Buying an overseas property is probably the most exciting thing that you will ever do. The prospect of holidays to come, or even moving abroad, is a very enticing prospect for many people and when you do it, you probably can’t wait to go out to your new property. However, it does make sense to take a step back and think at this stage about who you want to inherit from you, as arranging things now can make a big difference not only in terms of making things easy for your heirs, but also in terms of reducing tax. Changes in European Laws that come into force in August 2015 will mean that it is even more important to think about these issues.
Inheritance Laws in most countries work in a very different way to the way that they work in the UK. Inheritance tax (IHT), for example, is often calculated on how much each beneficiary inherits rather than the size of the estate as a whole. In some countries there are even laws that set out who has to inherit from you.
It is the so called “forced heirs” rules in some countries that can cause confusion. These rules set out that certain people have to inherit a certain percentage of your assets from you. In some countries, such as Spain, if you are not a local national then you don’t have to follow these rules and can leave your assets in accordance with your own national laws. Other countries, such as France, force you to follow their rules even if you are not French.
The ‘forced heirs’ rules for most countries are often different to that which you are used to back in your home country, but for most people they don’t cause a problem. This is because the forced heirs rules in most countries make you leave your assets to your children, which is normally what people want to ultimately happen. In most cases there is only freedom to leave a percentage of your assets to whoever you want. This doesn’t normally cause a problem for most people, unless you wish to make sure that the surviving spouse receives the whole amount first, or they wish to disinherit their children.
On 17th August 2015 these rules change with an introduction of a European Directive that regulates how an inheritance will be dealt with. Although the UK has opted out of this Directive it is still of significant interest to those people who own property abroad.
The new directive essentially means that it is the law of where you are resident when you die that applies to your estate rather than the law of your nationality. This is, of course, a fundamental change and will particularly affect those people who go and live abroad. It means that even in countries like Spain, where you are currently able to leave your assets to whoever you want even if you live there, the situation will change and you may be forced to leave your assets to certain people.
Having said that, the Directive also says that if you make a Will, then you can still choose the law of your nationality to apply to your estate, even if you are living in a different country. It is therefore vital to make a Will in the country where you buy your property. It is possible to have two Wills, one in your home country and one where you have your second home. There are various reasons why it is important to make a separate Will in the other country (such as it being in the right format for the country, being in the right language etc) but when the new regulations come in it will be even more important than it was previously.