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Succession planning & cross border issue

This article addresses some of the issues an adviser may face when advising an individual who has assets situated in both the UK and other jurisdictions.

Movables and immovable assets

In the UK a distinction is made between assets which are movable such as a bank account and assets which are immovable such as property. France also has this distinction however, many other countries do not. There are then different laws which apply to these different categories of assets, for example, the UK rules state that if an individual is domiciled in the UK then any movable assets that they own will pass in accordance with their UK Will (or intestacy rules) upon their death. However, immovable assets will pass in accordance with the law of the land in which the asset is held and other countries rules may conflict with the UK rules.

Double taxation agreement (DTA)

It is important to establish whether the country where assets are situated has a DTA with the UK. If tax has to be paid in both countries upon the same assets it may be possible to obtain a refund. However, if there is not such an agreement it may be that tax has to be paid in both countries and the tax position in one country may be far more severe than another.

Forced heirship

In England and Wales there is generally testamentary freedom to pass assets to whoever the testator chooses upon their death. However, in many other countries such as France and Spain there is not this freedom and forced heirship rules apply. Forced heirship creates a responsibility to provide for a spouse and children for example and therefore if a country has forced heirship rules it is important to note that any other form of succession planning may be overruled.

Matrimonial property regime

Whilst the UK does not operate this type of system, some countries, such as France, do. Under this regime property purchased during a marriage is covered by different laws to other assets that a couple may own. Each spouse acquires fixed property rights in respect of assets acquired during marriage.

Wills

As mentioned above there is a distinction between movable and immovable assets. Immovable assets, such as property, pass in accordance with the law where the property is situated whereas movable assets pass in accordance with the law where the owner is domiciled or a national. Due to this it is often the case that two Wills are required although it is important to ensure that there is no conflict between these Wills and that one Will does not revoke the other. For this reason an overseas Will should be drawn up by a local lawyer who knows the country’s law. For example, in the UK personal representatives are appointed, whereas in Spain such an appointment of personal representatives with power to deal with assets of an estate is regarded as a direct gift to them. There may also be forced heirship rules or a matrimonial property regime to consider.

Trusts

Trusts are generally a common law concept and are recognised in the UK. If property is going to be held in a trust overseas it is important to establish whether the jurisdiction recognises trust law. If trusts are not recognised then the overseas jurisdiction may make a trustee personally accountable to a beneficiary if forced heirship applies.

Companies

It may be that succession problems could be avoided by converting immovable property to movable property so as to come within the laws of country of domicile or nationality. This could potentially be achieved by owning immovable property through a company, shares of which are treated as movables. If the shares are registered in another country then the country’s forced heirship or matrimonial property regime do not apply. However, it is important to note that some countries may be able to set aside such a transaction if its sole purpose is to avoid such legislation.

Foundations

If trusts are not recognised it may be that some other structure will have to be in place, such as a foundation. These are similar to trusts and often used in civil law jurisdictions. Like a trust it can provide for succession planning although the tax status of this structure should be considered. In the UK, since trusts are used the concept of foundations is not recognised.

The European Union

The EU have recently issued a proposal which aims to create a unified legal framework on the laws of succession in the EU. 

Summary

The above illustrates just some of the possible complications that may affect an individual where they are multi-jurisdictions involved in financial planning matters. It is therefore important to ensure that financial advice is obtained in relation to each specific jurisdiction involved.

The information provided in this article is not intended to offer advice.

It is based on Old Mutual Wealth's interpretation of the relevant law and is correct at the date shown at the top of this article. While we believe this interpretation to be correct, we cannot guarantee it. Old Mutual Wealth cannot accept any responsibility for any action taken or refrained from being taken as a result of the information contained in this article.

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