Many UK nationals own assets in the European Union and may be asking what will happen to those assets once we have left the EU?
Suzanne Porter, a director and private client solicitor at Wake Smith Solicitors, looks at some of the most important questions that affect British citizens with European assets and non-British EU citizens living in the UK.
“Succession planning is a crucial process for those whose assets overseas are likely to be affected Post Brexit.
The validity of wills is a vitally important consideration in respect to overseas asset ownership as wills are governed by the Haigh Convention - a set of international regulations which sit outside of EU regulations and therefore cannot be affected by localised laws.
Reassuringly, if you have a will which was validly drafted and executed pre-Brexit, it will remain valid post-Brexit so long as your circumstances have not changed since the drafting of the will.”
Estate Planning?
“Different countries have different jurisdictions and apply their own succession rules to estates, which causes some confusion for individuals who buy properties outside of their normal country of residence. For example, Many European countries have forced heirship laws, whereas the UK does not. So the idea of forced heirship for Brits owning property in Europe can be unappealing.
There is a 'get out' clause for those who are concerned. EU Succession Regulation, known as Brussels IV, (which came into force on 17 August 2015) aims to simplify successions within the EU, by allowing testators to elect for their law of nationality to govern the devolution of their entire estate. So if you live in the UK, UK law can come into effect to govern succession of your EU estate as long as it is correctly detailed in your will.
And although the UK has not signed up to Brussels IV, UK nationals with assets in the EU member states which have adopted the Regulation, are still able to include a choice of law within their wills.
It is therefore of paramount importance that anyone owning property in the EU includes, within the terms of their will, the stipulation that they wish to apply the succession rules of their state of nationality to any assets forming part of their estate on death.”
Can we still own property in the EU?
Firstly, the inheritance tax position for UK citizens with assets in the EU will remain the same post-Brexit. However, consideration will need to be given to the ability of UK citizens to own property in the EU and to use it either as a holiday home, or as a permanent residence.
Most major European countries do not have any restrictions against non-EU citizens purchasing land or real estate, but there are certain visa requirements in place for non-EU citizens wishing to holiday, live or work within EU countries - and these will apply to UK citizens once we leave the EU.
UK resident Brits owning property in Europe?
The UK has not signed up to Brussels IV, therefore, the default position is to apply the French concept of 'RENVOI' to foreign assets held in the deceased’s estate. This basically means 'to hand back' jurisdiction to the state in which the assets are located.
The RENVOI provisions generally regard moveable property (e.g. shares in foreign companies) to follow the UK rules of succession for a UK domiciliary, whereas immovable property (e.g. a house/real estate) will follow the succession rules of the estate in which the property is located. So the default position for a UK resident Brit owning a house in France is unchanged when applying the RENVOI regulations and French succession rules will apply.
It is possible for the Brit to elect to apply the succession rules of the estate of his or her nationality via a will, so that all assets located in European states that have signed up to the Brussels IV will follow the UK succession rules. If such an election is made, the UK succession rules would apply to the French house and any real estate located in Brussels IV states.
It should be noted that the rules of England, Wales, Scotland and Northern Ireland can vary so it is important to specify which state within the UK is applicable when making the election under the Brit's will.
What about European ex-pats living in the UK?
Because the UK has opted out of Brussels IV, a European national who is not British but is living in the UK, may be taxed under UK laws if he or she dies when he or she is a habitual resident here.
The UK will look at the individual's domicile rather than habitual residence, so if a non-domicile living in the UK has foreign assets, the RENVOI regulations will follow the succession rules of the country in which the asset is sited, i.e. UK real estate would follow the UK's succession laws.
It would not be possible for a European national to elect for the UK succession rules to apply to his or her non-UK assets unless he or she becomes a British citizen. Foreign moveable assets would however, follow the UK succession rules if the individual is domiciled in the UK at death.
The objective of Brussels IV is to ensure that only one country's laws apply to the deceased’s estate. Then what about tax? Brussels IV is specific to succession law - and it is extremely important to understand the tax implications of all relevant jurisdictions.
Different tax rates can apply in certain states, depending on the relationship between the deceased and the beneficiary, and applying succession laws of another country may have the result of increasing the local estate tax liability.
These regulations are still new and we are yet to see how they will work in practice.
What is clear, is the importance of seeking legal advice to ensure that elections are correctly made in wills if the succession rules of the estate of nationality are to apply.”
For further information please contact Suzanne Porter on 0114 224 2178 or at [email protected]
