Scotland

*Updated July 2020*.

Quick links

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

Legal system

Broadly, a unique blend of civil law and common law.

top

Inheritance and succession

Succession

In order to create a valid testamentary writing (usually a will or codicil) the document must conform to certain legal requirements and the testator must have capacity (there is a presumption of sanity). The testator must be aged 12 years or over. The Requirements of Writing (Scotland) Act 1995 sets out the basis for executing a valid will after 1 August 1995. To be self-proving, the will must be in writing, subscribed by the testator, signed on each separate sheet and witnessed by one identified person who is aged 16 years or over and has mental capacity. If the will is not self-proving, it can still be valid if it can be separately proven that the testator did sign a written testamentary document.

A testator can revoke a will by making a subsequent one, destroying the will by means of a physical act coupled with the intention to revoke it or by making deletions or alterations post-execution (for example by scoring out their signature). While the subsequent marriage or divorce of a testator does not currently affect the validity of a will, if a testator divorces or dissolves their marriage or civil partnership, for the purposes of their will, the former spouse or civil partner will be treated as having pre-deceased the testator for succession purposes. This applies whether they were married at the time the will was made or married subsequently. A will can be revoked, however, where, after execution the testator has a child and the will makes no provision for that child (unless it can be shown that the testator deliberately did not make some provision for the child).

Unless the will provides otherwise, debts and liabilities are paid from the residue (broadly what remains after payment of any legacies and tax) of the estate. If the residue is insufficient to meet these, they must be paid from the legacies in an order set down by law.

Where a deceased did not make a valid will or their will fails to dispose of their estate in full, the laws of intestacy apply. The Succession (Scotland) Act 1964 (the 1964 Act), as amended by the Succession (Scotland) Act 2016, regulates the distribution of an intestate estate. There are three strands to this distribution:

• The prior rights of a surviving spouse or civil partner award:
• A right to the deceased’s dwelling house (or share thereof) up to a value of GBP473,000.
• A right to the furniture and plenishings of the deceased’s house (or share thereof) up to a value of GBP29,000
• A cash right to a value of GBP50,000 (if the deceased was survived by children) rising to GBP89,000 (if not so survived).
• The net movable estate is then subject to any legal rights claims, as described below.
• The free estate represents the deceased’s estate after satisfaction of all debts, liabilities, prior rights and legal rights. The 1964 Act sets out a list of those entitled to the free estate, in the following order: natural or adopted children (with representation by their own children); parents (50 per cent) and siblings (50 per cent); siblings (with representation by their own children); parents; spouse or civil partner; uncles and aunts, both maternal and paternal; grandparents; grandparents’ brothers or sisters; and so on.

The executors acting in an intestate estate (executors dative) must take out a policy of insurance known as a ‘bond of caution’ before they can distribute the estate, unless the prior rights of spouses or civil partners exhaust the estate, or the estate qualifies as a ‘small estate’ (under GBP36,000).

Testators are not entirely free to leave their estate to anyone they choose because of the operation of legal rights (see below).

Family law and defined inheritance rules

Yes. The law of Scotland has an element of forced heirship, known as legal rights. The range of people who can claim legal rights is restricted to the testator’s surviving spouse or civil partner and their natural or adopted children (with representation by children of predeceasing children). Any claim is limited to the net movable estate and does not extend to heritable property, namely land and buildings.

At present, a spouse or civil partner is entitled to claim a one-half share of the net movable estate if there are no surviving children, reducing to a one-third share if there are surviving children. Surviving children are entitled, collectively, to claim a one-half share of the net movable estate if there is no surviving spouse or civil partner, reducing to a one-third share if there is a surviving spouse or civil partner.

Legal rights prescribe after 20 years. If an election is made to claim legal rights, the claimant forfeits any provision for them in the will. Certain lifetime gifts must be brought back into account when calculating legal rights. Legal rights can be discharged during the testator’s lifetime or on their death by a formal deed signed by the potential claimant.

A surviving cohabitant may seek an award from the estate of their predeceasing cohabitant, but only where that cohabitant died intestate. The court has discretion over what level of award, if any, to make. Such claims must be made within six months of the relevant death.

A surviving cohabitant may seek an award from the estate of their predeceasing cohabitant, but only where that cohabitant died intestate. The court has discretion over what level of award, if any, to make. Such claims must be made within six months of the relevant death.

In 2015, the Scottish government began a process of consultation on extensive succession reforms. The most crucial of these related to inheritance on intestacy and legal rights rules. In October 2018, the government issued its response to the consultation, clarifying the areas it proposes to legislate on, those where no changes are proposed and those where further consultation will be required.

