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. There are several reasons for writing a Will in the country where the property is situated. The first reason is that in the UK an estate will pass to 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 an executor) at a higher rate than transfers to relatives. The initial transfer of title to an 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 an estate is not prolonged unnecessarily is almost always a good idea.
The laws and taxes vary in each different country, so research should be done carefully to ascertain what is needed. It is also essential that the UK executor knows that there is foreign property and a foreign Will. If you are domiciled in the UK when you die, IHT will be levied on the value of 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 a new Will is prepared, the standard clause in it which states that a client revokes all former Wills may have the effect of making a foreign Will void, which could lead to an estate being distributed in a way which is quite contrary to a client’s 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.
