England and Wales

*Updated October 2019*. NB: Information about the laws of trusts and estates is found in the jurisdictional summaries of England & Wales, Northern Ireland and Scotland. Legal system, taxation and other matters (anti-money laundering) relating to the UK are found in the UK jurisdiction report.


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• Legal system
• Inheritance and succession
• Estate planning
• Taxation
• Residence and domicile
• Other relevant information

Legal system

The United Kingdom of Great Britain and Northern Ireland contains three major legal jurisdictions: England and Wales, Northern Ireland and Scotland. England and Wales form one jurisdiction: Wales has not had its own legal system distinct from England since medieval times.

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Inheritance and succession

Succession

In England and Wales, persons or ‘testators’ are free to leave their estate to anyone they choose, subject to the court’s powers to consider a claim under the Inheritance (Provision for Family and Dependants) Act 1975 (the 1975 Act). The 1975 Act allows, where a deceased died domiciled in England and Wales, certain categories of person to make a claim against the estate if they have not been left anything or they do not consider they are receiving a sufficient portion of the estate. The claim is based on the concept of reasonable financial provision.

Family law and defined inheritance rules

For a will to be in valid form it must be made in accordance with the rules of the country in which the deceased died domiciled, habitually resident or a national at the time the will was executed, or in accordance with the law of the country where it was executed.

i) Requirements for a valid will
In order to create a valid will or codicil, the document must conform to legal requirements and the testator must have capacity to make a will. The testator must be over the age of 18 years; there are special rules, which apply to a testator in the Services.

The test as to mental capacity to make a will is that the testator understands the nature of the act and its effects, the extent of the property being disposed, and claims on the estates, and does not have a disorder of the mind influencing or distorting their actions. Mere eccentricity does not make a will invalid. A testator who is a patient under the Mental Health Act 1984 can make a valid will in a lucid interval.

Where a testator does not have the mental capacity to make a will, an application can be made to the Court of Protection to make a will on the testator’s behalf. The Court has no jurisdiction to make a will for a minor, nor can the will validly dispose of movable property outside England and Wales.

ii) Forms/types of wills
There are specific requirements relating to the validity of wills that can be found in the Wills Act 1837, as amended, including that the will is in writing; the will is signed (name, initials or mark) by the testator, or by some other person in the testator’s presence and at the testator’s direction; and, the testator intends by signature to give effect to a valid will. There are also provisions as to attestation regarding how the testator’s signature should be made or acknowledged in the presence of two independent witnesses.

The costs of administering an estate are payable out of the estate before it is distributed o the beneficiaries. In the event that there are insufficient assets in the estate to pay all liabilities, funeral and administrative expenses and the legacies, then the legacies will be abated in accordance with a set formula.

iii) Intestacy rules
In the event that a deceased person has not made a valid will or has made a will that does not dispose of part or all of the estate, the estate will be intestate.

The Administration of Estates Act 1925 sets out a prescribed list of people who can benefit from an intestate estate in order of priority. The first four categories are: spouse/civil partner; issue; parents; brother(s) or sister(s) of the whole blood (ie having both the same mother and father as the deceased) and their issue.

iv) Spousal/civil partners’ rights on death
A surviving spouse/civil partner does not have automatic entitlement to a share of a deceased’s estate. Under the 1975 Act, however, a surviving spouse/civil partner is entitled to a higher level of financial provision than another claimant as the standard by which reasonable financial provision is measured in the case of a spouse/civil partner is such financial provision as would be reasonable for the spouse/civil partner to receive. With other applicants, the standard is based on what is reasonably required in the circumstances for their maintenance.

Probate process

On the testator’s death it is the duty of the testator’s executors to administer the estate. In order to collect assets, pay liabilities (including taxes) and distribute the estate in accordance with the will it is usually necessary for executors to obtain a Grant of Probate.

The process involves the executors, confirming that they are willing to act and, having previously obtained details of the assets, liabilities and any tax due in an estate, swearing a prescribed form of oath containing these details. Depending on the size and nature of the estate, it may also be necessary to give details of it to HMRC.

