Over 2 million British people own properties overseas. The majority of these people are relatively wealthy and will have considered carefully the relevant issues as regards the impact of taxation, especially UK Inheritance Tax (IHT), when considering their wills.
How many, however, consider the impact of foreign inheritance laws and taxes? Many purchasers look at writing a foreign will as an extra and unnecessary expense. Whilst it is sometimes true that writing a will in the country in which you own property may not be necessary, it is more often than not a good precaution, for several reasons. The first reason is that in the UK your estate will pass to your beneficiaries indirectly, via an executor. In most European countries, however, the estate passes directly to the beneficiaries. This can cause problems if the country has an IHT regime which taxes transfers to non-relatives (which might include your executor) at a higher rate than transfers to relatives. The initial transfer of title to your executor may lead to the imposition of an otherwise avoidable and/or higher tax charge on the estate or at best unnecessary legal fees to sort the problem out.
The second issue is that if a foreign will is not prepared, it may cause a great deal of extra work in preparing, notarising (in most countries the relevant documents will have to be notarised, not just witnessed) and having translations made of all the necessary documents. This can also cause substantial delay in dealing with the property in the estate. This can of itself cause problems as in some countries failure to pay the taxes due on death within quite tight time limits can lead to fines. Making sure that dealing with your estate is not prolonged unnecessarily is almost always a good idea.
The laws and taxes vary in each different country, so you should make sure you do your research carefully to ascertain what is needed. It is also essential that your UK executor knows that you have a foreign property and a foreign will. If you are domiciled in the UK when you die, IHT will be levied on the value of your worldwide assets. Most UK citizens will be UK domiciled on death no matter where they are resident. The submission of an incorrect IHT account can lead to big tax penalties being levied if errors are discovered at a later date, especially if it looks like IHT evasion was on the agenda.
Also, if you have a new will prepared, the standard clause in it which states that you revoke all former wills may have the effect of making your foreign will void, which could lead to your estate being distributed in a way which is quite contrary to your wishes.
All of the above assume the scenario of a family which gets along and is not arguing over the division of the estate. Add the sort of problems mentioned here to a ‘warring family’ and the result is likely to be a potential disaster.
There is no substitute for thinking through the relevant issues and making considered arrangements with the benefit of proper professional advice. Contact Adams for further information on 020 7790 2000.
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