Many of our clients now own foreign assets, particularly foreign property abroad. The rules of the country in which these assets are held can override the rules in England and Wales regarding who they pass to and in what proportions. In some jurisdictions, these succession rules can even affect the appointment of executors. A Will made in England and Wales may not apply at all to foreign property. The “forced heirship” type laws that can instead apply are known as the “rules of succession”.
Since 17 August 2015, the EU Succession Regulation has enabled clients to include a declaration in their Will that the laws of their nationality should apply to their assets. This means that a UK national can choose to have one UK Will dealing with all their European assets and this will override any forced heirship rules which exist in the countries where their foreign assets are held and which would otherwise dictate who could inherit.However, despite this legislation, we still recommend that our clients obtain advice in the foreign jurisdiction where they own property; it may still be preferable to have a separate foreign Will to facilitate a smoother and quicker foreign estate administration.
If no such election exists, we need to look at the type of asset to understand how it will be treated for succession planning purposes. Immovable assets such as property and land will be treated under the laws of succession in the country where the property is situated. However, a moveable asset such as a bank account will be treated under the succession laws of the country in which the deceased was “domiciled”.We often have to discuss the issues of domicile and residence with our clients which can change over time. These issues can have an impact on clients’ tax liability and we work with their accountant and other advisers to ensure that our clients are fully informed of their status for tax purposes.
In the tax year which saw HMRC gather an all-time high, of almost £5 billion in IHT, it is very important that owners of property abroad understand where and how their foreign assets will be taxed. If a deceased person was domiciled in the UK at their date of death, their Worldwide estate would be subject to IHT. If an individual was not domiciled in the UK at their date of death, IHT would be payable on UK assets alone.
The rate of tax payable on death can vary depending upon who you are deemed to leave assets to under a country’s succession rules and a form of Capital Gains Tax may also be payable on death in certain jurisdictions. There are Double Taxation treaties which may prevent assets being taxed twice in different jurisdictions.
So, in the words of the Rolling Stones, “you can’t always get what you want”. This is true when it comes to how a foreign jurisdiction’s rules regarding succession and taxation will apply to assets abroad. However, you can prepare and plan for what will happen to these assets in order to ease the process for your loved ones when the time comes.
At Hay & Kilner, we assist our clients in obtaining foreign advice and ensure that our clients understand the need for advice in other jurisdictions.
For further information, please contact Alison Hall, Partner at Hay & Kilner
Call: 0191 232 8345