If a person dies intestate or makes a will where none of the executors is able or willing to act, then statute prescribes a list of people who may apply to administer the estate. In this case, application to the Probate Registry is for a grant of letters of administration.

If a deceased owned assets in other jurisdictions it may be necessary to obtain probate in those jurisdictions also and local advice should be sought.

Other assets, such as certain pensions; death-in-service benefits; joint property held as ‘joint tenants’ that passes by survivorship; nominated assets; and trust assets may pass on death but not in accordance with a will or intestacy. These assets do not require probate.

Mental capacity

The provisions of the MCA 2005 apply when an individual’s competence to enter into a transaction or to exercise rights are in question during his lifetime. A person lacks capacity at a particular time in relation to a matter if they are unable to make a decision for themselves in relation to the matter because of an impairment of, or a disturbance in the functioning of, the mind or brain.

Section 1 of the MCA 2005 sets out the following principles that apply for the purposes of the MCA 2005:

• An individual is assumed to have capacity unless it is established that they do not.
• An individual is not to be treated as unable to make a decision unless all practicable steps to help them do so have been taken without success.
• An individual is not to be treated as unable to make a decision merely because they make an unwise decision.
• An act done, or decision made, under the MCA 2005 for or on behalf of an individual who lacks capacity must be done, or made, in their best interests.
• Before the act is done or the decision is made regard must be had to whether the purpose for which it is needed can be as effectively achieved in a way that is less restrictive of the individual’s rights and freedom of action.

A lasting power of attorney is a document under which an individual confers authority on another to make decisions about his personal welfare or his property and affairs even in circumstances where the individual no longer has capacity, provided that it has been registered with the Public Guardian.

The Court of Protection (the Court) has jurisdiction under the MCA 2005 in relation (among other things) to adults habitually resident in England and Wales and the property of adults in England and Wales. It also has a limited jurisdiction over other individuals present in England and Wales.

The Court may make declarations as to the capacity of an individual and the lawfulness of actions in relation to the individual.

The Court may, by order, make decisions on behalf of an individual who lacks capacity in relation to matters concerning their personal welfare or their property and affairs, including decisions relating to:

• The control and management, sale, gift and other dispositions of his property, including the acquisition of property on their behalf;
• Carrying on their business;
• Carrying out any contract entered into by them;
• The settlement of their property, whether for their benefit or for the benefit of others;
• The execution for them of a new will; and
• The conduct of legal proceedings on their behalf.

The Court may appoint a person (a ‘deputy’) to make decisions on behalf of an individual who lacks capacity in relation to matters concerning their personal welfare or their property and affairs.

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Estate planning

Use of trusts in estate planning

The tax legislation in the UK favours outright gifts to individuals. In appropriate circumstances a trust arrangement may nonetheless be suitable. They can be established during the settlor’s lifetime or under their will. In addition, in certain circumstances, a trust will be created under the rules relating to intestacy.

There are various anti-avoidance provisions where lifetime trusts are established and the settlor, their spouse/civil partner and/or dependent children may enjoy certain benefits under the trust. Different provisions apply for income tax, CGT and IHT purposes. Additional complex anti-avoidance provisions apply if the trustees are resident outside the UK. Further complications arise where the settlor and/or beneficiaries are domiciled or resident outside the UK. As explained in the UK jurisdictional information, significant changes regarding offshore trusts and certain foreign domiciliaries were enacted by Finance (No 2) Act 2017 (these changes being effective from 6 April 2017) and Finance Act 2018 (these changes being effective from 6 April 2018).

Advice should always be taken:

• to ensure the position with respect to the trust being established is clearly understood; and
• where an individual is a settlor or beneficiary of a trust and is going to become UK resident.

In addition, trustees of offshore trusts, foreign domiciled settlors and beneficiaries should take advice in connection with the changes.

There are two main types of voluntary private trust: interest in possession (IIP) and discretionary/accumulation trusts.

