The European Union (EU) Succession Regulation 650/2012 came into effect on 16th August 2012 and has been applied since 17th August 2015. The Regulation had a profound effect on cross-border succession as it aims at simplifying procedures throughout the EU so that individuals with assets in other EU countries can benefit from having one jurisdiction governing the devolution of their entire estate.
The United Kingdom (UK) opted out of this Regulation but its wording still allows UK individuals to benefit from it. Nonetheless, the Regulation should not apply to assets situated in the UK.
Since then, it is relevant to take into account the fact that the UK Government invoked Article 50 of the Treaty on EU on 29th March 2017 starting a 2-year leaving procedure during which it is expected to agree the terms of withdrawal. In the meantime, the UK remains a member of the EU and must continue to fulfil all EU-related treaties including Regulation 650/2012 and should legally be treated as a member. The procedure towards the withdrawal of the UK from the EU is therefore unlikely to produce any significant change in the position for the foreseeable future, although needless to say the terms of “Brexit” may have implications which must be anticipated.
The Succession Regulation in practice
The Regulation is an extensive piece of legislation and many modifications have occurred as a result and it will take years to determine the full extent of certain changes. Nonetheless, key elements need to be borne in mind to understand the Regulation in general terms.
The main principle of the Regulation is stated in Article 4 granting jurisdiction to rule on the succession as a whole to the Member State in which the deceased had his habitual residence at the time of death.
For instance, an individual owns various assets including a property in France. He dies habitually resident in England. As it was the case before the Regulation, his estate situated in England is subject to English law but so would be his French property (where it would have been French law before the Regulation).
There are difficulties in the application of the above rules in the absence of a valid Will and this will not be considered in the present article.
Choice of law
Article 22 of the Regulation allows the following possibility:
“A person may choose as the law to govern his succession as a whole the law of the State whose nationality he possesses at the time of making the choice or at the time of death”.
In application of this article, a British national born in England dies habitually resident in France. If his Will includes an election in that respect, his estate situated in England and in France (and in any other EU Member State) can be subject to English law.
Article 20 of the Regulation states that:
“Any law specified by this Regulation shall be applied whether or not it is the law of a Member State”. In other words, an individual owning various assets including a property in France dies habitually resident in the USA. In application of the Regulation, his estate situated in France should be subject to US law even if the USA are not part of the EU.
While the attempt of this Regulation was to be all encompassing with matters relating to successions, it does not affect inheritance tax rules which is a matter for national law. Therefore, even if an individual dying habitually resident in England with a property in France would have this asset subject to English law to determine who receives this asset and how, France is still allowed to apply inheritance tax.
Possible effects of Brexit
From the perspective of any remaining EU Member State, the position post-Brexit should be no different to the current position. UK citizens are subject to the Regulation on their assets outside the UK and in another Member State even with the UK’s opt out. In addition, once the UK has left the EU, the universal nature of the Regulation allows non-EU citizens to benefit from the Regulation. As a result, the rules regarding habitual residence and choice of law should still apply.
However, after it has left the EU, there is a degree of uncertainty as to whether the UK will allow the Regulation to apply when the estate is subject to its domestic law. For instance, there is no guarantee that an election to English law in a Will would apply to a French property. The answer to this question will largely depend on the type of Brexit deal currently discussed.
There are other current uncertainties that may be increased by the effects of Brexit. In that category, the concept of habitual residence has not been defined and in the absence of further legislation to confirm these terms, it is likely that the European Court of Justice (ECJ) will eventually provide some answers. With Brexit, it is likely that rulings issued by the ECJ will not be enforceable in the UK.
UK residents who have assets in France and/or have any intention to move to France need to take legal advice in order to ensure that they understand the inheritance rules likely to apply to them and put in place estate planning measures accordingly.
About the Authors
Guillaume is a London-based French lawyer (Independent Juriste) specialising in French property law and other matters relating to acquiring and holding assets in France or subject to French law.
Marina is a paralegal and started her training contract in May 2016. Marina is currently working in the litigation team having also previously worked on the French Desk and in the International and Private Client department.