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Article:

European succession – avoiding forced heirship on EU real estate

30 September 2019

Under UK law, the UK Courts (of England, Scotland, Wales and Northern Ireland) will usually take jurisdiction over the estate of a person who died whilst domiciled in the UK or, for certain assets, such as immovable property, physically located in the UK. Domicile is largely a UK concept, and most foreign courts base their jurisdictional rules on other concepts such as nationality or residence on death. This creates a great deal of complexity and uncertainty when rules in different jurisdictions are in conflict.

Example

A UK national and domiciled individual is resident in Cyprus at the date of death, with real estate in both the UK and Cyprus. The UK Courts will seek jurisdiction over the whole estate on the basis of domicile, and the Cypriot Courts will also seek jurisdiction over the whole estate on the basis of residence - except for real estate, where each court may defer to the other. 


Jurisdictional conflict

The EU Succession Regulation firstly sets out which Courts amongst EU member states have jurisdiction of the estate, based on the individual’s residence at death. However, this will be overridden if the deceased has closer ties to another EU member state. The Regulation also allows an individual to elect for their estate to be within the Jurisdiction of the Courts for the country of their nationality, whether or not that is an EU member state.

It should be noted that the UK, Ireland and Denmark have opted out of the EU Succession Regulation. So, courts there will continue to apply jurisdiction rulings based on their local law, and no elections available to override that.

In the above example, the individual could elect in their Will for the UK Courts to have Jurisdiction over the entirety of their estate, and Cyprus will then defer to the UK Courts.

Forced Heirship

For immovable property, the UK Courts will refer jurisdiction to the court for the country in which the property is located.  

Historically, this means that where the property is located in a civil law country with forced heirship rules, the UK courts would apply those forced heirship rules to the estate. Any challenge to the disposition of the estate in respect of that foreign property would need to be referred to the local Court.

Although the UK has not adopted the EU Succession Regulation, a property located in an EU member state can still be the subject of an election under the Regulation, resulting in the property being within the jurisdiction of nationality. This will be unaffected if the UK leaves the EU.

The complex law can be simplified as follows: if a UK citizen has made an election, the UK Courts may retain jurisdiction over the EU sited property - on the basis that the foreign EU Courts will give jurisdiction to the UK as the place of nationality. As such, no challenge can be made to the local Court if the deceased’s Will leaves the foreign property in contravention to the forced heirship rule of its location.

For a foreign national with a UK domicile, the position is more complex, as the UK Courts may have to defer jurisdiction to the foreign country of the deceased’s nationality. The jurisdiction of Courts is complex and subject to such concepts as ‘renvoi’, which may lead to the Courts in some countries refusing to take jurisdiction (meaning it rests with the referring courts). In such cases, legal advice is required.

Tax

Although the EU Succession Regulation is wholly a legal matter, it is important for advisers to appreciate its potential impact when giving inheritance and succession advice to those with international estates.

From a tax perspective, the Regulation does not remove the liability to inheritance/gift taxes of the EU member state in which the property is located. However, many jurisdictions have exemptions or different tax rates, depending on who inherits the property, so changing the beneficiaries may have a consequential impact on the local tax position.

Please contact us for more information or for assistance on this issue.

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