Brexit Will End The Debate Over Whether The UK Is A Third State In Relation To Brussels IV

Advising clients who hold property and assets in foreign jurisdictions is now commonplace.  Many baby boomers scooped up a ‘place in the sun’ with a view to living out their golden years in a sunnier climate.  But the threat of a no-deal Brexit has resulted in deep uncertainty for owners of second homes abroad, especially if they spend a good part of the year on the Continent.

Clients are worried about which country’s laws will apply following Britain’s exit from the European Union (EU).  However, unusually for most news regarding Brexit, leaving the bloc may actually clarify the law as opposed to the usual outcome of creating fresh ambiguities.

EU Succession Regulation (Brussels IV) 

Since 2015, Brussels IV (EU Regulation 650/2012)has been in place to simplify issues relating to succession across the EU.  Brussels IV forms part of a series of regulations on conflict of laws, or private international law issues within the EU.  Put simply, Brussels IV allows the beneficiaries of a Will to obtain a certificate of succession in one EU Member State, which defines the applicable law and who inherits.  This certificate is then honoured by all other Member States in which the deceased held assets.

It is the succession laws of the country in which the deceased was habitually resident (unless he or she was “manifestly more closely connected with another country” when they died), which will apply.  Article 22 also provides that the Testator can elect, either in the Will or via a Codicil, to have the law of their nationality applied.

The UK, Ireland, and Denmark opted out of Brussels IV.  The primary reason was the Regulation would require the UK to apply clawback provisions contained in the law of other member states.  This was seen as causing a high level of uncertainty surrounding lifetime gifts (particularly gifts to charities and trusts) and land registration.

Despite the fact the UK opted out of the regulations, Brussels IV affects those in England and Wales who have property and/or assets in Member States bound by the regulation.

Problems arising from Brussels IV

In her article, Brussels IV: how useful is it for English clients?[1] Jo Summers highlights several pitfalls of Brussels IV including the fact it does not override matrimonial regimes and it does not apply to issues such as joint ownership of property, divorce, or trusts.  However, Ms Summers believes the greatest problems affecting English and Welsh clients relates to “renvoi”; a system to determine which laws apply whereby the laws of more than one jurisdiction are applicable.  She states:

“Renvoi is still permitted where the following conditions are all met:

  1. The law of succession is determined by habitual residence (no election has been made for the laws of nationality to apply).
  2. The jurisdiction where the deceased was habitually resident is a third-party state (such as the UK, which is not a Brussels IV state).
  3. The private international law of that third state would make a renvoito a state that has implemented Brussels IV.”

 Brexit’s impact on Brussels IV

Since the coming into force of Brussels IV, there has been debate over whether the UK is deemed a ‘Member State’ or a ‘Third State’.  This is because when the regulations were drafted, it was not made clear whether the term ‘Member State’ referred to States that had opted into Brussels IV or EU member States.

The Treaty on the Functioning of the European Union defines a third country as one that is not a Member State, while the expression ‘Member State’, includes all Member States that are parties to the EU treaties.  However, a considerable number of commentators argue that the UK is a ‘Third State’ for the purposes of the Regulations, especially given that Recitals 82 and 83 make clear that the UK, Ireland and Denmark are not bound by Brussels IV or subject to its application.

Brexit will clarify this issue finally, as once the UK leaves the EU, we will be a ‘Third State’ in all our dealings, and the term ‘Member State’ will cease to apply.

However, there is no room for complacency regarding succession rights in foreign jurisdictions.  When it comes to movable assets such as chattels, cash, and shares, the laws relating to succession in the deceased’s domicile apply, even if English law are applicable to the immovable assets such as the house in which the immovable assets are enclosed.  Jo Summers states that even if an English national makes it clear that English succession laws are to be applied to their assets held throughout the EU, our domestic law will still look to the laws in the jurisdiction in which movable assets are held.  This may result in a conflict between Brussels IV and the laws of England and Wales.  As such, the client’s Solicitor may need to assess if renvoi is accepted by the Member State.

In conclusion

Solicitors need to take extra care when drafting provisions in a client’s Will relating to movable property located in a country where Brussels IV applies.  Simply relying on a choice exercised under Article 22 may not be enough to prevent a costly and stressful situation for the beneficiaries of an Estate.

[1] P.C.B. 2017, 3, 89-93

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