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New EU law to affect what happens to your holiday home after you die

As a general rule, individuals owning European property (typically holiday homes) have needed to prepare a specific Will in the country where the property is located. As well as being inconvenient and often expensive, this can have an additional practical effect in that mainland Europe has forced heirship rules whereas England and Wales do not. The position is about to change significantly so that UK Wills will be effective over European property.

The introduction of a new EU regulation “Brussels IV”, applying to the succession and administration of certain foreign property, will affect the estates of those who die after 17 August 2015. The UK (along with Denmark and Ireland) has opted out. However, the scope of this regulation is far reaching and could still affect individuals in the following circumstances:

  • those who own property in one of the other 25 European member states that have signed up to the new regulation (know as “Brussels IV states”);
  • nationals of one of the states signed up to Brussels IV and currently living abroad; and
  • those who currently live in one of the Brussels IV states, have recently moved from one, or will move to one in the near future.

Those who fall into one of the above categories should review their Wills and other succession arrangements because Brussels IV could have significant consequences on how their property is dealt with after death.

Why a new rule was needed

Prior to the new regulation, each member state of the EU applied its own laws to decide which country’s domestic law would prevail and apply to cross border estates. This led to a number of difficulties - from conflicts as to which country’s law should apply (both? neither?) to the problems of property being subject to 'forced heirship' regimes (where a share of an individual's estate must be left to certain family members upon death).

For example, a common arrangement for UK married couples with children, is to leave their entire estates to each other on the first death and to their children on the second death. This means that no inheritance tax is payable until the second death as the spouse exemption applies on the first (where no tax is payable on any assets left to a spouse).

However, if that couple owned a French holiday home, the succession laws of France would apply, and would prevent them from “cutting out” the children on the first death. The surviving spouse would end up co-owning the property with the children of their partner (who may not necessarily be their own) and an inheritance tax liability would be triggered even though there may not be enough cash available to pay this.

How it could affect you

The new Brussels IV regulation sets out to harmonise how estates located in different EU states are treated in Europe and will affect the citizens of, and everyone who owns property in one of those states.

The key is not where the deceased came from or lived, but where their property is located and, if that is in a Brussels IV state, they will be bound by it.

This new regulation is a complex piece of legislation, dealing with multiple scenarios beyond the scope of a legal briefing. For most people, the key aspects are:

  • property located in a Brussels IV state, owned by a deceased foreign national of any other country will be governed by the law of the country in which the deceased was habitually resident (which is determined by a test); and
  • this is the default position which can be changed if the deceased makes an election (in their lifetime within their Will) that their property should be governed by the law in the country of their nationality. If they have multiple nationalities, they can choose any one of them.

This will be good news for many UK nationals and residents who own property in Brussels IV states as that individual can now choose for the property to be governed by UK law which, in England and Wales, does not impose forced heirship.

However, as the UK opted out, there is still scope for conflict over which country’s laws should apply. For this reason, a UK national, despite also being habitually resident in the UK, will still need to make an election in respect of their property affected by the regulation in order for it to pass under UK law.

UK nationals living outside the UK can elect for UK law to apply (if they want) or, those with multiple nationalities, can elect which one they want to apply to their property in Brussels IV states.

Get expert advice

The Brussels IV regulation should give surviving spouses and heirs greater certainty, and, although it has not been tested yet, we would hope it will result in the speedier processing of estates that span more than one EU member state. There is no doubt the new Brussels IV regulation is a complicated regime, if you would like to discuss making an election under the Brussels IV regulation, or any other aspect of it and how it may affect you, please get in touch with Patrick Wooddisse, or any other member of the TLT Tax and Estate Planning team.

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