Lawyer Camilla Wallace examines how UK citizens can best protect their European holiday homes following Brexit
The unexpected result in the Brexit Referendum has led to much uncertainty. How long will our European friends and colleagues be able to remain in the UK? Will the free market now attract tariffs? What will constitute a ‘red line’ in the forthcoming exit negotiations? Free movement of people or free movement of capital? Or both? Who is going to be leading the government in October? Will there be a snap general election? Confusion and perplexity abound. However, in one important area, Brexit has brought some clarity, and that is as regards who can inherit your EU assets if you are a UK citizen (by birth or naturalisation).
Last year on 17 August, there was a revolution in EU inheritance laws when the EU Succession Regulation (also known as Brussels IV) came into effect. The Regulation aims to harmonise the approach across EU states when deciding which country's law governs the succession to EU assets on death.
Previously, if an individual died with assets overseas and they were a national of, resident in, or domiciled in a different country, an inevitable conflict of law arose as competing states all sought to apply their own local rules. With ‘forced heirship’ rules in much of Europe (which sees family members inheriting fixed portions of an estate irrespective of what a Will might say) UK nationals used to total freedom of testamentary disposition often did not have control over who would inherit their EU holiday homes.
Although the UK, Ireland and Denmark did not opt into the regulation, the general rule is that EU assets (outside the UK, Ireland and Denmark) now pass in accordance with the law of the country in which the deceased was last habitually resident. Logically you might therefore think that if you are resident in the UK, and have no plans to move, that UK succession law will apply to all of your EU assets on your death. However, illogically this is not so.
Although UK law would be the starting point, in the UK, real estate should pass under the laws of where it is situated and other moveable assets (such as art, cash deposits and investments) in accordance with the domicile of the deceased. If the UK courts do not consider that they have jurisdiction, they would refer the issue to the relevant EU court and allow them to apply their own laws, which may include forced heirship. Prior to Brexit, there was some doubt as to whether the EU courts would accept such a referral, but following Brexit and assuming the UK formally leaves the EU, the position is now clear: they will.
However this does not need to be bad news.
The Regulation allows affected individuals to make an election for the law of their nationality to apply to all of their assets. An election will override the law of any participating EU state. It will also prevent the courts of an EU state accepting a referral from the UK.
So what does this mean in practice? We recommend that UK citizens with assets in the EU, or those who are living in an EU state with assets in that state and the UK, review their Wills and consider making an election for UK law to apply to their estates. Without one, following Brexit and the UK's withdrawal from the EU, British citizens with holiday homes and other property in the EU may not be able to control who inherits their assets. It doesn’t have to be that way, you can take back control and make the election.
Camilla Wallace is a Partner in the Private Client Team at Wedlake Bell LLP