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Look before you leap!4th October 2019 Wills, Trusts & Estate Planning
It’s that time of year again when the children go back to school, the weather takes a turn for the worse and the shops start to fill with woolly jumpers and hints of Christmas. The long days of summer have gone and the tan of the holidays is slowly disappearing. Perhaps you’re thinking about ways to prolong the sunshine and are considering purchasing a property abroad, or even emigrating, but before you dive into foreign property ownership there are some UK legal and tax issues that you should be aware of.
- A foreign property may not be covered by your UK will. UK law states that the succession of a property is governed by the rules of the country where the property is situated. However, some countries say that succession is governed by where the person is domiciled or habitually resident, which could mean that it is the UK rules that apply.
- The rules surrounding succession are very different on the continent, with many countries having a forced heirship regime (i.e. the law dictates how your estate passes) and very few recognising UK trusts. For example in Spain, executors are treated as inheriting for tax purposes as the assets pass to them first. The Spanish tax regime also levies a higher rate of tax the more distant the executor is. So if you have appointed a professional someone who is not related to you as your executor, the rate of tax could be much higher.
- Tax could be charged in both the UK and the country where the property is located when you die. There is a double tax treaty in place with most countries, but this relies on the tax being paid by the same people in both countries, which may not always be the case. For example, in the UK, the executors are liable for IHT before assets are passed to the beneficiaries. However, if there are assets in the Republic of Ireland, taxes there are paid by the beneficiaries as a gift tax. If the beneficiaries are not also the executors then no allowance can be made for the tax paid in the Republic against the tax paid in the UK.
- No article on foreign property and succession would be complete without mention of the B word. In this case there are 2 - The obvious one is Brexit, and as with most other areas of law (at least at the time of writing) we cannot say exactly what effect this will have. The effect of the second B word, Brussels IV, is slightly clearer. Brussels IV is a treaty that aims to make things easier when there are assets in more than one EU state. What it means is that a person can make a declaration in their will that they are a national of, or closely connected to, a certain country and that they want the law of that country to apply to the succession of all their assets across the EU. Which sounds great, but given points 1-3 above you may or may not want your UK will to apply to your holiday home!!
So, if you do decide to take the plunge, ensure you get advice both in the UK and wherever your property is to make sure that you can enjoy the beautiful sunsets on the beach without worrying what will happen when you’ve gone.