Own Property Abroad? Don’t Overlook It When Planning Your Estate

Own Property Abroad? Don’t Overlook It When Planning Your Estate

Whether it’s a holiday home enjoyed with family or an investment property, owning property overseas can bring additional considerations when planning your estate. If you own property abroad, it’s important to consider what will happen to it when you pass away and how it fits into your wider estate planning arrangements. Different countries have different inheritance laws and tax rules, which can make things more complicated than you might expect.

Understanding overseas inheritance rules

One of the key considerations is that inheritance laws vary from country to country.

Some countries have what’s known as forced heirship rules. These can determine who is entitled to inherit certain assets, regardless of what you’ve specified in your UK Will.

Tom Foster, Tax Director at Lewis Brownlee, recently encountered an example of how these rules can affect families when dealing with an overseas property:

“Following the death of one spouse, a jointly owned property in Italy appeared likely to be partly inherited by the deceased’s children, rather than passing entirely to the surviving spouse.

This raised two potential complications: an immediate UK Inheritance Tax liability and the prospect of the surviving spouse having to share ownership of the property with a family member they would not otherwise have chosen.

It’s a practical example of why overseas property needs careful consideration as part of your wider estate planning arrangements.”

What else should you consider?

Inheritance rules are only part of the picture. If you own overseas property, there are several other areas worth reviewing:

• Inheritance Tax: Depending on your circumstances, overseas property may form part of your estate for UK Inheritance Tax purposes, even if the property is located outside the UK.
• Overseas tax obligations: Considering how the tax rules in different countries may interact.
• Capital Gains Tax: Understanding the potential tax implications if you decide to sell or transfer the property.
• Property ownership: Reviewing how the property is owned and what this could mean for your estate.
• Gifting: Considering the implications of passing property to family members during your lifetime.
• Estate administration: Understanding the additional steps that may be involved in dealing with overseas assets after someone passes away.

The rules can vary significantly depending on where the property is located and your individual circumstances.

Why planning ahead matters

Without the right arrangements in place, overseas property can create unexpected complications for family members when dealing with an estate. There may be additional paperwork, delays, professional fees or tax liabilities to consider, particularly where more than one country’s rules apply.

Tom explains that one of the issues he often encounters is that people aren’t always clear on how their overseas property is legally owned, particularly if they’ve held it for many years.

They may also be unfamiliar with the inheritance rules in the country concerned, including whether forced heirship applies and what options might be available.

Understanding how your property is owned and which inheritance rules apply is an important first step. Depending on your circumstances, there may be options worth exploring, such as making lifetime gifts, reviewing ownership arrangements or putting an overseas Will in place where appropriate.

However, these arrangements can take time to implement and may require specialist legal or tax advice in the country where the property is located. Leaving these questions until after someone has passed away could mean it’s too late to address some of the complications. Reviewing your position early can help you understand the potential issues and make informed decisions about how your assets should be managed and passed on.

Need advice on overseas property and estate planning?

If you own property abroad, it’s important to understand how it fits into your wider estate planning arrangements.

Tom Foster, Tax Director at Lewis Brownlee, has over 25 years’ experience advising on tax matters, with particular expertise in Inheritance Tax planning, property taxation and trusts and estates.

Tom and the team can help you understand the UK tax implications of overseas property and consider how these fit into your wider estate planning arrangements. Where overseas legal or tax advice is needed, they can also help identify areas requiring specialist guidance.