There are no plans to reform the current law relating to legal rights and calls to remove the distinction between heritable and moveable assets for legal rights purposes, allowing for a 'legal share' over the estate as a whole, have been resisted. There are also no plans to extend automatic succession rights to surviving cohabitants where the deceased left a valid will.
However, the government does propose to legislate in order to

• simplify the intestacy rules where a deceased is survived only by a spouse or only by children; and
• extend the time period for a surviving cohabitant to make a claim for financial provision on intestacy from six months to 12 months.

The government are consulting further on additional reforms to the law of intestacy, including the entitlement of a surviving cohabitant and whether the requirement to bring a court application is appropriate.

Probate process

After death, it is the duty of executors (either those appointed in a will or by the court in the case of an intestate estate) to administer the estate. In order to ingather the deceased’s estate, pay their liabilities (including any tax) and distribute the estate, it is usually necessary for the executors to obtain confirmation. This process involves the executors confirming that they are willing to act and providing details of the deceased’s assets and liabilities by way of a sworn oath. Some assets pass on death without reference to a will or the rules of intestacy, including some death-in-service benefits, trust assets and jointly owned property subject to a survivorship destination.

If the deceased owned assets in another jurisdiction, it may also be necessary to obtain probate/letters of administration in those jurisdictions.

Mental capacity

A power of attorney (PoA) is a document whereby one person (the grantor) gives another person (the attorney) power to carry out actions on the grantor’s behalf. They can be divided into the following main types: general, specific, continuing and welfare.

General powers give the attorney the power to do anything that the donor could have lawfully done with their property, whereas a specific power gives the attorney authority to undertake specific acts only, for example, ‘to sell my company shares’. A PoA can also be limited by time.

PoAs are often used when the grantor would have difficulty carrying out a particular act. PoAs, whether general or specific, have limited use. They continue to apply only for so long as the grantor has mental capacity.

A continuing (property and financial) or a welfare (health and welfare) PoA endures beyond the loss of mental capacity. In both cases, they must include a prescribed certificate from a practising Scottish solicitor, practising member of the Faculty of Advocates or a registered medical practitioner stating that before executing the PoA, the donor understood its nature and effect. Before these deeds are effective, they must be registered with the Office of the Public Guardian, which has supervisory and investigative powers. Where a person has lost their mental capacity and there is no continuing or welfare PoA in place, it may be necessary to seek a court order appointing a financial or welfare guardian, or an intervention order. Such orders are generally granted for a specified period of time and thereafter where necessary and appropriate an application for extension of the order must be made to the court.

Key legislation: Adults with Incapacity (Scotland) Act 2000; Mental Health (Scotland) Act 2015.

top

Estate planning

Use of trusts in estate planning

Trusts are commonly encountered in estate planning. The use of lifetime trusts typically enables the implementation of lifetime gifts (for tax-planning purposes) without ownership passing outright to the intended recipient(s), but rather held in trust for the beneficiaries. Trusts are frequently employed in wills, mainly to ensure that assets intended for younger beneficiaries are held in trust for the beneficiaries until they reach a suitable age, although trusts for adult beneficiaries with asset protection or tax-planning purposes are also commonplace. Trusts also make suitable vehicles for holding assets on behalf of incapable persons.

Use of foundations in estate planning

A private foundation for estate-planning purposes is not a recognised legal entity in Scots law. Family limited partnerships are encountered where the partnership concept is employed to emulate a traditional trust relationship without incurring an inheritance tax lifetime chargeable transfer.

Types of entities

i) Trusts

Closely resembling the trust encountered in common-law jurisdictions, whereby a truster (settlor) transfers the legal ownership of assets to trustees who own and manage the trust fund for the benefit of the beneficiaries in terms of the trust purposes. The trustees have various powers and duties and acting outwith the powers or contrary to their duties results in a breach of trust. Types of trust are typically:

• Liferent trusts: where one beneficiary (the liferenter) or a group of beneficiaries has the right to the trust income and another or others (the fiars) will become entitled to the capital, either on the termination of the liferent or at some other time.
• Discretionary trusts: where the trustees have discretion as to which beneficiaries (from a defined class of beneficiaries) will receive the income and/or capital at such time or times and in such share or shares. Income cannot be accumulated with the trust estate beyond the permitted accumulation period, which is typically 21 years from the establishment of the trust.
• Bare trusts: where the trustees own the assets but the beneficiary is entitled to demand payment of the assets.
• Charitable trusts: likewise assets are owned and managed by trustees but for exclusively charitable purposes for the benefit of the public, as set out in the Charities and Trustee Investment (Scotland) Act 2005 (the Charities Act).

ii) Family limited partnerships

See ‘Use of foundations in estate planning’, above.

iii) Charities

Established for exclusively charitable purposes for the benefit of the public, charities most commonly can take the form of:

• Charitable trusts: see above. While suitable for organisations set up to distribute income and/or capital to other charitable organisations, the absence of separate legal personality and potential personal liability for the trustees renders charitable trusts less suited to directly undertaking charitable activity.
• Company limited by guarantee: as a company the charity has separate legal personality.
• Scottish Charitable Incorporated Organisation (SCIO): a relatively new entity introduced by the Charities Act, the SCIO has separate legal personality but is not subject to all of the compliance and regulation of a company limited by guarantee.

top

Taxation

Income tax system

In respect of all matters in this section, reference should be made to the UK summary except where noted below.

