Planning for overseas property in the wake of BrexitJune 28, 2017
In the wake of Brexit thoughts turn to the significant potential disadvantage to those who have interests in EU countries, or are thinking of buying property abroad.
For those who already own property the question becomes one of how to protect your Estate. Does your estate fall under UK law, or is it governed by the law of the country where you have your holiday home or business holdings? Is there a difference in how it is treated whether it’s a holiday home, or a permanent expat residence?
The answer is to plan ahead. Without updating any Will or Estate Plan made before August 2015 many may find themselves faced with international legal and taxation issues.
Before August 2015, assets held in an EU country were governed by the rules of inheritance of that country. The UK is unusual in the EU in granting all citizens the freedom to leave their assets to whoever they want be it family, a trust or a charity – the principle of testamentary freedom.
Other EU countries, such as France or Spain, often have rules which prevent children from being excluded from Wills, or prioritise children over surviving spouses. These ‘forced heirship’ rules prescribe who can inherit your estate and how much of it they are entitled to. The forced heirship rules can also lead to unexpected IHT liabilities.
So, for example, if you own assets in France and die without an up-to-date Will, then your spouse will inherit a quarter of your Estate and your children share the remaining three quarters. If you and your spouse are living abroad, this could cause significant complications for any survivor.
The good news is that, as of August 2015, a UK citizen can opt to have their entire Estate to be dispersed according to UK law. To enable this a UK Will must be carefully drafted to include a ‘Choice of Law’ clause. It is also recommended that individuals with separate foreign Wills review their arrangements as it is unlikely that this clause will have been addressed.
Careful lifetime planning can significantly reduce IHT exposure, for example a UK based parent may gift the holiday home to children in the expectation that if they survive for seven years IHT will be avoided. However, in such a scenario the donee must be careful not to continue to use the property as this may lead to a capital gains tax bill, in addition to that of ‘gift tax’ which many European countries charge.
In any event it is wise to be prepared and speak to an advisor to ensure sufficient estate planning.
This article has been produced for general information purposes and further advice should be sought from a professional advisor. Please contact our Private Client Team at Cleaver Fulton Rankin for further advice or information.