Inheritance planning for overseas property owners: Navigating complex legal landscapes
For families who own property abroad, the process of inheritance can be a complex and potentially costly affair. It's not just the wealthy who need to plan carefully; the increasing trend of Irish citizens buying properties overseas in the 1990s and beyond means many are now facing the challenge of how to pass on these assets. As Emma Heron, head of Whitney Moore's private client department, notes, "It’s very prevalent for very ordinary families to have this complexity."
One of the key issues is the potential conflict between Irish and foreign laws. For instance, a couple might leave their holiday home in France or Spain to each other in their Irish will, assuming that it will "stretch across the border". However, as Heron points out, this "won’t necessarily" be the case. The Irish will may only deal with Irish assets, leading to unintended beneficiaries, unfamiliar systems, and delays in probate. This can result in disruption to businesses owned by the deceased, as their successors grapple with the foreign property issue.
Taxes are another critical consideration. Irish capital acquisitions tax (CAT) will apply if the person leaving the asset is resident in Ireland, the beneficiary is resident in Ireland, or the property is located in Ireland. Some jurisdictions tax the estate, while most in Europe, including Ireland, tax the beneficiary. In Spain, for example, as Ireland did not adopt the EU succession regulations, the country can decide upon the death of the owner whether Irish or Spanish law applies. This can lead to forced heirship, where children are forced to inherit above the spouse, potentially causing inheritance tax issues and opening the will to contestation.
To navigate these complexities, homeowners need to do their homework. They should consider whether forced heirship rules apply in the jurisdiction where they hold property and whether these rules suit their wishes. They should also check for double taxation agreements between Ireland and the country where the property is located. Planning ahead is crucial, and it's better to take a proactive approach to secure better outcomes. This is especially important for blended families, where property owners may want to leave a foreign property to a new partner, but local law dictates that it goes to the children of their first marriage.
Habitual residence is also a critical factor. If an owner of a holiday property sells their home in Ireland and moves to the Continent permanently, but their will is written in Ireland, it can further complicate issues. In such cases, it's advisable to seek succession advice in the jurisdiction of permanent residence. Getting local advice, making a local will, and obtaining tax advice in the country where the asset is located can help smooth the administration of the estate after death.
Careful planning can also mean availing of various reliefs, such as dwelling house or agricultural relief. For example, if you have land but don't currently meet the tests for agricultural relief, you may have time to address this. Some inheriting children might also be able to offset their tax bill against taxes in Ireland, which is particularly relevant for clients with US-based assets.
In conclusion, inheritance planning for overseas property owners is a complex and multifaceted process. It requires a deep understanding of the legal and tax implications, as well as a proactive approach to ensure the desired outcome. By taking the time to plan ahead, families can avoid the potential pitfalls and ensure a smoother transition of their assets.
