Holiday Homes in Europe
Good news for the villa in the South of France!
For clients owning property in Continental Europe, there has always been the problem of what happens to the property on the owner’s death, which can be further compounded by tax issues. Most European countries such as France, Spain and Italy operate ‘forced heirship’ rules so that the owners of real estate situated in the overseas jurisdiction must leave a share of the property directly to their children on death – they cannot bequeath the entire property to their other half. This usually means that the surviving spouse cannot then deal with or sell the property without first having obtained the children’s agreement and, of course, a requirement such as this may also give rise to additional Inheritance Tax charges for the estates of deceased UK domiciliaries.
With effect from 17 August 2015, the good news is that this situation is changing for the better. New EU legislation taking effect for deaths occurring on or after 17 August 2015 will mean that UK citizens can make a choice in their will to apply their own national law to foreign property in an EU member state. This will enable the deceased to leave the whole property to a surviving spouse so that it will only pass to the children on the second death. It is also likely to improve the tax position and avoids the need for some of the complex, and less advantageous, arrangements which have had to be put in place in the past.
The choice of the applicable legal regime can be included in wills signed from now onwards, although, as mentioned above, it will only be effective for deaths on or after 17 August 2015. Some complexities will undoubtedly remain and professional advice should still be taken, but the expectation is that the new regulation, which is known as ‘Brussels IV’, will solve what has hitherto been a major potential headache for many individuals who own European property such as a holiday home.
There may, of course, be clients currently looking to purchase a holiday home somewhere within the EU. This new legislation may be a key deciding factor but there are probably other reasons and consequences to think about too, both in the UK and in relation to the other country. We are members of an international alliance, TIAG (The International Accounting Group) and TAG law, with member accounting and legal firms in more than 65 countries. We can provide the relevant advice with regard to the UK tax matters and we will obtain the necessary advice in the local jurisdiction of choice too. It is essential that advice across both jurisdictions is considered, in a joined-up way, to ensure that transactions are made in an overall tax efficient way.
Date: 7th May, 2015
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