It’s at this time of year that many of us head off on holiday, with plenty of people seeking the sunshine, or simply a break from the norm.

 

Whether it’s for investment purposes, retirement or simply for holiday-making, the number of people in the UK owning property abroad has been on the increase for some years now, and post-pandemic the picture is no different, with one source reporting a 45% increase in searches for overseas property by visitors to their site between 2020 and 2021, and a further 40% increase so far in 2022 compared with the same period last year[1].

 

It’s not just overseas properties that are growing in popularity. Many Northern Irish residents now own holiday homes in the Republic of Ireland, which although does not feel very “foreign”, nevertheless has a separate legal system and a significantly different taxation regime when it comes to succession on death.

 

As a result there are some important estate planning considerations to bear in mind should you own property in another jurisdiction, which are often overlooked.

 

EU Law

The EU Succession Regulation (known as Brussels IV) came into effect in 2015. Neither the UK nor Ireland opted into the regulation, but UK and Irish nationals are still affected by it where they own property in an EU member state. The regulation provides that for countries to which the regulation applies, the law that will govern a deceased person’s estate as a whole will be the law of the country in which he or she is habitually resident at death (unless that person has chosen to apply the law of their nationality instead). This is a complex area which time does not permit us to expand on here, but is something which should nevertheless be considered by anyone owning real property in an EU member state, and indeed it should not be assumed that Brussels IV has no effect here following the UK’s departure from the EU.

 

Inheritance Tax

If you die domiciled in the UK at death, Inheritance Tax (IHT) will apply to your worldwide estate (not just your assets in the UK) subject to the available reliefs and allowances. Depending on the taxation regime in the relevant jurisdiction, tax may also be due in the jurisdiction in which the property is held. The UK has double taxation treaties in place with a number of other jurisdictions which can provide relief in such circumstances.

If you own assets outside of the UK it will be important to consider the IHT position of your estate and take expert advice (in both jurisdictions) to ensure you have appropriate structures in place should you wish to mitigate the IHT (or equivalent tax) position in each jurisdiction.

 

Distribution of non-UK assets

Whilst this country enjoys complete testamentary freedom, in that a person can leave his or her estate to whomever they choose, other jurisdictions, particularly those with a civil law structure, have “forced heirship” rules, whereby a person is restricted as to how his or her estate can be distributed on death. Also, many foreign jurisdictions do not recognize the concept of an “executor”, which in this jurisdiction is the person legally responsible for administering an estate and ensuring that the terms of the Will are followed. Instead, it might fall to the “heirs” of the assets to administer the estate, often with the assistance of a local notary. Furthermore, many civil law jurisdictions do not recognize the concept of a trust, which is a legal mechanism frequently adopted even in relatively simple estate administrations in this country.

As such, although a Will made in Northern Ireland, or indeed in any region within the UK, can purport to deal with a person’s worldwide estate, where real property is held in another jurisdiction, it is the law of the jurisdiction in which the real property is held that takes precedence in the event of any conflict in the law.

 

Making a Will

For this reason it is recommended that anyone owning real property outside the UK should take legal advice in the jurisdiction in which the property is held, and make a Will in that jurisdiction to deal with that property. However it is important that a UK Will is also prepared, but limited to the UK assets. The timing and wording of these Wills is also important, to ensure that one does not inadvertently revoke the other. As such, expert advice should be sought from a qualified Trust and Estate Practitioner and from an appropriate expert in the relevant jurisdiction.

 

What does this mean for you?

If you own real property in any other legal jurisdiction you should seek expert advice on what this means for your estate planning, to ensure that your assets are protected for future generations and can pass as you would intend.

Our private client team is experienced in providing relevant advice to clients on these issues, including cross border matters involving the Republic of Ireland. We also have a highly skilled network of professional contacts who can be called upon to advise on specific taxation issues in other jurisdictions.

For more information please contact Private Client Team Director Fiona Kirkpatrick.

 

[1] Source: www.Kyero.com

 

 

While great care has been taken in the preparation of the content of this article, it does not purport to be a comprehensive statement of the relevant law and full professional advice should be taken before any action is taken in reliance on any item covered.