Forced heirship, domicile and EU succession law directive

A client is considering moving to a country with forced heirship laws. The expectation is that he will at some point form a domicile of choice there. His local adviser has said that he can
get round the forced heirship laws with an election to be treated in line with his UK nationality, but she makes the point that whilst untested in the courts, there must be a risk that this will be seen as a factor tying him back to the UK – by way of insistence
on UK law applying rather than local law.

Whilst the succession election does not govern taxation, I can’t help but agree that it must be a factor, although as time goes by, it will be less and less relevant given ongoing life in
that new country. Is anyone aware of any cases or guidance that covers this

Terry Hill

Fry Group

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Opting for the law of one’s nationality to apply under Regulation (EU) 650/2012 from which Ireland and the UK have opted out is not really a residual “domicile” tie of the same ilke as retained Club memberships or residences, although there is a risk that the current if not standard HMRC attempts to rewrite the law of domicile will be in issue. The question is to what extent can HMRC’s guerrilla warfare on the concept of domicile be parried as a matter of law or even whether it will actually happen.

The fact that the individual has moved his habitual residence to an EU state and is taking advantage of the law of that state to make the option tends to work for the “domicile” in the UK sense being within the EU, and not in the UK, which does not recognise the nationality option as part of its law. The Regulation is directly effective and directly applicable in the laws of each Member State that has not opted out, as the UK and Ireland chose to do.

We should note that the concept of British nationality is not limited to the United Kingdom: Channel Islanders and Manxmen are British, as are citizens of the Overseas Territories without their being subject to a putative or potential change in domicile on each passport application.

The EU Regulation sets out the internal allocation mechanism for multi-nation nationalities such a British, which have separate internal systems of law. Speaking of “UK law” in this context may be to fall into the same trap as that induced by HMRC in their commentaries on s.43(2) ITA. A Channel Islander or a Manxman as a British citizen will not be subject to an English, Welsh, Scottish or Northern Irish domicile simply because he exercises the nationality option in a foreign country.

A domicile of choice once acquired has to be physically abandoned. I appreciate that the query is made in the context of acquiring a domicile of choice abroad.

Technically, and that is what counts here, the client is not opting for the application of a UK connecting factor or nexus in choosing the law of his “British” nationality, as opposed to English domicile allocated according to the rules laid down in Regulation. The EU Regulation is not part of the law of any part of the United Kingdom. The UK opted out of it. It is not directly applicable or directly effective in the United Kingdom or its courts. Judicial notice is one thing, the law is another.

I cite for information Considerant 38 “This Regulation should enable citizens to organise their succession in advance by choosing the law applicable to their succession. That choice should be limited to the law of a State of their nationality in order to ensure a connection between the deceased and the law chosen and to avoid a law being chosen with the intention of frustrating the legitimate expectations of persons entitled to a reserved share.”

It is an EU law issue, regulated by EU law and the law of each Member State. It is not a reference back to the legal system of any part of the United Kingdom - only the latter could be taken as a domicile “tie”.

The fact that Englishmen and women abroad use a facility under the foreign law to re-allocate the law governing their succession to a different jurisdiction does not imply a reversion to a domicile of origin.

The distinction in France as to domicile is clearer owing to the definition and nature of the 1963 Estate Duty Treaty which contained firstly the CTT and then the IHT. Once the removal to France has taken place, and the French domicile of choice acquired, that is of immediate effect, and the three year rules as to retained domiciliation do not apply, until the domicile of choice is abandoned.

However, that simply elucidates the underlying principle of the EU Regulation, which is in effect a foreign law facility and not one offered by the laws of any part of the United Kingdom. It cannot be said that in opting for the law of one’s nationality under a facility granted by EU law in general and by the law of the state of habitual residence, the testator or testatrix is, in a sense, creating an abandonment of a domicile of choice or worse not reversing the severance of the links with the law of any part of the United Kingdom which they have left.

If the intended move were to be to France, note that the change in domicile to one of choice can be “fixed” by the Tax Treaty and is immediate. Any decease after immigration there will therefore be dealt with on the basis of a French domicile and the “tie” or unbiblical cord asserted by HMRC in other situations will be irrelevant.

