Holiday homes in EU member states - how do you wish for it to be treated?
Post-pandemic, many UK citizens who have a holiday home in an EU member state may be looking forward to making use of it again this year (subject to the vagaries of the Passport Office), but how many of them have thought about the treatment of that property if they die?
The EU Succession Regulation (also known as “Brussels IV”) has been in force for several years and continues to affect such properties after Brexit. Ironically, the UK (and Ireland and Denmark) opted out of the Regulation before Brexit, yet it continues to be relevant.
The general rule in countries where the Regulation applies is that the law of the country in which you are “habitually resident” will decide who inherits your estate, ie that law will decide the “succession” to your assets. Habitual residence is broadly defined as the place where someone’s normal centre of interests is situated, but someone can be more closely connected with country X when they die, even though they live in country Y.
The main feature of the Regulation in most cases is that it allows someone in their Will to choose that the law of their nationality will apply to decide who gets their house abroad. For British citizens, this means the law of the UK jurisdiction with which they are most closely connected, ie England and Wales, Scotland or Northern Ireland. A typical English citizen with a holiday home in, say, France can therefore choose in their English Will that English succession law will apply to that property as well as to the rest of their estate in both countries (although English law would apply to the contents of that French house or the owner’s French bank account whether or not they make such a choice of law).
UK law is generally preferred by UK citizens because it has no “forced heirship” rules requiring property to be left to particular people and/or in particular proportions when one dies.
Unfortunately the Regulation only deals with succession, it does not enable UK law to override the other country’s tax rules. Nor does it mean that all of the administrative work in the foreign country is simplified, in fact it could be more complicated. Anyone in the UK administering your estate after your death will still need to engage with overseas lawyers to deal with these tax and administrative issues. Therefore, the advantage which the Regulation offers a UK owner of EU property is not straightforward and there remain good reasons for having a separate Will in each country:
- It almost always makes it easier to use a Will in the country where the asset is in the form (and language) familiar to the local lawyers (and their courts).
- Using just a UK Will would mean your executors could not deal with the EU property until they have the UK Grant of Probate. Because it is time-consuming to get that Grant it is usually better to have the administration in each country running in parallel, so the EU administration does not have to be postponed while one’s executors wait for the UK Grant.
- The UK applies inheritance tax concessions for assets passing to spouses/civil partners and charities, but not for assets passing to other beneficiaries. Many EU countries tax assets that pass to the deceased’s children at a lower rate than assets that pass to other relatives. This means that although it might seem to be a good idea to override the forced heirship provisions, it can mean that the tax bill is higher.
- Most EU jurisdictions do not recognise the role of an executor and therefore the risk is that if assets are, as under a UK Will, passed to executors for them to distribute to beneficiaries it may be treated abroad as two transfers. This can mean that there are two taxable transactions, not just one, and therefore extra tax might arise.
- Most EU jurisdictions also do not recognise trusts so it is better to keep one’s Will simple insofar as it deals with assets outside the UK.
If you do decide to have a Will in each country, it is absolutely vital to make sure that they work together so neither Will revokes the other. It is also worth noting that an existing UK Will, which might predate the Regulation by many years, can still be relevant to the way the Regulation affects you.
If you are British with property in the EU (or are an EU citizen who lives in the UK) you should review your Will and estate to make sure that your family can benefit in the best way.
These notes have been prepared for the purpose of articles only. They should not be regarded as a substitute for taking legal advice.