European property owners are amongst those now waiting to hear the outcome of a consultation by the European Commission that aims to tackle unfair cross-border inheritance taxes levied by member states which can leave families paying taxes twice.
Said Clare Wills, Head of Wills & Probate at Vanderpump & Sykes Solicitors: “This has been a growing problem as the EU expands. I hope that this review will finally pin down where the main inheritance liability arises and then allow tax paid in other EU states to be set against this primary liability. But even if the final outcome of the consultation is that no tax is saved, greater simplicity will reduce costs for the ordinary citizen.”
The Commission has called for the review to tackle three main concerns, with a view to establishing an EU wide protocol to determine what tax is paid by whom in each state.
Firstly, the inheritance tax rules applied by member states often impose higher levels of tax on the estates of citizens who lived in other member states or who owned assets in other countries. This runs counter to the EU rules on free movement of capital and a number of inheritance tax disputes have been successfully referred to the European Court of Justice since 2003 on these grounds.
Secondly, there can be instances of multiple taxation when a person dies where some states tax the estate of the deceased, as happens in the UK, and other states tax the beneficiary. Although double taxation can be avoided when there is an agreement between states, there are currently only 33 double taxation agreements between EU states out of a possible 351.
Thirdly, the Commission is concerned that these problems are discouraging EU citizens from exercising fully their right to move and own property freely within the EU.
Clare adds : “It would certainly be very helpful to both individuals and advisers if there were an EU wide protocol to determine what tax is paid by whom in each state – and a very practical outcome from the European Commission.”