One of the things that I have
most enjoyed about my seat in the firm’s private client practice group is the
wide variety of work that we do. During
my seat, I have prepared Wills and Lasting Powers of Attorney for clients, made
deputyship applications on behalf of clients who have lost capacity and
assisted with the creation and administration of family trusts.
In addition, the firm frequently
advises executors that are dealing with a relative’s estate and can also act as
executor itself when relatives are unable to undertake what can be an onerous
responsibility. Recently I have been assisting in the administration of the
estate of a Polish man, who I will call “Mark”.
Mark had lived in this country
for many years, but still had property in Poland.
“Foreign property is something we come across surprisingly regularly when dealing with estates.”
This is sometimes because the
deceased previously lived in another country, or sometimes because the deceased
owned a holiday home in, say, France or Spain.
Many of the principles governing
the succession of European property have changed recently as a result of the
European Succession Regulation, which came into force on 17 August 2015.
The UK, Ireland and Denmark have
not signed up to the Regulation but all other EU countries (including Poland)
have and so it will affect English testators with property in Europe. The Regulations do not apply to Mark’s estate
(he died in May 2015), but I will nevertheless discuss the likely impact of the
regulations in the future.
Mark’s Polish property threw up
three particular legal issues that we had to consider.
“First, was Mark’s English Will valid in Poland?"
Mark had one English Will, which
dealt with both his English and his Polish property. Fortunately, the answer was yes; Polish law
accepts a Will that is validly made in England.
The position would be the same if the European Succession Regulation
applied, as the Regulation states that a Will is valid as long as it is valid
in the country where it was made.
If the country where the property
is located is outside of the EU, it will often be more sensible to have a
second Will to cover the foreign property, to ensure that the Will complies
with local requirements. Even if the
property is in the EU, it will often be easier to have a foreign Will. A local official in Spain or Poland may not
have encountered an English Will before, which may make dealing with and
selling the foreign property more difficult.
“Second, did English or Polish succession law apply?”
While in England a testator can
(within limits) leave his property to whoever he chooses, this is not the case
in some other countries. For example in
France, a testator is obliged to leave a certain proportion of his property to
each of his children and to his spouse- regardless of whether the testator was
English and lived in England.If the property is subject to French succession
law, it must be left to spouse and children in the appropriate proportions.
Under English law, the usual
position is that real property (generally land and buildings) passes under the
succession laws of the country in which it is located. As a result, Mark’s property in Poland will
pass under Polish law.
Matters would have been more
complicated if Mark had died on or after 17 August 2015. In contrast to the English law default
position, under the European Succession Regulation (which binds Poland),
property generally passes under the succession law of the country in which the
deceased was habitually resident (in this case, England). However, despite the apparent incompatibility
between English and Polish law, the European Succession Regulation is likely to
allow England to shift responsibility back to Poland, so that Polish succession
law would still apply to the property.
“Third, did the estate have to pay inheritance tax on the Polish property?”
In the UK, inheritance tax does
not depend on the location of the property, but on the domicile of the
deceased. As Mark had lived in the UK
for more than 17 of the past 20 tax years he was deemed to be domiciled in the
UK for inheritance tax purposes. As a
result, the starting point was that his estate would pay inheritance tax on all
of his assets, even the Polish property.
In
practice, double-taxation can often be avoided as the UK has treaties with a
number of other countries (for example, the US, Ireland and France) to avoid being
charged inheritance tax twice on the same assets. Unfortunately, the UK does not have such a
treaty with Poland. In these
circumstances, HMRC usually allows the executors to deduct a “credit” from the
inheritance tax due on foreign property, equal to the tax due on the assets in
the foreign country.
However, (predictably) the
position is more complicated if Polish assets are involved. This is because in Poland the person
inheriting the assets (rather than the estate) is liable for any inheritance
tax due and so the process of applying for a rebate from HMRC is more complex.
“My experience dealing with Mark’s estate highlighted the importance of planning in advance.”
It
is important for clients who own foreign property to think about the
implications after their death. While
nobody likes to consider their own mortality, many problems which crop up after
death can be avoided by simple planning beforehand.
Posted by Elisabeth Kynaston, trainee in the private client practice group.
Elisabeth Kynaston started her training contract with B P Collins in February 2014, having previously worked at a legal publishing company and a legal advice centre in East London. She graduated from Durham University with a first class honours degree in Ancient, Medieval and Modern History. Elisabeth has completed the Graduate Diploma in Law and Legal Practice Course at the University of Law, Bloomsbury, both with distinction.
