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“specialist advice is needed to avoid potentially expensive pitfalls...”
Without careful planning, families of UK individuals
who own holiday homes in mainland Europe can
face wrangling and international legal and taxation
issues on the death of the owner.
Few of those who buy such homes consider what
would happen to the property on their death and
even fewer take UK advice on their exposure to
UK inheritance tax (IHT) and any changes that are
needed to their UK Wills.
The UK’s inheritance laws are unusual compared
with the rest of Europe. In the UK, when you die,
you can leave your estate to whoever you choose,
whether your beneficiaries are your family, a trust,
or a charity. In much of the rest of Europe, there are
‘forced heirship’ rules prescribing who can inherit
your estate and how much of it they are entitled to.
Take the example of a married couple with two
children owning a holiday home in France. Under
French law, on the death of the first spouse, the
ownership of the property transfers to the children
but gives the surviving spouse the right to live
there for the rest of his or her life, known as a ‘life
interest’. However, the surviving spouse would also
be responsible for maintaining the property and
this arrangement can cause arguments between
the spouse and children, particularly where step-
children are involved or where an elderly spouse
is no longer able to use the property and has little
enthusiasm for paying maintenance costs.
A carefully drafted UK Will can avoid these
problems. Recent changes to EU laws mean that
British people can now opt for assets in mainland
Europe to be treated under UK inheritance laws.
However, an appropriate ‘choice of law’ clause must
be included in the Will. It will also be sensible for
individuals with separate foreign Wills to review
their arrangements as it is unlikely that the ‘choice
of law’ issue will have been addressed.
European forced heirship rules can lead to
unexpected IHT liabilities. For example, a married
couple owning a holiday home in Spain would be
forced to leave a share of the property to their children
on the first death. Depending on property value, this
could result in tax being payable both in the UK and in
Spain, which may force the surviving spouse to sell a
MERIDIAN PRIVATE CLIENT LLP PROMOTION
Why planning is vital
for your overseas home
Philip Harrison of specialist private client law firm Meridian Private Client LLP
highlights some inheritance issues for UK based owners of overseas homes
property he or she had hoped to keep.
Careful lifetime planning can significantly
reduce exposure to IHT. However, specialist advice
is needed to avoid potentially expensive pitfalls.
For example, a UK based parent may gift the
holiday home to children in the expectation that,
if they survive for seven years, IHT will be avoided.
However, if the donor continues to use the property,
the gift may not be effective in avoiding IHT and the
gift could still lead to a UK capital gains tax liability.
In addition, many European countries also charge a
separate ‘gift tax’ which could be triggered.
Even though we are headed for the ‘Brexit door’,
these issues are unlikely to change. In any event, UK
based owners of homes in mainland Europe should
take specialist advice now.
Meridian Private Client LLP
Wood Rydings Court, Packington Lane, Little
Packington CV7 7HN Tel: +44 1675 442430
Philip Harrison, partner at Meridian Private Client LLP
SEPTEMBER 75