Thursday 2nd January 2014
Action should be taken now to benefit from the new 2015 European inheritance rules
Many people owning (or thinking of buying) property in the European Union (EU) will be aware that the law of the State where the property is situated decides which law governs the taxation and devolution (who gets what when you die) of your EU real-estate.
Many will also be aware that the system of law practiced in most EU States is Civil law and in most Civil law jurisdictions an individual’s property is subject to forced-heirship provisions. What this means in practice is that the legal system of the State where the property is situated decides who receives your property when you die.
Put simply, your Will is probably (at least partly) ineffective if it conflicts with forced-heirship rules.
The good news is that this is all changing in 2015 in such a way that it could advantage British owners of property in the EU.
The key piece of legislation has the ‘catchy title’ of EU regulation 650/2012, otherwise known as Brussels IV… We’ll call it the ‘Regulation’.
Under the Regulation, after 17th August 2015, any British national who has property in any participating EU State (and who has taken appropriate action before their death) can choose either the law of the country of their habitual residence, or the law of their nationality (or choose one of their nationalities if multiple) to govern the devolution of their EU estate.
If they make no choice then the default position is that the succession of their estate will be governed by the State of their habitual residence.
This may sound like a ‘silver bullet’ solution to the forced heirship provisions which currently thwart the ‘best laid plans’ of British Will-makers, but what many people are not aware of is that the new rules will only benefit those British nationals who have taken appropriate action during their lifetime.
The appropriate action is to make a nomination in a Will which is valid in the State where the property is situated, stating which law will apply to their property.
This could be made in a Will made in the State where the property is situated or, in those EU States where English Wills are valid, the nomination could be made in your English Will and - here is the important bit - it can be done in preparation for the 2015 changes.
In fact, not only can a nomination be made now, it should be made now and I would go so far as to say that if you are having a new Will drafted in the circumstances described above, by a professional person, and a properly drafted nomination had not been included, you should ask why not.
Many may believe that they need do nothing until 2015, but this is not the case. What if, for example, the Will-maker loses the mental capacity to make a new Will between now and 17th August 2015 either as a result of a degenerative condition or an accident? What if the Will-maker adopts a ‘wait and see’ approach and then forgets to make the necessary changes?
In both of these scenarios the estate will not benefit from the new regulations which in turn could mean their overseas property may not pass to their loved ones, regardless of what it says in their Will.
Interestingly, the Regulation does not restrict the choice of law to EU nationals and so, for example, a Hong Kong Chinese national with property in a participating EU State could nominate Hong Kong law to apply to the succession of their property; a New Zealander could nominate New Zealand law; a Japanese, Japanese law, and so on.
Some readers may have heard that the UK, Ireland and Denmark have all opted out of the Regulation and so those readers may question whether the Regulation relates to British nationals. Well the opt-out simply means that it is not possible to make an election under ‘British’ law for ‘foreign’ law to apply in Britain to British assets, but it does not mean that Britons cannot make an election under the laws of participating EU States.
Another potentially useful element of the Regulation is that a European Certificate of Succession (ECS) will be issued by the country of the person’s habitual residence which will be recognised in all other participating EU States. This could be useful to say, a Briton living in France who also has property in Italy or Germany because the certificate will be recognised in all of these jurisdictions; but it probably won’t help a person with sole British nationality who is habitually resident in the UK, because the UK opt-out means Britain will not be able to issue an ECS.
Owners of EU property must also be mindful that any nomination made now will have no effect until 2015, which means they need to consider what will happen if they die in the next two years. Only by taking proper advice from a specialist in international succession and probate law can those people ensure that any unwanted succession consequences are mitigated.
I should mention that even after 2015 (as things stand now) a UK person will still need to obtain an English grant of representation to collect and distribute UK assets, and tax may also be payable on the EU property, but the ability to nominate which law applies means that the possible ‘nightmare’ forced heirship provisions that currently exist in many EU jurisdictions could (after 17th August 2015) be a thing of the past.
It is important to realise that not only is this new law (and so untested by the courts) the law has not been clearly drafted. Accordingly it is unclear how it will be interpreted and/or applied by each member State. There is even an indication that some member States are taking no action to incorporate the provisions into their domestic law before the August 2015 deadline.
In short, nobody yet knows exactly how the rules will work in practice, but the interpretation outlined above adheres to the overriding principles that the new law is intended to follow.
For further information or advice please contact
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