EU Regulation 650/2012 – what’s it all about and how does it affect cross-border issues?

Posted by Sarah Bogard

Senior Solicitor & Chartered Tax Adviser

Regulation (EU) Number 650/2012 (more commonly known as Brussels IV) came into force on 17 August 2012 and will start to apply fully in respect of deaths occurring on or after 17 August 2015. It will be of great importance to many people, and will have a significant impact on the way their estates will be distributed and administered on death.

The Regulation attempts to harmonise the private international law rules of succession throughout the EU, without creating a completely new set of succession laws.

How?

By adopting one country’s set of succession rules to apply to the whole of an estate on death. This is different to the way that many countries deal with estates. For example, the law of England and Wales provides that immovable assets (land and property) pass in accordance with the succession laws of the country where the asset is situated, whereas movable assets (eg a bank account) in the same estate pass in accordance with the laws of the country of the deceased person’s domicile. So in the case of someone domiciled in England owning a holiday home in France, consideration must be given to the application of both English and French succession laws.

Who should know about it?

Everyone who has a cross-border issue regarding their estate and there is some connection with an EU Member State. It might be that a person doesn’t live in his country of nationality, or he owns assets in more than one country, with one of them being an EU Member State.

Any opt outs?

Yes, the UK, Denmark and Ireland have opted out. Because of this, the application of the Regulation in some circumstances is as yet uncertain, and we may have to wait for actual cases to be decided upon before we have a clear understanding of how the Regulation is to be interpreted.

What is the general rule?

The general rule for estates affected by the Regulation will be that the internal laws of the country of a deceased person’s last habitual residence will apply to the estate as a whole.

Can you opt for another country’s laws to apply?

Yes, the Regulation allows you to declare a choice of law of your country of nationality. The declaration is to be made in a Will. It doesn’t have to be an EU country in order to be chosen. You also don’t have to wait until 17 August 2015 to include a declaration in your Will. Care will need to be taken when including a declaration, particularly if you have multiple Wills (for example an English Will and a separate French Will for your French property). Where a declaration of choice of law of your country of nationality can be made successfully, this can help to avoid an unwanted application of fixed inheritance rights of another country (many civil law countries, such as France, protect the inheritance of close relatives by granting them statutory inheritance entitlements, even if a Will is made to provide otherwise).

What about inheritance tax?

The Regulation only deals with matters relating to succession. It doesn’t deal with the issue of inheritance tax. So for someone who is domiciled and resident in part of the UK and who owns a holiday home in France, the French property will continue to be chargeable to inheritance tax both in France and the UK, with any double tax relief available. This is likely to catch some people out, who, say, may have English succession law apply to their French property and decide to leave it to, for example, their stepchild. The tax rate in France for a stepchild inheriting from a stepparent (unrelated persons) is currently 60%, with a very small nil rate band allowance of €1,594. What might be good for succession isn’t necessarily good for tax. All options should be considered, keeping a close eye on the succession and tax consequences.

What about Wills made before 17 August 2015?

A validly executed Will made before this date will continue to be valid, but it must be reviewed for its impact on what succession laws are to apply from 17 August 2015. Even if you haven’t made an express choice of law declaration, your Will may imply a choice of law declaration, and this is not going to be the most appropriate option for everyone. Each case must be looked at individually.

What should you do?

If you have an estate which will be affected by the Regulation now is the time to review your Will and, if you haven’t got a Will, to make one. Get advice on how the Regulation will impact on your estate to make sure that you structure your affairs in the best way for you and your intended beneficiaries. Make 2015 the year of review of your affairs.

We can help you with a review of your Will.


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