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Many of us would love to own a holiday home abroad, preferably in the sun. Many of our clients have in fact gone down that route and already do so. The delights of owning such a property are not, however, without their legal and taxation difficulties. This principally arises from what we lawyers call conflict of laws, that is where assets are subject to different legal systems in different countries.

The first issue is whether or not a UK will would be recognised in the country where the holiday home is situated. All EU countries and a number of other countries in the world will recognise UK wills, but there are some countries which do not. In the former case, whilst it is possible to prove a UK will in the foreign country, this can often be expensive and long winded. There can also be problems in certain of the provisions in a UK will dovetailing in with the laws of the foreign country. For that reason making a will in that country is still advisable. Clearly where UK Wills are not recognised in a foreign country, it is absolutely essential that a local will is made. It is very important to remember, when making a foreign will, however, to ensure that that will is limited to the jurisdiction in which the holiday home is situated and that that will itself does not seek to govern UK assets. Similarly a UK will will need to be restrictive to worldwide assets save and except in that country to avoid any conflict.

Furthermore there are differences in taxation rules between different countries so far as lifetime and death taxes are concerned and the interaction of these can be quite complex.

In addition trust arrangements which are frequently put in place in the UK are generally not recognised in continental UK countries and in those countries there are often what are known as orced heirship rules where one is not permitted to deal freely with ones assets in that country as specific relatives are given an automatic entitlement whatever will you may have made.

If you already own a property abroad then you need to consider these issues and the best way in which these are dealt with. We can only advise on the UK legal and taxation aspects but we can point you in the right direction should you have any of these particular issues that need to be addressed.

However, Gordon Brown in his 2007 Budget did announce changes to taxation rules which would appear to overcome the above difficulties.

At the time of writing it would appear that owning a foreign property through a UK company would no longer give rise to any adverse UK tax issues but will mean that the asset in the individual’s estate will be the shares in the UK company not the foreign property so that the difficult areas of conflict of laws can be overcome.

If you already own a holiday home abroad or are thinking of buying one please consult us.

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