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In the UK, a simple Will suffices to set out who inherits your estate. But it may not be as easy in Europe.

The UK’s legal system is based on common law, while most European states have a civil law legal structure. Common law relies upon cases – published judicial interpretations of the law. Civil law is founded on codified statute.

These two systems have diverged significantly and this may affect to whom a deceased’s estate may be passed.

This can make it hard to formulate a sound estate plan for someone who lives in and owns property in two or more countries.    

There’s added relevance for someone from the UK who remains domiciled and liable to Inheritance Tax (IHT) no matter how long they have lived abroad.

A problem can arise between the UK’s freedom to dispose of assets as you wish and the forced heirship rules of much of the EU.

Forced heirship rules designate heirs in an order of priority, with many of those in the EU placing children ahead of the spouse.

Three favoured destinations of British buyers – France, Spain and Portugal – have different variations of forced heirship.

In France, one child would automatically inherit 50% of the estate, two would get 67%, while three or more get 75%. A surviving spouse is entitled to a minimum of 25% of the deceased’s estate, but it remains possible to disinherit them from this share.   

A Spanish estate is divided into three equal portions. The first must be distributed to the children equally, the second goes again to the children but may be unequally divided and only the final portion can be bequeathed to the spouse.

In Portugal, if there are no children, the spouse is guaranteed 50%, but on the other hand if more than three children inherit, the spouse’s share falls to 10%.

Spain and Portugal have always allowed a degree of flexibility. English succession law would apply to a Spanish estate (and therefore forced heirship would be set aside), where the deceased dies a British national owning UK real estate.”

Some clarity arrived in 2015 in the form of European Succession Regulation. 

It offers people a choice of the succession law of their country of habitual residence or electing for the succession law of their nationality to apply to all of their assets, including real estate held in an EU country.

France has subsequently introduced legislation that is in conflict with EU law and is likely to result in the European Court of Justice having to rule.

While these laws enable a UK national to bypass forced heirship, they do not change the tax position on death. The estate tax liability in an EU country will not be determined by the UK’s allowances and flat 40% inheritance tax rate, but will be based on that state’s allowances, exemptions and estate tax rate bands.

This is where a UK buyer of a European holiday home, or a UK national living in the EU, needs to be particularly careful.

Freedom to choose beneficiaries can be costly – up to 60% tax in France and 82% in Spain in some extreme cases.

In short, the estate taxes consequences of buying a home abroad should always be considered. A Will, even specifically to cover a holiday home abroad, is almost always advised.”

Please refer to www.blevinsfranks.com for the latest on how Brexit affects Britons moving to Europe.
Jason Porter is a Director of specialist expat financial advisers Blevins Franks and head of the company’s European Emigration Advisory Service.