Many UK residents have invested in overseas property in recent years, but many have neglected to consider the effect this could have on their Will and IHT planning, warns law firm Adams & Remers LLP.
The number of Britons expected to purchase a holiday or retirement home abroad in the next five years is likely to increase, yet the majority do not understand the implications this will have on their current Will and efforts to reduce their inheritance tax bill.
Simon Mitchell, Associate at Adams & Remers comments: “The interaction between UK and foreign succession and inheritance tax law is a complex area and if you are lucky enough to purchase your dream holiday home, or are escaping to the sun for retirement, it is crucial to seek advice on how to manage your overseas assets.”
“It is advisable to have a second Will drawn up in the country in which your property is located. Watch out for revocation clauses, which state that all your other Wills are invalid, and ensure that they are limited to the country in which your property is located otherwise your foreign Will could unintentionally cancel out your UK Will.”
Simon Mitchell continues: “People also need to familiarise themselves with the succession laws of the country in which they are buying property, as popular expat destinations often have ‘forced heirship’ laws in place. For instance, French inheritance laws stipulate that your children will have a right to a share of your property as well as your spouse.”
In terms of tax, if you are still domiciled in the UK, inheritance tax at a rate of 40 per cent on estates exceeding £325,000 (or £650,000 for couples) will apply not only to your UK assets but also to your overseas assets as well. However, as an owner of foreign property you may also be expected to pay tax to that country’s government. In countries such as France and Spain, inheritance tax is payable by your beneficiaries at different rates depending on how they are related to you (or not) and how much they are inheriting.
Simon Mitchell concludes: “Many people do not realise that their estate may in effect be subject to ‘double tax’ by bad financial planning. The UK has treaties for inheritance tax purposes with several countries, and it is important that clients take advice on whether there will be a liability to foreign tax after they have died and also what reliefs are available to reduce any tax payable in the UK.”
The death of you or your spouse is probably not the first thing that springs to mind when acquiring a place in the sun, but if left unconsidered your beneficiaries will be left to cope with an array of complex foreign laws and financial burdens.
This article is not intended to be a full summary of the law and advice should be sought on all issues.