• IIP trusts can be established where there is a need to provide a beneficiary with income as it arises or the use or enjoyment of trust property, as of right, rather than as a result of the exercise of a discretion by the trustees. Such rights are commonly conferred for life or until remarriage. Trustees are usually given dispositive powers to distribute or apply capital to or for the benefit of a class of beneficiaries.
• Discretionary trusts are for when it may be preferable to withhold any benefits as of right but to confer dispositive powers on the trustees over capital and income.

For income tax purposes there are separate regimes for taxing property in respect of which a beneficiary has an interest in possession and property over which the trustees have discretion. Trustees of discretionary/accumulation settlements are subject to tax at the special trust rates. For 2018/19 and 2019/20 these are 38.1 per cent for dividend income, and 45 per cent for all other income. The first slice of the trust rate income (referred to as the standard rate band) is, however, subject to tax at lower rates, being 7.5 per cent for dividend income and 20 per cent for all other income. The standard rate band is GBP1,000 but this is subject to anti-fragmentation provisions that reduce it proportionately if there is more than one trust established by the same settlor in the tax year. The minimum the standard rate band can go down to is GBP200.

Trustees of interest in possession trusts are taxed on dividend income at the dividend ordinary rate (10 per cent) and on all other income at the basic rate (20 per cent). The exceptions to this general rule are capital receipts taxed as income. These receipts, regardless of the type of private trust, are subject to tax at the special trust rates.

It should be noted that the changes to the dividend tax regime removed the dividend tax credit from UK residents. This is not the case for non-UK resident trusts subject to income tax on UK dividend income.

In contrast to the income tax provisions, there is just one CGT regime applicable to trustees, with a fixed CGT rate of 20 per cent, with an additional 8 per cent being applied on the disposal of carried interest and residential property (that does not qualify for principal private residence). In general, trustees of interest in possession settlements have better access to CGT reliefs. CGT may be payable when chargeable assets are settled into or distributed in specie from trusts. In some cases reliefs may be due and advice should be taken.

There is a special elective income tax and CGT regime for ‘vulnerable beneficiaries’ (broadly, trusts involving disabled persons or minor children who have lost a parent). Advice should be taken where the trust qualifies to see if the election would be beneficial.

A lifetime transfer of value to a settlement will be a chargeable lifetime transfer, unless it is to a qualifying disabled settlement. As such, if property in excess of an individual’s nil-rate amount is settled on trust (other than a bare trust) there may be IHT charges (again reliefs may be available and advice should be taken). The trust will be a relevant property trust so the trustees may be liable for IHT (at a maximum rate of 6 per cent) on the value of the trust property at every 10th anniversary of the establishment of the trust and also on the value of capital distributions out of the trust.

There are certain trusts established by will or intestacy that will not be relevant value trusts. Broadly, these are:

• Immediate post-death interest trusts, where the value of the trust property is deemed to be within the estate of the life tenant for IHT purposes.
• Certain trusts for bereaved minors (the trust must provide for absolute vesting by the age of 25). Where there is absolute vesting at or under the age of 18, there will be no IHT when property ceases to be held in the trust. Where there is an age 18-25 trust and vesting at 25, the maximum rate of IHT will be 4.2 per cent, with a lower IHT rate for vesting between the ages of 18 and 25.

From 6 April 2017 IHT has applied to:

• UK residential property owned by foreign domiciliaries (or trusts settled by foreign domiciliaries) through a foreign company or partnership;
• relevant loans (broadly, a loan where the amount lent has been used for the acquisition, enhancement or maintenance of a UK residential property or a loan to repay any loan used for such purposes); and
• security, collateral or a guarantee given in connection with a relevant loan.

