The EU Commissioner for Justice, Consumers and Gender Equality, Věra Jourová has said "..we are making it cheaper and quicker to deal with international successions and wills. Citizens preparing a will can now choose to have the law of the country of their nationality applied to their estate, even if they live in a different Member State and have assets located in different countries. This will give peace of mind and legal certainty to roughly 450,000 European families each year, who are involved in cross-border cases. The result will be faster and cheaper procedures, saving EU citizens time and money in legal fees."
The Regulation has been formally adopted by 25 of the 28 EU Member States. However the UK, Ireland and Denmark have opted out. That isn't to say, that the UK won't be affected and it's therefore important that solicitors in the UK who advise on succession, are aware of the Regulation and its potential impact.
In terms of the Regulation, the default position is that the law of the country in which the deceased was habitually resident at the time of their death will govern the succession to their estate. That country does not need to be a state which has signed up to the Regulation so would include an individual habitually resident in Scotland. Although the term 'habitually resident" is not given a clear definition, guidance is provided and it seems reasonably clear that the test is quite factual - usually (but not always) where the deceased was living at the time of their death.
Where, however, it is clear from the circumstances that at the time of death, the deceased was "manifestly more closely connected" with a country other than the country whose law would otherwise apply, the law applicable to the succession shall be the law of that other state.
How does this impact in Scotland?
In Scotland, we are used to the position where we can leave our heritable assets (broadly speaking houses and land) to who we like. For our moveable assets (everything else) we have the right to dispose of most of that as we wish, but there is a reserved part which can be claimed by a spouse or children. Importantly a spouse or child can't claim this reserved part and claim their share under the Will - it is an either / or scenario.
This is an example of "forced heirship", and is more frequently seen in other European countries.
The new EU Succession Regulation will therefore have an impact on how a countries rules will interact, and will be particularly relevant for Scottish people who own a holiday home in another country.
To give you an idea of the complications here:
- A Scottish domiciled individual lives in Scotland and owns a holiday home in France;
- Under the Regulation, we might think that French succession law does not apply, and so the property will be dealt with under Scots law;
- However, in Scotland (which has not adopted the Regulation), we work on the principle that heritable property in another country should pass under the succession rules of that other country;
- The Regulation anticipates what would happen in this situation and would have Scots law apply, however because Scotland has opted out of the Regulation, then French law would apply to succession to the property;
- French law has its own system of forced heirship and this might give rise to an unexpected result, where advice has not been taken;
- It is possible however for an individual to make an election that the law of their country of nationality should apply, and so if this is done in our example, then Scots law of succession would apply to the French property.
Inheritance Tax (IHT)
Crucially, the Regulation does not have an impact on taxation and domestic rules will continue to apply as they do at present. That said, thought should be given to the UK IHT impact of including an election to have "UK" law apply to an individual's estate where that individual might be non UK resident and might otherwise have been considered to have been non UK domiciled for the purposes of succession and IHT. Could such an election therefore cause more assets to be brought into the UK IHT net than might otherwise have been the case (subject to the availability of double taxation relief?) It remains to be seen how HMRC will approach this.
Another point to note is that member states can refuse to apply the law of an individual's nationality if it is felt that it is “manifestly incompatible with the public policy”.
Going back to our example of a Scot with a holiday home in France, it is unclear at present whether a French court might consider that the election by a UK National (a state that has opted out) would be incompatible with their public policy if it is seen to be a deliberate avoidance of their forced heirship laws. An election is likely to still be advisable but bespoke advice should be sought.
European Certificate of Succession
The Member State which has jurisdiction over succession will be entitled to issue a European Certificate of Succession. The idea is that this will then be accepted by other states which have adopted the Regulation without the need for this to be resealed or for a separate Grant of Probate to be issued, which should make estate administration less complex where there are multiple states involved which have adopted the Regulation. As the UK has opted out, the Certificate won't be given automatic recognition in the UK and Confirmation or Probate will still be needed in relation to assets in the UK.
Cross border estate planning always needs careful consideration and well thought out planning. It is important that individuals who own property in, live in or are considering a move to or from a country in the EU which has adopted the Regulation, take proper advice as to how these changes will impact on them. In the case of a Scot who is resident or has assets in a European country which has adopted the Regulation, it may well be beneficial for an election to be made to have Scottish succession law apply to the whole estate. Such an election should be included in a Will and indeed in every Will if there are separate Wills in place which deal with the succession to assets in different jurisdictions.
It is essential though that thought is given to the wider potential implications of this - how will Scottish succession law actually impact, particularly given that this is currently being reviewed? Could this actually have adverse consequences? What about the impact on the domicile test for UK inheritance tax? While there is no doubt that the Regulation is a step forward in helping to simplify the administration of cross border estates in Europe and will be beneficial to many, it still remains to be seen how this will actually impact on the UK and work in practice.
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