Inheritance of Property Abroad Issues
As with most matters surrounding death many of us, understandably, shy away from discussing inheritance issues, often until it’s too late. However, when buying property abroad it is vital to understand the implications of inheritance laws, often before you complete the purchase. And it’s not only our laws you need to be clear about. You need to take into account the law of the land where you are buying, as it is those laws that will apply rather than UK laws, which surprises many people.
The French ProblemAs an example, consider France, one of the most popular locations for overseas buyers, where the issues are so complex and crucial that it is possible to buy books dedicated solely to this single aspect. The major difference is that unless you make special provisions, there is little choice regarding where you want to bequeath your assets, with the default being to keep the property in the bloodline. Unfortunately, a spouse is not considered part of the bloodline, so, assuming you have children, the property is shared equally between the children and possibly your spouse (depending on circumstances).
This is in direct contradiction to inheritance rules in the United Kingdom, but, as the property is in France, it is French rules that will apply. There are ways of getting around this, such as buying the property though a societies civiles immobilier (SCI -- a property owning company) or buying the property en tontine which ensures a surviving spouse inherits.
MinefieldFrom this it can be seen that we are entering a minefield where guidance is sorely needed, as each of the options described above needs specialist advice for your specific circumstances. There are other solutions too, which all have cost and tax implications, and this is just one country.
There are many points to consider, each with pros and cons with regard to tax efficiency. Does your chosen country have a tax treaty in place with the United Kingdom? In some countries, inheritance laws and other tax issues can be different depending on whether the property is registered to one partner or both, or even a child. Often, a trust can be set up to own the property and obviate some inheritance tax, or gifting a property before death may alleviate it. Your decision will also depend on where are you domiciled and where are you considered resident for tax purposes, which may not be the same country. And second marriages can make it very difficult to balance the most effective tax plans with the desire to pass on assets in the way that you would like to.
Some Brief ExamplesJust to further give an impression of the size and complexity of these issues, here are some brief snippets of information about the inheritance tax regimes in a few other popular buying locations for Britons.
Greece and FloridaIn both places deciding whether to buy the property through a company or by one or more members of the family is critical to inheritance issues and it needs to be assessed and decided on at the time of purchase, as changing it afterward is inordinately expensive.
New Zealand and MoroccoThere is no inheritance tax in Morocco if a property is left to family members, and in New Zealand there is no inheritance tax and no Capital Gains Tax (CGT) unless you buy, sell or let houses as a business.
SpainThe amount of inheritance tax here varies not just on the value of the property but the wealth of the beneficiary as well.
Cape Verde and TurkeyThe up-and-coming location of Cape Verde, in the Atlantic off the coast of Senegal, offers only 3% inheritance tax, but in Turkey it can be anywhere between one and thirty per cent depending on the value of the property.
CanadaThere is no inheritance tax as such in Canada but inherited assets are treated as income and therefore subject to CGT, currently 25 per cent.
EgyptThere is inheritance tax but buying through a company will go a long way to avoiding it. Of course, owning and running the company will bring its own costs and tax liabilities.
Tricky SubjectUnsavoury though it might be, this is a situation that needs open discussion between the relevant members of the family. It will probably be necessary to write a will in the country where you own the property, and it also requires expert advice, preferably from someone who is specifically knowledgeable about the relevant laws in that country.
Where to Find the Right AdviceUK-based lawyers and tax advisors who specialise in inheritance issues to do with overseas property can be found on the internet or in the many magazines available on buying abroad. You can also speak to them at exhibitions and shows around the country that target this market.
One thing is certain, this is not an area where you can simply buy a property and hope that everything turns out all right in the end. If the correct precautions are not taken it will be the people left behind who will pay the price.