Most people aspire to the dream of living abroad and owning foreign property, but few of us consider what would happen to our overseas assets if we should pass away.
Too often people assume that if they buy a property abroad they can pass it on to whoever they choose. This is rarely the case because each country has its own rules governing who should benefit when someone dies.
Which law applies?Even within countries as diverse as Spain, the USA and Lebanon each region, or indeed religion, has different rules on who can inherit property and how much tax is paid. The rules are so complicated and the solutions so bespoke that even experienced solicitors can provide bad advice; oft en without realising they are doing so. Helping people with overseas assets navigate the notoriously complex world of international estate management is a job for a qualified specialist.
Are real estate and bank accounts treated the same?Yes and no. In some countries the 'succession law' - or who gets what when you pass away - and the taxation law in respect of buildings and land is governed by the jurisdiction of the country in which they are situated.
Lawyers call these 'immovable assets'. Everything else - what we call 'moveable assets' such as stocks and shares - is governed by the jurisdiction of your domicile. In other countries, such as Spain, there is a 'unity of succession', which means there is no distinction between movable and immovable property.
What about my will?Many foreign jurisdictions do not enjoy the same testamentary freedom we have, that is, the freedom to make a will and give our assets to whomever we wish. Instead most foreign jurisdictions operate a system of 'forced heirship' which means assets are divided between the deceased's parents, children and - if they're lucky - their surviving spouse. These rules take precedence over a will, although some countries allow a portion of the deceased's assets to pass in line with their written wishes. Accordingly it is important to either have a will that takes into account different legal jurisdictions or in some cases a will for each country where you hold assets - but this is not always the case - in some circumstances you should never be advised to have two wills.
Will I have to pay inheritance tax on my foreign asset?You usually will have to pay inheritance tax and oft en you will have to pay tax twice - in more than one jurisdiction on the same assets. By following the correct procedures however, it is oft en possible to recover most of the double paid tax from one of the jurisdictions.
And watch out for hidden tax surprises. In most foreign jurisdictions, there is no spouse exemption for inheritance tax which means a surviving partner can end up paying crippling death duties.
What is domicile and what part does it play?Sometimes domicile can play little or no part in the devolution and taxation of your foreign property, other times it is the defining issue. A detailed definition of domicile is outside the scope of this article and the definition changes from jurisdiction to jurisdiction, but in English law domicile is not where you live, but rather it is where you or your father were born.
If you do decide to move away from England you can adopt a 'domicile of choice' which may deliver beneficial tax consequences. But your domicile is not easily changed and you have to convince the taxman that there is sufficient evidence to displace your 'original' domicile. The laws governing succession rights and the taxation of foreign assets are complex so if you are buying an overseas property, the only way to ensure your assets are
distributed on your death as you wish is to take specialist advice.
For more information on this or on international probate issues please contact Daniel Harris at Stone King LLP on +44(0)1225 326761, or email [email protected] or via their website.