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Why tax exiles find it harder to control their kids...
...and why it is vital that anyone with overseas property gets appropriate advice in relation to inheritances and inheritance tax.

A client recently moved to the Channel Islands. His company remains in the UK and his shareholding in it is very valuable. For many years he had (jokingly?) been in the habit of waving his Will at his kids and threatening to disinherit them if they weren’t nice to him.

Imagine his horror when he realised that under the Jersey Laws of Succession, he can no longer enforce his threat. No matter what provisions he makes in his Will, his wife and children are each entitled, as of right, to a third of the shares.

Similar pitfalls can face those with overseas property. For example, in France, an individual has no discretion, regardless of the provisions of any Will, as to who inherits the element of his estate that is defined by French law as the “Reserved” element.

The Reserved element can be as much as 75% of the total. It will be available to children, parents or spouses in accordance with the French Laws of Succession, which would hardly win an award for contemporary political correctness. Children conceived in an adulterous relationship have their rights reduced by one half and common law spouses have no rights at all.

One option commonly used to circumvent French succession laws is to acquire property through a French entity called a Société Civile Immobilière or SCI.

Alternatively, it is also possible to hold assets in trust to achieve specific desired objectives. However, difficulties can then arise if property is held in a jurisdiction that does not recognise the concept of a trust. Spain is an example of such a jurisdiction. Accordingly, an English Will that leaves Spanish real estate to a UK trust can be very difficult, if not impossible, to implement.

For anyone with overseas interests, it is imperative that reliable advice is obtained in relation to inheritance issues. Appropriate planning is essential if unpleasant surprises are to be avoided.

The key is to take a two-pronged approach to planning. Clients have to understand the consequences in the UK of tax planning strategies that are adopted overseas and, equally, they have to understand the consequences overseas of tax planning strategies that are adopted in the UK.

Clients of MGI member firms in the UK are ideally placed in this regard. They benefit from not only specialist advice on UK tax also from the local knowledge of foreign tax provided by the MGI alliance worldwide.

Simon Denton
Milsted Langdon