Brussels IV – property ownership in the EU
Different jurisdictions apply different succession rules and this has caused confusion for individuals who buy properties outside of their normal country of residence. Many European countries have forced heirship laws whereas the UK does not so the idea of forced heirship for Brits owning property in Europe can be unappealing.
Brussels IV is designed to align the succession laws in Europe. Although the UK (together with Ireland and Denmark) has opted out of Brussels IV, it still has relevance for assets located in the states that have signed up to it. For example, a Brit owning a house in France would previously have applied the French rules of succession to the French house but Brussels IV can now allow UK law to prevail if certain actions are taken by the individual.
The default position is that property located in the states that have signed up to Brussels IV will apply the succession rules of the state in which the deceased was habitually resident unless the deceased was ‘manifestly more closely connected’ with another state. Alternatively, an individual can elect for the law of the state in which he is a national to apply instead on his death.
What does this mean for UK resident Brits owning property in Europe?
Because the UK has not signed up to Brussels IV, the default position is to apply the concept of ‘renvoi’ to foreign assets held in the deceased’s estate. The renvoi provisions generally regard movable property eg shares in foreign companies to follow the UK rules of succession for a UK domiciliary whereas immovable property eg a house/real estate follows the succession rules of the state in which the property is sited. Thus, the default position for a UK resident Brit owning a house in France is unchanged when applying the renvoi regulations and French succession rules will apply. However, the Brit can elect to apply the succession rules of his state of nationality so that all assets located in European states that have signed up to Brussels IV will follow the UK succession rules. If such an election is made, the UK succession rules would apply to the French house and indeed all real estate located in Brussels IV states. It should be noted that the rules of England & Wales, Scotland and Northern Ireland can vary so it is important to specify which state within the UK is applicable when making the election. The election is made in the Brit’s Will.
What does this mean for British expats living in Europe?
If a British expat is living in a European state that has signed up to Brussels IV and is regarded as ‘habitually resident’ in that State on death, it is likely that Brussels IV will apply. This will cause the succession laws of his country of residence to apply to all assets he owns in the Brussels IV states. If, however, he owns property in the UK, the UK succession rules will apply because the UK has opted out of the regulations. In order to avoid the succession rules of his country of residence applying, the Brit could make an election in his Will to say that his state of nationality should apply instead ie England & Wales, or Scotland or Northern Ireland whichever is applicable. The UK succession rules would then apply for assets owned in the UK as well as in the Brussels IV states.
What does it mean for European expats living in the UK?
Because the UK has opted out of Brussels IV, a European national (not Brit) living in the UK may be taxed under UK laws if he dies when he is habitually resident here. The UK will look at the individual’s ‘domicile’ rather than habitual residence so if a non-dom living in the UK has foreign assets, the renvoi regulations will follow the succession rules of the country in which the asset is sited. UK real estate would, however, follow UK succession laws. It would not be possible for the European national to elect for the UK succession rules to apply to his non-UK assets unless he becomes a British citizen. Foreign movable assets would, however, follow the UK succession rules if the individual is domiciled in the UK at death.
What about tax?
Brussels IV is specific to succession law and it is extremely important to understand the tax implications of all relevant jurisdictions. Different tax rates can apply in certain states depending on the relationship between the deceased and the beneficiary and applying succession laws of another country may have the result of increasing the local estate tax liability.
The regulations are still new and we are yet to see how they work in practice. The above is intended as a guide only and legal advice should be taken to ensure elections are made in Wills if the succession rules of the state of nationality are to apply. The tax effects of the relevant succession rules should be checked and we would be able to provide assistance and planning in this respect with access to the PKF worldwide network.