Overseas Chambers of Peter Harris

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The effect of the EU Succession regulation, and its indirect but direct fiscal effects on IHT treatment of foreign property rights misdiagnosed as quasi-settlements by HMRC

December 7th 2015

 

 

Whilst article 1 of Regulation 650/2012 states clearly that :

 

"1. This Regulation shall apply to succession to the estates of deceased persons. It shall not apply to revenue, customs or administrative matters  "

it would be frankly negligent for a will writer or other, non-legal, professional to assume that it does not have an effect on succession duty or Inheritance Tax when drafting wills under the Nationality option available to British citizens domiciled in the United Kingdom, or for that matter EU citizens domiciled here.

Firstly, there is no doubt that the English Probate Court simply has no jurisdiction to issue grants over foreign property. It never has had, and never will do simply on the basis that no court wishes to issue any judgement that is of no effect outside its jurisdiction. The jurisdictional limitations imposed by Parliament before and after the Administration of Estates Act 1925 are clear. That Act only applies to England and Wales not abroad.

Also, given that the Regulation is not applicable within  the United Kingdom means that there is no extension of that statutory jurisdiction possible under a direct effect argument.

However that does not mean that the concept of direct effect does not apply in other areas as a result of the Regulation.

Why? because the legal basis of the Regulation was to address the internal market. That implies that it also has effect within the areas covered by the Internal Market such as the freedom of movement of capital, in matters of succession. That engenders directly effective rights under EU law, and always has done in relation to the taxation of cross border successions within the EU, of which the United Kingdom is a part.  Insofar as the Regulation produces direct effects for British citizens, which it does within the Member States applying the Regulation, the rights to plan a succession with certainty under considerants 37 and 38 of the Regulation ensure that when a foreign property right is left under a will, that HMRC cannot change it into something else, such as a settlement under article 43 (2) ITA 1984 or reinvent it in any other legal form. Neither can they legally issue doctrinal pamphlets  dissuading people from so doing in the form of Newsletters, which is what they have been doing in flagrant contradiction of the CJEU's ruling in Case n° C‑35/08.

In short, rather than create problems by ill advised or ill-informed assumptions,  advice on the legal, not deemed treatment of foreign property rights left under an English law will over foreign property needs to be addressed, and it is best to consider separate wills.

Peter Harris is available for advising those in England and Wales with either French property, or with the assistance of a Spanish abogado or notary, in Spain.

Please also see our Resources page for more details on one issue related to this.

Please feel free to instruct us, as we are one of the few Chambers able to assist fairly and squarely in foreign legal concepts and their treatment in this expanding area.