Changes to inheritance rules this month mean the differences between English and Scottish law are flagged up again, says Peter Shand
WHILE the referendum result may have given the impression of a country united, what was often overlooked was the fact that Scotland already is, and will remain, a separate jurisdiction to England and Wales when it comes to matters of inheritance.
There was a timely reminder with the enactment of the Inheritance and Trustees’ Powers’ Act 2014 on 1 October. The Act changes the rules that apply in England when someone dies without a will, and flags up the differences that apply in Scotland compared to England when it comes to passing on family assets.
There are statutory rules that govern what happens to someone’s estate if they die without having a will. The new rules in England are complex and the starting point is whether the deceased was married at the time of death. If there is a widow or widower, they automatically inherit the first £250,000. If the estate is larger than that, the next step depends on whether the deceased had children. If not, the surviving spouse now inherits the entire estate, although this only applies to deaths after 1 October, 2014. For deaths before this date, the spouse gets a further £200,000 (for a total of £450,000) and the rest is divided between the spouse and the deceased’s parents or siblings.
If the deceased has children, the estate above £250,000 is split in half, with one half passing to the surviving spouse and the other divided equally between the children. This includes illegitimate and adopted children, but not stepchildren. To make matters more complicated, for deaths before 1 October, 2014, the spouse’s half is held in trust so that he or she is only entitled to the income, not the capital. The capital passes to the deceased’s children on the death of the spouse. For deaths after 1 October, the spouse now receives his or her share outright.
The rules in Scotland are quite different. The surviving spouse again gets the first slice of the estate, but that slice is made up of the matrimonial home, up to the value of £473,000, the house contents, up to the value of £29,000 and £50,000 from any remaining assets.
If the estate is larger than this, the next step is to divide the estate into moveable assets and heritable assets. Heritable assets means land and property, whilst moveable property means everything else, including cash, shares, bank accounts, investments, cars and jewellery.
If the deceased has children, the surviving spouse gets one third of the moveable assets. The remaining two thirds pass to the children, divided equally between them, along with any remaining heritable property. If the deceased does not have children, the surviving spouse gets half of the moveable assets. The other half, and any remaining heritable property, passes to the deceased’s parents and siblings. The spouse only gets everything if the deceased has no children, parents, siblings or nieces/nephews.
So which rules apply? It depends where the deceased was “domiciled” at the time of death. English rules apply if someone is domiciled in England and Wales, Scottish rules apply if they are domiciled in Scotland.
Domicile is a tricky concept and is not the same as nationality or residence. An Englishman living in Scotland may still be subject to the rules in England and a Scot living in England may be subject to the Scottish rules.
Broadly speaking, a person’s domicile is the place where they have the closest connection, and it is only possible to have one domicile at one time. You inherit your domicile (domicile of origin) from your parents. You cannot lose your domicile of origin unless, during your lifetime, you actively adopt a new domicile, which is possible once you reach the age of majority (16 in Scotland, 18 in England).
Establishing domicile can be complicated and often counter intuitive. Dying without a will adds a further complication, as well as unexpected and avoidable inheritance tax consequences.
To ensure the certainty of knowing what will happen to an estate after death, everyone should put in place a will, prepared in accordance with the law of his or her domicile.
• Peter Shand is a partner with Murray Beith Murray, qualified to advise on wills and estate planning in England and Scotland.