How To Navigate Inheritance Tax As A UK Expat In Europe
LEARNING OBJECTIVES
We’re passionate about providing relevant, high quality and up-to-date financial advice to British Expats around the world.
IN THIS ARTICLE, YOU WILL LEARN THE FOLLOWING:
How UK inheritance tax works for Expats
The differences between EU and UK inheritance tax
How to use multiple Wills for passing on assets
Important considerations when living outside the UK
Life as a British expat in Europe can be full of exciting opportunities and incredible new experiences. One aspect of life which can feel overwhelming is the complex issue of cross-border inheritance law.
With a different set of laws and regulations for every European country, it can be easy to feel lost or confused. Our guide will walk you through the key elements of these laws so you can manage your estate across borders and with confidence.
Understanding Local Inheritance Laws
The best place to start is to familiarise yourself with how local inheritance laws operate in your new home country.
Civil Law vs. Common Law
Most European countries such as France, Spain and Italy follow civil law. This applies forced heirship rules, which reserve certain parts of your estate for your family – usually your children – regardless of what your will states.
In contrast, the UK follows what is known as common law, which allows you to leave your estate to anyone you wish, with no legal obligations to give certain portions to certain family members or relatives.
EU Succession Regulation (Brussels IV)
Thankfully, the EU has now made things a little easier for expats. Since the passing of a law called Brussels IV, individuals may now choose whether their estate is to be governed by the law of their country of nationality or their country of residence when they pass away. This regulation gives you more control over what happens to your estate in the event of your death.
The Power To Choose
If you don’t make a choice, your estate will typically be handled in accordance with the laws of the country where you last lived. However, as a British expat, you may choose to opt for the flexibility that the UK laws provide. Even if you have more than one nationality, you can choose which laws to apply to your estate.
To exercise this freedom and make your choice official, you must state so clearly in either your will or another legal declaration. So long as your will meets the legal requirements of your country of residence or nationality, your decision will be valid.
The law you choose will determine who inherits your assets and how any debts may be handled. It will apply to all your assets, regardless of their location.
Forced Heirship Vs. Freedom of Testation
Inheritance laws in Europe may override your wishes in some cases. As a UK resident, you receive ‘freedom of testation’ meaning your estate can be left to anyone of your choosing. However, many European countries do not offer this freedom. For example, in France children can be entitled to up to 75% of an estate, regardless of a will. In Spain, two thirds of your estate must go to children or other descendants.
Inheritance Tax Exceptions
There are a few exceptions to the EU inheritance rules:
Denmark and Ireland
These countries do not recognise Brussels IV, so if you settle here, your choice of law may not be honoured. Danish and Irish citizens may still use Brussels IV if their estates are handled in another EU country.
Non-EU Countries
Some countries outside of the European Union, such as Switzerland, may follow different inheritance laws, so it’s best to seek professional advice from a professional in these cases.
The Wealth Genesis helps expats in all areas of estate planning. We can ensure that your will complies with both UK law and the local law of your new home country and create separate wills for assets in different countries if necessary.
Double Taxation Issues
One thing to bear in mind is the possibility of double taxation. Whilst the UK has treaties in place with many European countries to avoid this, tax rules still vary between countries, and there may be differences in how IHT is calculated.
If you’re domiciled in the UK, IHT will apply to your worldwide assets. If you’re domiciled in a European country, you may also be liable for local IHT. Some countries such as Spain, have high inheritance tax rates, especially for non-residents.
Domicile And Residency
Your domicile and residency play a key role in determining how your estate may be taxed. Being a UK expat does not necessarily mean you are no longer domiciled in the UK, especially if you have long term ties to the country.
Your residency and where you live can also affect which laws will apply to your estate and any IHT your heirs may face. It’s essential to seek advice to be clear on where you stand.
Wills | Single or Multiple?
Depending on where your assets are located, it might make sense to have separate wills for the UK and European countries. This can streamline your estate planning and prevent legal conflicts. Many expats choose to draft wills under EU law which include a Brussels IV declaration to ensure their estate is managed according to their chosen law.
Expat Financial Services
This area of law can be highly technical and complex to navigate, so seeking professional advice is essential.
The Wealth Genesis works with a panel of curated and trusted lawyers who are specialised in cross-border Inheritance law.
Additionally, our advisers are regulated and qualified to use estate planning tools such as gifting, trusts and life insurance policies to minimise your tax liabilities.
Book a call today using the diary below to discover how our experts can help protect your wealth and legacy.
