The EU Succession Regulation (the Regulation, also known as Brussels IV) came into force in 2015. Its aim was to simplify the cross-border inheritance process, in a world where people are increasingly internationally mobile. It recognised that having a single body of succession law applicable to a person's estate, and a law that is familiar to them and their family, was likely to give rise to a fairer, more certain result.
To put this in context, in many countries in mainland Europe there are "forced heirship" rules which apply to assets in those jurisdictions and set out how (at least a proportion) of a person's estate is to be inherited between surviving relatives. In England and Wales, however, we have broad testamentary freedom. This means that you can leave assets under your Will to whoever you wish (subject to certain caveats). Being constrained by forced heirship on assets held abroad can feel alien to British nationals accustomed to this freedom and can also cause other difficulties, as explored further below. The Regulation gives us a tool that can help with navigating these potential problems.
But this is an EU provision – does EU law still affect us in the UK?
In short, yes! Prior to Brexit, there was uncertainty about the UK's status under the Regulation. This was because, when the Regulation was introduced, the UK was one of the few EU states that chose not to sign up (the others being Ireland and Denmark). Legal commentators had formed the view that, being in the EU but not signed up, meant the UK would be treated as a "third state" under the Regulation. Following Brexit, that clearly became the case.
The practical effect of this is that, both before and after Brexit, the UK continues to apply its own "private international law" rules in cross-border succession cases. However, where British nationals hold assets in an EU country, for example a holiday home, investments or a bank account, the Regulation can be used to apply the law of England and Wales (or Scotland or Northern Ireland) to the succession to those assets. This can be based on "habitual residence", or an explicit "choice of law" (often referred to as an "election"). That can be particularly helpful where forced heirship rules are unsuitable for reasons of family structure, Inheritance Tax (IHT) planning, or in a range of other scenarios.
Why should I make an election?
As English solicitors, our Will instructions are most commonly to make a Will which first benefits the surviving spouse, and thereafter any children. Of course, there are various nuances and forms this may take, and not all clients are married with children, but it is the structure we see most often. The IHT system in the UK is aligned with this, for example there is generally a 100% exemption for assets left to a spouse (whether outright or on trust).
Where a forced heirship regime requires assets to be left in certain proportions as between a spouse and any children, and there are valuable assets in question, this will result in the loss of the spouse exemption on the value passing to the children, potentially giving rise to a higher tax charge. There will also be situations where the resulting co-ownership of foreign property may be unsuitable, for example where there is a second marriage and children of one or both marriages, or where the children involved are very young.
How is an election made?
An election can be made in a Will (or Codicil) to elect that the law of a person's nationality should apply to succession to all their assets worldwide. It is not possible to elect for different laws to apply in different jurisdictions; in cases where a person has two or more current Wills to cover assets in different jurisdictions, the same election should ideally be echoed in each Will.
Who can make an election?
As mentioned, the ability to make an election is nationality-based. Where you have dual nationality, you will be able to choose between these. Where one nationality covers multiple legal systems (such as in the UK, or in a federal system such as the US or Australia) you will elect for the system of law with which you are most closely connected (e.g. England).
Where you live in the UK and wish for English law to apply to your estate, but do not (yet) hold British citizenship, your position will be different. We often see EU national clients who moved to the UK many years ago, and (save for more recently having to apply for settled status) have not historically given much thought to their immigration or nationality position. For those clients, a formal election in a Will for English law will not be possible. However, the law of England and Wales may still apply to their estate where they die "habitually resident" here, unless they were "manifestly more closely connected" with another state. This gives less certainty than an election, and the interaction of the Regulation and private international law rules can sometimes mean a less favourable result for clients with UK links; obtaining British nationality (where possible) can add certainty to the succession planning process.
As mentioned, Ireland and Denmark are not currently signed up to the Regulation. So, whilst you are not prevented from doing so, making an election will not assist you if your EU assets are in one or both of those jurisdictions only. Instead, you will need local advice to understand how succession laws work in those jurisdictions so that you can plan accordingly.
Are there any downsides to making an election?
In general, if you hold British nationality and own assets in EU states which are signatories to the Regulation, it is often preferable to include an election in your Will. However, where no election is made, looking to the law of habitual residence, whilst less certain, can also assist.
Although some years have now passed since the introduction of the Regulation, it is still relatively new in legal terms, and cases on its operation will take a number of years to work through the courts. There are still unanswered questions, and ongoing challenges. For example, the French courts have tried to limit its application so as to continue to implement forced heirship for estates with a French resident testator or beneficiaries; whether the EU will challenge this remains to be seen.
However, overall, the Regulation has simplified cross-border EU succession when compared with the pre-2015 position.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.