This article will have specific relevance if you are a British National (even if not living in Britain) who has property in mainland Europe. This doesn’t need to be a holiday home, it could be (more or less) any other type of capital investment (cash, shares, your main residence, a yacht etc). But the question that arises most often in my discussions with clients is how to deal with holiday homes and it is a very good question indeed!
To simplify what were previously tricky, complicated and often ambiguous issues of cross-border succession, the EU introduced Brussels IV (EU Regulation 650/2012) known simply as Brussels IV or the EU Succession Regulation. This came into force on 17th August 2015.
Previously
I won’t bore you with the rules that applied before 2015, nor would I be able to fully to do so without writing a book or two. What was clear before then though was the advice to give to clients with cross-border estates. They could either seek highly specialised advice from international law firms (or firms with international connections) to draft a single Will (although this is not always possible) that governs all assets and is specifically drafted to consider the differing legislation in different jurisdictions.
For example, French law does not acknowledge trusts. However, it does incorporate concepts such as usufruits, which operate in a very similar manner to our life interest trusts. Therefore, a UK Will incorporating a life interest of French property may run into problems. However, a UK Will incorporating a usufruit would work just fine.
The cost of instructing a firm with this expertise could be considerable.
Alternatively, you could take separate advice in each jurisdiction you own assets, potentially ending up with multiple Wills. This approach still required a degree of joined up thinking as each Will would need to interact with (and specifically not revoke) any other Will. However, any decent STEP qualified lawyer could assist with this, even though they may not have detailed knowledge of the succession and taxation regimes that apply across the whole continent.
With both approaches, great care would need to be taken to ensure that your estate passed as tax efficiently as possible, considering the various capital tax regimes that apply across Europe.
Now
Brussels IV was designed to simplify issues of succession although not taxation. In basic terms, the regulation allows the whole of a European wide estate to devolve under the laws of the Country where the deceased was habitually resident (unless they were “manifestly more closely connected” with another Country). It also enables any person to elect for the law of the Country of their nationality to apply to the devolution of their estate.
It is therefore possible, in theory, for a British ex-pat living in France with only French property, to draft a Will in France under which an election is made to apply the laws of England and Wales to the devolution of their French estate. Finding a Notaire that is willing to draft that document is another story but this is certainly now possible!
Of more importance to our clients though (who predominantly, although not always, live in the UK) is how best to deal with the property they have on the European mainland.
Many ask whether they can incorporate UK Law, and the simple answer is yes (assuming they are a UK national).
Matters however are not that simple, because there are methods of owning property abroad such as matrimonial property regimes, corporate holdings and some forms of joint ownership that mean the property will devolve outside the terms of a Will (whether UK or otherwise). As most UK lawyers will not have the expertise to check this on your behalf, you may still need to take some form of advice abroad when preparing your Will.
Nevertheless, if you are the sole owner of property in Europe, the ability to elect for UK law to apply to that property is very attractive indeed.
Brexit
Although we won’t know for sure until it happens, it seems very unlikely that the law allowing an election to be made will change after Brexit. This is because the UK (along with Ireland and Denmark) was not a signatory to Brussels IV and is therefore not bound by its terms. It is treated as third state and after Brexit it will remain a third state.
Even better news, it seems that Brexit will also clear up current confusion that has reigned in respect of what happens when a person dies habitually resident in the UK with property abroad but having not made an election for UK law to apply. This is where the rules relating to Private International law disappear down a rabbit hole, and I think will be a blog for another time!
If you own property in Europe and have any questions about its succession after your death, please do not hesitate to contact any member of our Wealth Management team.