WillsForeign Property – Implications for Wills

At some point when dealing with wills, you will come across a client with foreign assets such as a holiday home or second home. When taking instructions, two of the most important questions you can ask is ‘do you have assets abroad?’ and if so ‘do you have Wills abroad in the respective country or countries?’. Clients will rarely disclose this without being prompted, but not ascertaining this can have grave impacts for a client’s estate planning.

This week’s article will examine the implications that foreign property may have on wills.

Where there is no will abroad

Where there is no current will abroad to cover their foreign assets, an English will can be drafted to cover worldwide assets. WillPack could not confirm how successfully it would give those foreign assets however, and they would be subject to local laws. It is highly advisable that clients seek advice in that country on the exact implications.

There may be several reasons why a will in that jurisdiction is advisable, for example:

  • A legal professional with expertise of the foreign laws will be able to advise on any problems of inheritance in that jurisdiction arising from fixed inheritance laws.
  • A Will made in the language and form of the local jurisdiction will be familiar to local institutions and will, therefore, make it easier to deal with those assets.
  • Civil law and Islamic jurisdictions do not recognise the concept of executorship in its English sense and assets usually vest in the heir direct. Executors appointed under an English Will are, therefore, unlikely to be able to take any effective steps to acquire title to the foreign assets.

Where there is a will abroad

If a testator already has a will abroad, it then needs to be considered whether they still want that will to have effect. A standard revocation clause in an English will revoking “all previous wills” would have the effect of revoking all wills of the testator, including those created abroad. If the foreign will is to remain in effect, the revocation clause of the English will should be amended as to not revoke the foreign will. The scope of the English will would also need to be limited to not cover assets in that country.

Inheritance Tax

Where a person has foreign assets, their domicile will also need to be considered and potentially where they are deemed to be domiciled for IHT purposes. Domicile is determined with certain legal principals and may not necessarily be the same as a person’s nationality or the country that they are living in.

Whilst we use the term ‘UK domiciled’ it is important to note that UK domicile is not technically a domicile. The UK has several different jurisdictions located within it (i.e. England and Wales, Scotland and Northern Ireland). For ease however the term UK domiciled is used.

Domicile can be acquired in three different ways.

  • Origin – acquired at birth based on the domicile of a child’s parents;
  • Dependency – where a child is under 16 and the domicile of the parent who their origin arises from changes, that child will acquire a new dependency based on that parent’s domicile;
  • Choice – acquired where a person resides in a country and has the intention to reside there permanently and indefinitely.

Domicile of origin is never extinguished but can be displaced by dependency or choice, in such a case the domicile of origin would lie dormant.

If a person is domiciled in the UK, IHT will be applied to their worldwide assets. If they are domiciled outside of the UK, IHT will only apply to their assets in the UK.

There is therefore the possibility that a person could be liable to IHT in the UK, and also a death tax in the jurisdiction where they own foreign property. In that circumstance there could be two scenarios

  1. A double taxation treaty may be in place with that jurisdiction covering how the two countries are entitled to tax property;
  2. If there is no double taxation treaty in place, Unilateral Relief may apply and HMRC can give credit on tax already paid in a foreign jurisdiction.

This section is subject to change as the government is to consult on moving to a residence based domicile regime for IHT.

EU Succession Regulation

Where a testator owns property in the EU, there is also the EU Succession Regulation (EU 650/2012) (also known as Brussels IV) to consider. This is binding on all member states except Ireland and Denmark who opted out of the regulation. The intention behind the regulation was to simplify succession rules across the EU and allow an individual to be certain what law will govern the succession of their assets in the EU. The regulation only covers succession of an estate and does not extend to tax.

As a general rule under the regulation, the law which will apply to an individual’s estate located in the EU will be the law of the country where they are habitually resident at the date of death unless the individual was ‘manifestly more closely connected with another state’.

Where a person does not wish for the law of their habitual residence to apply, or where there is uncertainty, Article 22 of the regulation allows them to choose the law of their nationality to govern succession as a whole and this can be achieved by making a choice in their Will.

Although the UK is no longer in the EU, it is still relevant as the law of a non-member state can still apply under the regulation, be that either due to the testator being habitually resident in a non-member state or by opting to have the law of their nationality apply.

It is therefore possible that the law of England and Wales could apply on death to property located in the EU, either due to a person being habitually resident here or by opting for their nationality to apply. However we would still advise that testators seek local advice as we cannot advise on how each member state is applying the regulation and there may still be other reasons why a local will is advisable.

 

 

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Photo by CHUTTERSNAP on Unsplash

Chris Rattigan-Smith

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