Overseas charitable bequests and inheritance tax

9 January 2018 | Applicable law: England and Wales

The recent case of Routier v HMRC [2017] saw the Court of Appeal provide a useful reminder that care needs to be taken where charitable legacies involve an international element.

In this case, Beryl Coulter (who died domiciled in Jersey in 2007) left her sizeable UK residue on trust for the purpose of building homes for elderly people resident in St Ouen in Jersey. The Coulter Trust was established under Jersey Law, and the agreed inheritance tax amount due on the gift, if payable, was £591,724, a sizeable figure.

The Court of Appeal confirmed that only charities governed by UK law can benefit from the charitable exemption from inheritance tax under s.23 Inheritance Tax Act 1984, due to the restriction requiring the trust to be governed by UK law and subject to the jurisdiction of the UK court. This does not violate the principle of freedom of movement of capital, under EU law, even though the relief was restricted to UK charities. The restriction was held to be proportionate as the UK needs to be able to verify information provided about an overseas charity in order to grant the relief, which it could not do in relation to a Jersey charity in this case as, at the time of Ms Coulter's death, there was no mutual assistance agreement between the UK and Jersey. Although the UK has to extend the relief given by s.23 to charities from other EU Member States (and they have to extend their equivalent reliefs to UK charities), Jersey's status meant that the regime was not extended there.

The case serves as a useful reminder that care needs to be taken in similar circumstances. Had the gift been to a UK charity, or to the UK branch of an overseas charity, the problem could have been avoided. Please do contact us if you would like further advice on structuring overseas legacies. Conversely, if your charity is being charged tax on an EU-based legacy, where a charity based in that country would pay less or no tax, please get in touch as we may be able to help.

Treatment of ISAs post death

Slightly less complex tax news comes with confirmation that where a person dies on or after 6 April 2018, their ISAs will retain their tax advantages during the period of estate administration, following the introduction of new regulations by SI 2017/1089. A further tweak will benefit surviving spouses and civil partners, who will be able to add an amount equal to the value of the deceased's ISA at the point it is closed to their own ISA (although there will be a three-year backstop on this). Although charities are entitled to recover income tax deducted during estate administration, there will be a practical benefit as the tax will no longer have to be reclaimed, especially useful where executors struggle to provide R185s.

Online applications

Moving on to procedural matters, the Non-Contentious Probate Rules 1987 have been amended by the The Non-Contentious Probate (Amendment) Rules SI 2017/1034 to enable a pilot of two new ways to apply for a grant of probate or letters of administration.

Firstly, solicitors and probate practitioners will be able to apply online and, secondly, it will be possible for personal applications to be made by statement of truth rather than oath. In both instances, applicants will need to be asked by a probate registry if they wish to take part in the pilot scheme. As mentioned in a previous Charity Legacy Update, whilst measures to simplify and speed up the probate application process are to be cautiously welcomed, there are concerns about the security of online applications and whether the statement of truth will be as effective a measure as the swearing of an oath in person.

Dubai new law allows non-Muslims to write wills

Gulf News reported on 4 December 2017 that non-Muslim expatriates in Dubai were given 'renewed legal protection' to execute wills disposing of assets and properties as of Tuesday 28 November.

It allows non-Muslim expatriates living and working in Dubai to register a will in English under common law.

This follows the creation of a non-Muslim will registry in Abu Dhabi in May earlier this year.

Please click here for further details.

Guides for legal complaints in Scotland

Finally, news from Scotland, where the Scottish Legal Complaints Commission has produced two new guides, which can be viewed here.

One is for consumers who are making their own wills or acting as executors and the other is aimed at solicitors drafting wills and administering estates. Both are based on complaints made to the Scottish Legal Complaints Commission, with the aim of helping with problem areas. Regrettably, the consumer guide does not mention the possibility of leaving legacies to charity, and is perhaps an opportunity missed to alert people to the possibility and practicalities of so doing.

This document (and any information accessed through links in this document) is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document.


Related experience

As a full-service law firm, we are able to provide advice and information about a wide range of other issues. Here are some related areas.

Join the club

We have lots more news and information that you'll find informative and useful. Let us know what you're interested in and we'll keep you up to date on the issues that matter to you.