Inheritance tax and inheritance law in Sri Lanka
Taxation Researcher | January 15, 2021
The Global Property Guide looks at inheritance from two angles: taxation, and what inheritance laws apply to foreigners leaving property in Sri Lanka: what restrictions there are and whether making a will is advisable.
How high are inheritance taxes in Sri Lanka?
No estate duty is payable in respect of the estate of a person dying on or after 13 November 1985. However, administration of the estate is compulsory if the value of the estate is LKR500,000 (US$3,448) or more, or the deceased has left a last will.
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What inheritance laws apply in Sri Lanka?
Sri Lanka´s inheritance laws affect everyone who owns real estate in Sri Lanka.
Sri Lanka has special laws for Muslims, including foreigners. All other persons, including foreigners, are governed by the provisions of statute law enacted in Sri Lanka.
The principal laws which apply to inheritance issues are:
- The Matrimonial Rights and Inheritance Ordinance
- The Muslim Intestate Succession Ordinance
- The Wills Ordinance
- The Prevention of Frauds Ordinance
- The Roman Dutch Law
- The Mohammedan Law
Immovable property (real estate). The general principle concerning jurisdiction over immovable property (real estate) in Sri Lanka is that inheritance is governed by Sri Lankan law. The national law of a foreigner is not applicable to inheritance of immovable property located in Sri Lanka.
Movable property. Inheritance to movable property is governed by the law of the country where the deceased owner was domiciled (resident) at the time of death.
With respect to Muslim foreigners owning immovable property in Sri Lanka, the Muslim Intestate Succession Ordinance states that the law applicable to the intestacy of any deceased Muslim who at the time of his death was domiciled in Sri Lanka or was the owner of any immovable property in Sri Lanka, is the Muslim law governing the sect to which such deceased Muslim belonged.
When citizens of Sri Lanka own immovable property abroad, the law of the country where the property is situated is recognized by Sri Lankan courts as being the applicable law governing inheritance. With respect to movable property, Sri Lankan statute law has recognized the law of the place of domicile as being the applicable law.
Inheritance issues in Sri Lanka are handled by the relevant District Court.
Decisions about the property of non-resident foreigners are made primarily in this court. Inheritance cases typically last from six months to two years.
The Civil Procedure Code (S.554U) provides that where a Court of Probate or other authority in a foreign country has granted probate or letters of administration in respect of the estate of a deceased person, probate or letters so granted may, on being produced to, and a copy thereof deposited with a competent court, be sealed with the seal of that court and thereupon take effect and have the same operation in Sri Lanka as if granted by that court.
There is no reserved portion for non-Muslims.
With regards to Muslims, the reserved portion depends on the principles of Muslim Law governing the sect to which the deceased belonged.
Where non-Muslims are concerned, in the absence of a will the entire estate goes to the heirs specified in Part III of the Matrimonial Rights & Inheritance Ordinance.
With respect to immovable property, the surviving spouse inherits one half of the estate. Children, grandchildren and remoter descendants are preferred to all others. All children take equally per capita, but their children, or remoter issues of a deceased child, take per stirpes or by representation.
If there are none of these specified heirs, then the estate defaults to the State. If however any heirs can be found, even beyond the tenth degree, they take the inheritance.
In all questions relating to the intestate distribution of property, if the Ordinance is silent, the rules of the Roman Dutch law are applicable. These provisions apply to all deceased persons owning immovable property in Sri Lanka (other than Muslims) irrespective of their actual or matrimonial domicile at time of death.
With respect to movable property, inheritance ab intestato is governed and regulated by the law of the country in which he/she was domiciled at the time of his death.
It is advisable for a foreigner to make a local will.
It is normal for Sri Lankans with immovable property to make a will in order to bequeath the estate differently to the provisions of law dealing with intestate succession.
The Wills Ordinance provides that it is lawful for persons competent to make a will to dispose of property within Sri Lanka which at the time of death belongs to him/her, and in the exercise of this right he/she has full power to exclude from the legitimate or other portion any child, parent, relative or descendant, or to disinherit or omit to mention any such person.
This provision of law is not restricted to Sri Lankans. By making a will in Sri Lanka, foreigners can avoid disputes among their heirs. The validity of the local will is determined by Sri Lankan law and not by the law of the foreigner´s nationality or domicile at time of death.
The formalities for making a will are contained in the Prevention of Frauds Ordinance, which deals with wills made in Sri Lanka.
A foreign testator must be present in Sri Lanka when making a will in terms of this Ordinance. It cannot be done through a lawyer. The Ordinance states that the will must be in writing and signed at the foot or end thereof by the testator, or by some other person in his/her presence and by his/her direction, and such signature must be made or acknowledged by the testator in the presence of a licensed notary public and two or more witnesses who must be present at the same time to duly attest the execution.
If no notary is present, then the signature must be made or acknowledged by the testator in the presence of five or more witnesses present at the same time, and such witnesses must subscribe the will in the presence of the testator, but no form of attestation is necessary.
The wills of foreigners executed outside Sri Lanka are recognized and given effect to by Sri Lanka´s courts in respect of immovable property in Sri Lanka. Section 5 of the Wills Ordinance states that every will made beyond the limits of Sri Lanka containing any devise or disposition of immovable property situated within Sri Lanka, which was duly made and executed according to and in conformity with the forms and solemnities prescribed by the law of the country where the will was made and executed, by any person who by the law of such country or of Sri Lanka is competent to make such will, is valid and effectual, any other law or custom to the contrary notwithstanding.
Property can be freely given by the owner to anyone prior to his death.
There are no restrictions on such gifts, with respect to family home, time-scale, etc. In the case of non-Muslim foreigners the validity of the deed of gift is determined by Roman Dutch Law. In the case of Muslims, the validity of the deed of gift is determined by Muslim law governing the sect to which the deceased belonged. If the deed of gift is executed in conformity with the applicable laws, it is not open to challenge after death.
As regards donations made by foreigners who are Muslims, the law applicable to donations (not involving usufructs and trusts) is the Muslim law governing the sect to which the donor belongs; but no deed of donation is deemed to be irrevocable unless it is so stated in the deed. The delivery of the deed to the donee is accepted as evidence of delivery of possession of the movable or immovable property donated by that deed.
Sri Lankan law recognizes the concept of ´equitable ownership´ as set out in its Trusts Ordinance.
Under the law of trusts, the trustee is the legal owner and the beneficiary is the equitable owner. With respect to real property located in Sri Lanka, the courts of Sri Lanka apply Sri Lankan law to determine ownership. Primarily, the courts look at the title deeds to determine ownership. According to the Prescription Ordinance, title under deeds may be superceded by an adverse possessory title.
A guardian or curator protects the rights of children.
If an estate (or part of it) is inherited by a child or other person not of legal age (18 years) a person named in the last will as a guardian or curator is entitled to so function unless any objection to his suitability is upheld by the court. If no such person is named in the will, the court is empowered to appoint a suitable person.
No law prohibits foreigners from inheriting property in Sri Lanka.
However the Finance Act No. 11 of 1963 states that where of ownership of any land is transferred to a person who is not a citizen of Sri Lanka, a tax of an amount equivalent to the value of the land is charged. This provision of law does not apply to a transfer of ownership arising from:
- A gift or testamentary disposition by any individual to his spouse, child, parent, brother or sister, and the issue of such child, brother or sister who is not a citizen of Sri Lanka; or
- The succession of any person as trustee to a person appointed as trustee under any will or any instrument of trust or of any provident fund or any investment.