Tax, wills and foreign assets

When it comes to tax, writing wills to take into account portfolios of assets held across multiple jurisdictions, requires careful tax planning.?

The first step when assisting clients with foreign assets is to get a full understanding of the assets, they own by finding out what types of assets they hold in each jurisdiction and their value. Carrying out this necessary due diligence will allow you consider the impact on the structure of their wills and to deliver bespoke financial advice and succession planning options.?Furthermore, the location of particular assets can influence fundamental principles such as domicile and residency which in turn will dictate what law governs their estate on their death and will also influence their tax situation.

Not all legal concepts exist or operate in the same way in other jurisdictions; in the UK, trusts are often used as a succession planning mechanism, however in a country like Spain, for example, trusts are not valid legal instruments and are therefore not recognised in Spanish law. If this is not taken into account subsequent processes, like transferring the deceased’s assets, can be severely impeded. Furthermore, Spanish law contains no clear rules as to the tax treatment of trusts, which could potentially lead to a higher tax burden for the estate.

When advising clients, it is important that accountants bear in mind the process of?renvoi?- which applies in instances when the deceased individual leaves behind an asset portfolio spanning a number of jurisdictions. This process determines which jurisdiction’s succession law will apply to the deceased’s estate, which can cause particular issues when the laws of the various jurisdictions are incompatible.?

The EU Succession Regulation has streamlined renvoi and grants testators the power to elect for the law of their nationality to apply to certain foreign assets. Although the UK is no longer an EU member state and has never opted into the regulation, the regulation allows UK testators to declare that their law of nationality shall apply to any assets they own in any EU member state. The regulation does not apply to assets held in Ireland and Denmark who also chose not to opt in to the rules.

If no election is made under the regulation, the law of succession of the deceased’s habitual residence on their death is likely to be applied to assets they own in an EU member state but circumstances are not always straightforward, and unanticipated outcomes can occur due to nuances such as a particular jurisdiction’s interpretation of the law and the UK’s undetermined position in respect to the regulation.