EU reg 650/2012 - new inheritance rules that are confusing people about inheritance "tax"

[Janet]

I've had a few queries now about a new "inheritance tax law" that the EU is bringing in next year, so thought it would be useful to post an explanation.

First of all, there is no new "inheritance tax law", but rather a regulation - 650/2012, known as Brussels IV - about "succession regulation". This is a crucial difference. The EU regulation, which will come into force on 17 August 2015, will "address the diversity of laws applying to succession issues, and simplify the procedures related to cross-border inheritance". It has nothing to do with inheritance tax, and national tax laws in the country of inheritance will apply the same as now.

With regard to the regulation itself, the UK opted out but it still applies to UK nationals resident in Spain. As Blevins Franks explain in their newsletter HERE, the general rule is that the law applicable to the succession is that of the state where the individual had his habitual residence at the time of death. Spanish inheritance law requires a parent to leave two-thirds of their estate to their children, by-passing the surviving spouse. The regulation provides, however,  for an individual to elect, by way of a statement in his will, for the laws of his country of nationality to apply instead. British nationals can therefore elect for UK succession law to apply, where you are generally free to distribute your estate as you wish (Scotland and Northern Ireland law does have some restrictions).

This regulation is therefore a positive opt-in issue which must be determined by a legal Spanish will, something that is easy to organize via a lawyer, a notary direct, or a non-professional adviser. The key point is that apart from the distribution of assets (a dispersement which must not conflict with the provisions of an existing will from the testator's home country), a clause must be inserted opting for the testator's national law to apply. Anyone without a Spanish will, or those with existing wills where this clause has not been used, is well advised to update their provisions.

The other key factor in the regulation, though, is the one I mentioned at the start, namely that the law does not apply to inheritance taxes. There is still not going to be any provision whereby inherited Spanish assets can be taxed according to UK inheritance tax rates and conditions. JA