Use of foundations in estate planning

NOT APPLICABLE

Types of entities

This summary addresses voluntary trusts, rather than constructive, implied or resulting trusts.

i) Valid constitution

A voluntary trust is created where:

• the settlor intends to create a trust orally, by conduct or by writing (no special words are necessary), and the trust property and the beneficiaries are identifiable;
• some person is able to benefit under the trust and enforce it;
• it is completely constituted, through a declaration of trust of property by the settlor or by proper transfer of property to the trustees with declaration of the applicable trusts.

A trust may be set aside by the court if the trust instrument was executed under duress, under a mistake or procured by fraud, misrepresentation or undue influence.

ii) Duration and termination

The duration of a trust is restricted by perpetuity rules: for any trust created since 6 April 2010 interests must vest within 125 years. Subject to that, a trust terminates when:

• the trusts are carried out;
• there is no longer any property subject to the trusts;
• any power of revocation is exercised; or
• all beneficiaries of full age and capacity direct a transfer of the property by the trustee.

In relation to any trust created after 6 April 2010, accumulations of income are unrestricted.

iii) Beneficiaries

During administration of the trust, beneficiaries have the rights given to them under its terms. A beneficiary of an IIP trust is entitled to net income of the trust fund and may be entitled to occupy trust land. An object of a discretionary trust has a right to be considered as a potential recipient of benefit by the trustees and a right to have their interest protected by a court of equity. At the end of the trust, beneficiaries interested in the capital are entitled to call for a transfer of the assets.

iv) Trustees

The settlor appoints the initial trustees, who assume office on acceptance, either express or implied. No more than four persons may be appointed as trustees of land. Fewer than two trustees of land cannot give a valid receipt for capital money arising on a disposition of land, except in the case of a trust corporation.

v) Protectors

Protectors are not commonly used for trusts where the trustees are resident in England and Wales. Provision for a protector is more common for offshore trusts governed by the law of England and Wales. Where provision is made for such an office, the trust instrument defines the powers and duties.

vi) Role of public trustee or guardian

The public trustee may act as an ordinary trustee, a judicial trustee or a custodian trustee, either alone or jointly with others, but not of certain trusts, including those that are for charitable purposes or involve the carrying on of business. A judicial trustee may be appointed by, and under the control of, the court, when administration of the trust has broken down. A custodian trustee, which must be a trust corporation, holds trust assets and documents while others carry out the administration of the trust.

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Taxation/Residence And Domicile And Other Relevant Information

See UK factfile

Key resources for further information

PUBLICATIONS

• Tristam & Cootes, Probate Practice (LexisNexis, 2018)
• Butterworths Wills Probate & Administration Service (LexisNexis, Issue 99, June 2017)
• Williams, Williams on Wills (LexisNexis, 2016)
• Underhill & Hayton, Law of Trusts & Trustees (LexisNexis, 19th Edition) 

WEBSITES

• The Law Society Probate Section: http://communities.lawsociety.org.uk/private-client/practice-areas/wills-and-probate/
• Office of the Public Guardian: www.publicguardian.gov.uk
• Probate Registries: www.justice.gov.uk/courts/probate/probate-registries
• Probate: www.gov.uk/wills-probate-inheritance/applying-for-a-grant-of-representation

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STEP branches in England & Wales

We currently have 25 STEP branches in England & Wales. 

• STEP Beds, Bucks and Herts
• STEP Birmingham
• STEP Bournemouth
• STEP Bristol
• STEP Cambridge
• STEP Central Southern
• STEP Cheshire
• STEP City of London
• STEP East Midlands
• STEP Essex
• STEP Gloucestershire and Wiltshire
• STEP Kent
• STEP Lakes and Lancaster
• STEP Liverpool
• STEP London Central
• STEP Manchester
• STEP North East and Cumbria
• STEP Norwich and Norfolk
• STEP Suffolk and North Essex
• STEP Surrey
• STEP Sussex
• STEP Thames Valley
• STEP Wales
• STEP West of England
• STEP Yorkshire

Firms in England & Wales

You can search for firms in England & Wales using the STEP Directory

Members in England & Wales

We have more than 6,500 members in England & Wales.

You can search for STEP members in England & Wales using the Member Directory