Simplification to succession planning for families

07 October 2015

Simplifications to EU succession law could result in changes to the way assets owned in some EU jurisdictions pass on to your family. Over the years individuals and families have increasingly acquired and held assets outside the UK, but until now there was no overarching system to determine how cross-border estates are dealt with on death. As a result, the administration of estates with assets in more than one EU jurisdiction was expensive and time consuming.

What’ changing?

The Property Abroad & Death Regulation (EU) or ‘Brussels IV’ as its commonly known, came into force on 17 August 2015, and is intended to simplify matters by applying a single national law of succession to a person’s moveable and immoveable property on death. The regulation was adopted by 25 EU member states whilst the UK, Ireland and Denmark opted out. Brussels IV will affect anyone who lives in, owns real estate in or is moving to or from one of the 25 Brussels IV states.

How this will affect UK resident individuals

Although the UK has opted out of Brussels IV the regulation will affect UK resident individuals who hold assets in Brussels IV jurisdictions. Before the legislation came into force, UK resident and domiciled individuals who owned property in some EU member states would find that their options for passing real property on death were restricted by the succession laws of the country in which the property is situated. A significant number of EU countries have a Civil Code which dictates how the deceased estate should pass according to their family circumstances. These ‘forced heirship’ rules, in some instances, increased the inheritance tax liabilities of UK resident individuals as they were forced to pass some of their assets to their children rather than use, for example, the exemption available to pass the assets on death to their spouse free of inheritance tax. Where the property is situated in a Brussels IV state it is now possible to elect that the destination of the property is determined by English succession law, allowing the testator full testamentary freedom.

Individuals living in a Brussels IV states

Conversely some individuals who are habitually resident in a Brussels IV state may find that, as a result of this regulation, assets which could previously pass in accordance with the testators wishes will now be subject to forced heirship.

Planning ahead

In the past, individuals have used companies or other opaque structures such as a Société Civile Immobiliére (SCI) in order to shield foreign property from the forced heirship rules. Going forward it would appear that these structures may not always be necessary, provided an election is made in the UK will. It may also be possible, in some instances, to unwind these structures to reduce the costs of holding the property. Advice should, however, be sought as tax charges could arise as a result. Individuals with assets in a Brussels IV state should now review their wills and estate planning to ensure that following these changes their assets pass as they intend, and in a tax efficient manner. For more information please contact Gary Heynes or your usual RSM adviser.