Rory McFarlane, Head of Private Client at Mogers Drewett explains why a new EU regulation is good news for people with assets abroad.
Until recently, if you owned assets outside the UK when you died, your executors would have to overcome numerous hurdles and the potential for different legal systems to apply. Forced heirship rules in Continental Europe often dictate that a surviving spouse cannot inherit the property which may have to pass to children, even those from a former marriage, despite your wishes.
However, a new EU Regulation (known as Brussels IV) was introduced in August this year aimed at simplifying cross-border EU succession ensuring that one set of laws applies to the whole of an estate regardless of the location of the assets within the EU. Basically, it will decide which law is applicable to a person’s estate.
Broadly speaking, Brussels IV allows you to make a declaration electing the law of the country in which you are a citizen to apply to your estate. For example, if you are a British citizen, with a holiday home in France or Spain, you can declare in your Will that English law should apply to that property when you die. You can leave the property to beneficiaries of your choice, avoiding the application of forced heirship and taking advantage of the full spouse exemption for UK Inheritance Tax.
If you haven’t made a declaration as to the choice of law then under the new Brussels IV regulation the default position is that a person’s “habitual residence” is to be used to determine which country’s laws will apply. Even if this would be England, this cannot be relied on for land abroad as, in a process of legal ping-pong, English law would then provide that the local law applies. However, this referral to the local law would not apply if an election for national law is made.
Although the UK, Ireland and Denmark have opted out of Brussels IV, this just means that it’s not possible to make a foreign will to apply in England to English assets. The opt out does not prevent UK citizens from choosing UK law which will be binding in the countries that have opted in.
If you live in an EU state such as Spain the default position will be that Spanish law will apply to both your Spanish and UK assets, but this can be overridden by making an express election in your will for UK law to apply.
If you own property outside the UK, the changes provide an excellent opportunity to take control of your heirs’ financial future. Mogers Drewett has specialists in this field of law who understand that preservation of wealth is at the core of succession planning. We can help you review your will to ensure that your worldwide assets are dealt with in the most efficient manner.
For further information or advice on this subject please call 01935 813691