The Scotland Acts of 1998, 2012 and 2016 have given the Scottish government various powers in respect of income tax. Under the Scotland Act 2012, income tax rates in Scotland are set 10 per cent lower than in the rest of the UK, and the Scottish government then determines whether to increase these rates so that they are lower than, consistent with, or higher than the rest of the UK.

In the aftermath of the referendum on Scottish independence in September 2014, the cross-party Smith Commission produced a report recommending the devolution of further powers to the Scottish Parliament, including powers relating to taxation. The Commission’s proposals were translated into legislation in the form of the Scotland Act 2016, which amends both the Scotland Acts of 1998 and 2012. The new Act amends the Scotland Act 1998 so that the Scottish government is able to set any number of income tax rates across any number of bands. These rates and bands apply only to ‘Scottish taxpayers’ and to all income except dividends and bank interest. A Scottish taxpayer, as defined in the Scotland Act 2012, may only be an individual who is UK resident for tax purposes for an entire tax year, as determined by the UK Statutory Residence rules. In order to qualify as a Scottish taxpayer, the individual must:

• be a Scottish parliamentarian;
• have a ‘close connection’ with Scotland; or
• if there is no ‘close connection’ with any part of the UK, the individual must spend more days in the tax year in Scotland than any other part of the UK.

The definition of ‘close connection’ focuses on the location of the individual’s ‘main place of residence’, which is not defined in legislation, and draft guidance as to how the latter might be determined has been issued by HM Revenue and Customs.

In financial year 2018/2019, the Scottish Parliament exercised its income tax-raising powers to make a number of changes to the rates and bands applying to the Scottish rate of income tax. The changes, which took effect from 6 April 2018, were amended in financial year 2019/2020 as follows:

Capital tax system

Legislative powers in relation to capital taxation remain reserved to the UK Parliament. Reference should be made to the UK summary.

Land tax system

Land and buildings transaction tax (LBT) is payable on residential and commercial land and buildings transactions (including commercial leases).  

Tax is payable at different rates on each portion of the purchase price within specified tax bands. For residential transactions, the rates start at 0 per cent for the first GBP145,000 of the purchase price (GBP175,000 for first time buyers), rising to 12 per cent on any part of the purchase price over GBP750,000.  

The LBT additional dwelling supplement (ADS) is also payable on the purchase by an individual of additional dwellings in Scotland, such as second homes and buy-to-let properties and on purchases by non-natural persons with the exception of certain types of trusts. The ADS is charged at 4 per cent of the total purchase price for purchases over the value of GBP40,000.

top

Residence and domicile

In respect of all matters in this section, reference should be made to the UK summary.

top

Other relevant information

Asset protection laws

Yes. A number of provisions exist to restrict the scope for individuals to give away assets with a view to protecting these assets from future claims, such as those for financial provision on divorce or claims from creditors.

In respect of matrimonial claims, financial provision on divorce is normally restricted to assets acquired by either party to a marriage during the course of the marriage (matrimonial property) although a property acquired by one of the parties to the marriage before the marriage with the intention that it would form the matrimonial home is also within the definition of matrimonial property. Assets owned prior to the marriage and assets acquired during the marriage by means of gift or inheritance are excluded from the definition of matrimonial property. However, the legislation does not include any tracing provisions so that assets that are initially outside the definition of matrimonial property might easily be converted into assets that are within it, for example on sale and acquisition of a replacement asset. Furthermore, although assets may be outwith the definition of matrimonial property they might still be a resource that can affect how the matrimonial property is divided between the parties. Generally pre-nuptial and post-nuptial agreements can be legally effective and trusts can also provide useful mechanisms to mitigate exposure to claims.

As regards gifts made to defeat claims made by creditors, various provisions exist to set aside such gifts where they result in the donor being ‘absolutely insolvent’ and are made two to five years before the donor is sequestrated.

top

STEP branches in Scotland

There is one STEP branch in Scotland.

• STEP Scotland

Firms in Scotland

Find firms in Scotland using the Firm Search: Search now

Members in Scotland

Find STEP members in Scotland using the Member Search: Search now