increase in future importance.

Michael is a senior associate in our Private Client team.

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