I would suggest that the foreign lawyer was correct to give the caveat, but the answer lies in the Regulation itself as being a body of foreign, not English law.

Peter Harris

ww.overseaschambers.com

The EU Succession law uses the place of habitual residence of the deceased as the default rule for determining applicable succession law. However, this may be “overridden” by electing for the law of nationality to apply.

Such an election would be a factor in determining the domicile status of an individual for UK tax purposes but would by no means be a sole determinant.

Many non-UK domicilaries retain their British citizenship and have UK wills but their non-UK domicile status persists.

Malcolm Finney

1 Like

Peter you say:
'If the intended move were to be to France, note that domicile of choice is “fixed” by the Tax Treaty and is immediate. Any decease after immigration there will therefore be dealt with on the basis of a French domicile and the “tie” or unbiblical cord asserted by HMRC in other situations will be irrelevant."

I don’t understand why you say this.

A UK domiciled individual on leaving the UK to (in your example) France on arrival in France may retain their UK domicile of origin or choice. Whether this is so will be determined under UK law. If under French domestic law such individual was categorised as French domiciled then the Treaty would resolve “for Treaty purposes” only which domicile prevailed.

Malcolm Finney

Richard Frimston kindly raised the point on Linked In that were assets to be situated in the United Kingdom and therefore subject to probate within the UK, there would be a risk of contagion, and a fiscal risk that non-UK assets would be brought into charge through the probate procedure. I would suggest that in that case, it would be wiser to execute one will for UK situs assets, subject to the usual internal jurisdictional issues for probate within the UK, and a separate will or wills for, property outside it also expressly subject to the nationality option so as to ensure that the entire succession was dealt with under the law of the testator’s nationality for Regulation purposes.

Each case to itself.

Peter Harris

Quite right Malcolm, I should have expanded, I made the error of leaving your point as being taken as read.

The laws on either side of the Channel decide the domicile: the tax treaty provides an absolule tie-breaker for those who want it.

Peter Harris

I would add that under the UK/France IHT DTA, Article V(1) provides that no UK IHT is charged on any property which is neither situated in Great Britain nor passes under a disposition or devolution regulated by the law of some part of Great Britain where an individual possesses a French domicile at the time of death. However, under the EU Succession Directive electing for the application of English law could seem to result in a loss of protection against an IHT charge (as English law would govern a disposition).

Malcolm Finney

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Good point, Malcolm, that is why I suggest that two wills are necessary, one for assets situated within the UK, and the other for assets elsewhere. Assets elsewhere in the EU are regulated by Regulation (EU) n° 650/2012, which has in fact changed the game by the interplay of competence and jurisdiction.

I understand that Terry Hill’s initial question may not have been specifically aimed at France, but I leave it to the mediator to decide whether the technical issues raised are worth the friendly powder.

The French Treaty does make the distinction between the United Kingdom and Great Britain at article 1:
(b ) the term “United Kingdom” means Great Britain and Northern Ireland;
( c ) the term “Great Britain” means England, Wales and Scotland, and does not include the Channel Islands and the Isle of Man;

Perhaps I should explain my thinking, for what it may be worth:

When you say “governed by”, that is not the same as “regulated by”. The first refers to a steering rudder, steering oar or a helmsman - gubernator, in other words steering principles; the second refers to the application of rules by virtue of being “steered”. Not the same thing, in this context.

The two terms have separate meanings; although I agree that a Latin A level is needed to be able to describe the difference in the terms’ anglicisation and that neither Counsels’ nor the House of Lords’ collective Latin in Philipson-Stow appeared to be up to being definitive about the difference, which in any event was stated by their Lordships not to be crucial there. In this context, it is. I have yet to see an English law will saying that it is regulated by the laws of England and Wales, most content themselves with merely being governed by English law.

Putting linguistics to one side; they are important but only reflect the substance of what is dispositive in any part of the United Kingdom and what is not.

