The number of UK citizens owning holiday homes outside UK has increased, according to government statistics, from 104,000 in 1994/95 to 231,000 in 2003/04. Spain and France are the most popular countries with USA a distant third.

A second home in the UK presents administrative and logistical challenges but at least within a familiar tax and legal regime. These challenges escalate with a foreign property, particularly in relation to succession law and tax issues. 

Succession rules

In both France and Spain there are fixed succession rules whereby local law provides for an automatic entitlement of a certain proportion of your estate to your children, unlike English law which allows you to leave your property as you wish. Therefore, it is advisable to make two wills – one in the country concerned with a local lawyer but restricted to assets in that country; and a second will under English law covering all your assets worldwide but excluding those in that particular foreign country. In this way the two wills are mutually exclusive. It is also essential that the later will does not accidently revoke (or cancel) the other, earlier will. In many parts of the world the law (including English law) provides that a later will revokes an earlier will so the two sets of lawyers need to see each other’s wills.

Tax

With regard to tax, UK inheritance tax is payable on the worldwide assets of a person domiciled (living and intending to live for rest of their life) in the UK. However a person not domiciled in the UK only pays UK inheritance tax on assets in the UK. The favourable income tax and capital gains tax rules for holiday lettings, treating them as trades not an investment, have been extended to any holiday home in the European Economic Area. However, take advice on the local taxation rules as the present conditions are under consultation with view to tightening the requirements such as length of time the home must be actually let. 

Case studies

Case Study 1 - France

Recently, we acted in the administration of the estate of a UK national who lived with his second wife and minor son in France but owned a number of properties in England. He had another adult son from his first marriage. He had made an earlier English will excluding French assets but subsequently made a French will which referred to his assets both in England and France. The Probate Registry agreed with our view that the later French will had cancelled his earlier English will which his wife and adult son confirmed was not his intention. Fortunately all the parties were in agreement with what should happen but there were legal complications in that the minor son cannot give consent to the agreement until he is 18. We were able to obtain probate of the French will to enable the properties in England to be transferred to members of his family. This involved obtaining a translation of the French will and a certificate of French succession law from a suitably qualified lawyer.

Case Study 2 - USA

Some years ago we acted in the administration of the estate of a UK national who had lived in Florida for some years and had made a will there covering his worldwide assets. He still owned a property in Florida and had bank accounts there, but he also owned a property in England in which his American born wife lived at time of his death. We were able to obtain probate of the Florida will to deal with English property as wills in Florida are in a similar format to English wills. However there were potential UK inheritance tax issues as the full spouse exemption does not apply if the surviving spouse is not domiciled in the UK. We were able to convince HM Revenue & Customs that the wife had changed her domicile from Florida, where she was born, to the UK.

Case Study 3 - Spain

We have also acted in an estate of a woman born in Spain and married to a Spanish national both of whom came to live in the UK in their early married life. She had inherited a number of properties in Spain from relatives. She had made a UK will covering her worldwide assets but had made no will in Spain. We are now dealing with the Spanish authorities over the Spanish property inheritance which involves a translation of the will into Spanish law and the preparation of statement of English succession law.

About the author

Tracy Ashby Senior Associate

Tracy is an experienced private wealth solicitor specialising in estate and wealth planning including advice on, and drafting of, wills and trusts, and inheritance tax and succession planning.