Case Study: Mr Dunlop’s Cross-border Inheritance – Part 1

So you think your international affairs are complicated?…

(Part 1 in series of real life foreign inheritance stories from international succession and probate specialist Dan Harris of Stone King)

Mr Dunlop was born in England but schooled in Hong Kong. He spent most of his working life in the UK – but three and a half years before his death he moved to France permanently.

Like most people who decide to live in France his eventual move was the culmination of many years of planning and hard work. Mr Dunlop had devoted himself to learning French, he had travelled France extensively and had purchased a holiday home in the enigmatic seaside town of Le Touquet, said by many (most notably Le Touquet estate agents) to be the ‘chicest’ town North of St Tropez…

As for work, Mr Dunlop was a project engineer who worked for a pharmaceutical giant in the UK and was able to transfer to an equivalent post in central France. The dream had been achieved; Mr Dunlop bought a property in the Loire Valley and resolved never to return to live and work in the UK.

But he had never considered what would happen to his estate if he died, or perhaps he simply didn’t care. After all, Mr Dunlop was unmarried, he had no children and owed no responsibilities to anyone else. He was a carefree individual who spent his free time flying his light aircraft around France and who made great efforts to become part of the social fabric of the Loire Valley and of Le Touquet.

The plan began to unravel two years after Mr Dunlop’s move to France when his employer closed their facility in France. Shortly afterwards the world’s economy was thrown into turmoil when the American toxic debts scandal emerged and suddenly Mr Dunlop discovered that there was no demand for highly skilled project engineers in rural France. He needed to find a job to prevent his savings from eroding but he was determined not to return to the UK.

As the months passed Mr Dunlop accepted that in order to keep the ‘French dream’ alive he had to think laterally, and eventually he took a job on a 12-month contract in Dubai, which enabled him to retain his permanent home in France.

Ten months after moving to Dubai, he returned to France for a short holiday and was killed in a light aircraft accident near Tours, close to his home.

When he died he had immovable property (buildings and land) in France and a flat in London, and moveable property (everything else including bank accounts and investments) in Hong Kong, England, Scotland, the Isle of Man, France and Dubai.

Unsurprisingly Mr Dunlop’s family had no idea where to begin with the administration and were relieved to find I could deal with all six jurisdictions and remove the burden from them.

What was clear from the outset was that, because Mr Dunlop had left property all over the world, this was going to be a very complex matter. I would have to obtain court documents in at least two common law jurisdictions, one civil law jurisdiction and a Sharia law jurisdiction, to facilitate the collection and distribution of Mr Dunlop’s assets.

The key to which jurisdiction would govern the taxation and devolution (who gets what) of Mr Dunlop’s estate was his domicile. Unusually the facts sufficiently uncertain to make a case that he was domiciled in England, France or even Dubai.

The Domicile Options

Dubai jurisdiction

On the face of it an inheritance ‘tax-free’ Dubai domicile would have been favourite, but the succession would have been subject to Sharia principles, which in the eyes of the Dunlop family would have produced an inequitable result. It is possible to appeal to Dubai’s civil courts to have the estates of non-Muslim foreigners distributed under non Shariah principles, but it is complex, time consuming, very costly and the outcome is unpredictable.

English Jurisdiction

If the estate had been administered in England the outcome would be predictable, the costs reasonable and the assets would have been distributed under the English intestacy rules. In Mr Dunlop’s circumstances the deceased’s surviving parents would have inherited the entire estate and would have paid 40% tax on all taxable assets over the tax free allowance. Mr Dunlop’s parents were elderly, they did not need their son’s assets, and without further action it would have created an ongoing inheritance tax issue.

French Jurisdiction

A French jurisdiction would have meant devolution under the French intestacy rules which in Mr Dunlop’s situation would have meant the surviving parents received 25% of the estate each, and the remaining 50% would pass to the deceased’s two siblings equally. Each party benefitted from their own tax free allowance, although the siblings paid 45% tax, and the parents 25% tax each. The outcome was predictable and the costs of administration reasonable.

In conjunction with the deceased’s family (the beneficiaries), we established that a French domicile offered our clients the best overall solution so we put together a detailed domicile case, which was accepted by the Revenue – and having obtained a French Acte de Notoriété and Déclaration de Succession we set about collecting the assets in France.

We obtained an English grant of letters of administration for the English assets concurrently, which we used to release the assets in the Isle of Man. We also had the English grant resealed by the High Court in Hong Kong and collected the assets there.

A further layer of complexity was added because three weeks after the death of the deceased, his father died, and of course his father was a beneficiary under the French intestacy rules, and he had a will, which was only partly accepted under the French rules.

While it is unlikely that your circumstances will be quite this complicated, the ‘moral’ of the story is to ensure that even if you only have a single property in France, you must: take proper advice, have a valid and appropriate Will and above all be aware of the action you need to take now, in preparation for the August 2015 changes to the law.

As well as helping British-based people with their overseas succession and tax issues, we are also able to help foreign estates recover British property, either by (in limited cases) resealing foreign Grants of Probate, or alternatively by applying for limited, or full English Grants of Probate.

Content written and provided by Dan Harris.

The author – Dan Harris is a solicitor working for Stone King LLP in the Bath and London offices and one of only a few cross-border specialists holding the Society of Trusts and Estates Practitioners advanced certificate in International Succession and Planning. You can contact Dan on – 01225 326761 or by email [email protected]

Receive free updates through our Tax & Law quarterly newsletter .