The actual “disposition” only takes effect on the grant of probate within the UK over the UK assets. A will without probate has no effect. I would say that “devolution” refers to an intestacy, not to the Regulation’s process. I would also say that the 1963 Estate Duty Treaty was drafted by reference to the prior, and ever present common law jurisdiction over assets. I would suggest that the “ disposition or devolution ” in question relate more to the classification issue between movables and immovables involving trusts and that the phrase is designed to catch cases like re Berchtold which relied upon PIL classification, rather than the later deployment of the EU Regulation in the following millennium. The Estate Duty technicalities of situs and taxation were decided upon or regulated under the common law, not under fictional bases, saving for settlements. The UK opted out of the EU Succession Regulation, and it is not part of United Kingdom law. Brussels I is, and that includes the dispositive authentic instrument, the certificat de notoriété issued by a notaire which entitles those gratified to take their shares, governed and regulated by French law. I have recently given HMRC a rude awakening as to the extent of the effect of EU service of such an Authentic Instrument in English law. HMRC appear not to be aware of the full “scope” of the term “law” and of its effect on the interpretation and implementation of the tax acts which it is called upon to apply.

Note that article 23.1. and 2. of the Regulation as to the scope of the law applicable to the succession state " The scope of the applicable law

  1. The law determined pursuant to Article 21 or Article 22 shall govern the succession as a whole.
  2. That law shall govern in particular: …"

It does not say “regulate”. That is left to the law of the jurisdiction implementing the disposition. English law may govern the will, but does not regulate it in the EU. The acte implementing the provisions of the will in France does “regulate” the succession and is inescapably French.

Article V(1) of the Estate Duty Treaty uses the term “regulate”. HMRC cannot therefore use that provision to claim IHT on transfers of value under the French succession when English law does not regulate the French transfer.

As the overseas will, albeit opting for the law of the nationality -British- is effectively governed but also de facto regulated by the Regulation (not, I stress a mere directive), it need not be placed upon the altar of the Probate Court to obtain a Grant to render it effective say in France. I will not go any further into the relative simplicity of rendering an English law will effective in France under the Regulation, but it does not involve any form of Probate or the appointment of an executor or, in the case of an intestacy a Personal Representative. That is dealt with by the Regulation, which is not part of the law of any part of the United Kingdom. The dispositive document by which the disposition referred to in Article V(1) of the Estate Duty Treaty of 1963 is effected is not the EU will, it is the certificat de notoriété, which is a French, not a “GB” disposition. The Will is not “regulated” in the sense of the Treaty by English law, but, now, by the Regulation, which is now part of French law by virtue of direct effect and direct applicability. The overseas will (EU will) itself does not go through the administration provided for in the Administration of Estates Act 1925, and is not “regulated” by it. The Will would be under the jurisdiction of here the putative French court and is implemented by the heirs and legatees under French principles.

I do not think that Article 1 of the Regulation can be used as a unique shield against HMRC or the lack of dispositive jurisdiction of Probate Court, but it is worth setting out:
“1. This Regulation shall apply to succession to the estates of deceased persons. It shall not apply to revenue, customs or administrative matters.”

Where Regulation (EU) n°650/2012 is useful is that its article 4 lays down the general jurisdiction of the Court in the EU which rules on (i.e. regulates) the succession:

“Article 4
General jurisdiction
The courts of the Member State in which the deceased had his habitual residence at the time of death shall have jurisdiction to rule on the succession as a whole.” All article 22 does is to enable a choice of governing law of the nationality of the testator.

In other terms, if the deceased was habitually resident in France at the time of his death, he satisfies both the French fiscal definition, the Treaty tie-breaker clause, and the jurisdictional requirement of the Regulation. Whilst the French succession and the French Courts will apply the law of the nationality if a valid option is exercised , it does so within its jurisdiction, not within that of England and Wales, as you appear to be implying.

Articles 6 and 7 do not apply as the UK is no longer a Member State and it is arguable that they never did.

Put in simple terms, if properly documented, it is the French court that deals with the succession under the Regulation, including the effective disposition or devolution, not the English Courts. HMRC will simply not get within sniffing distance of being able to assert jurisdiction under article V(1).

This is not an opinion. If you wish it to to be made into one, please let me know.

Peter Harris
www.overseaschambers.com

Thank you Peter for the detailed response. Appreciated.

Malcolm Finney

Any time,

Peter Harris