Unfair double tax hit goes under the EU spotlight

Release date: 23/8/2010

Overseas property owners are waiting on the outcome of a European Commission consultation aimed at tackling unfair cross-border inheritance taxes that can leave families facing a double tax hit.

Trusts and Probate Partner Katherine Neal welcomed the review, saying it should help simplify matters and cut costs.

She says: "This has been a growing problem as the EU has expanded and the opportunities for overseas home-ownership have grown. 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 all concerned."

The Commission has called for the review to tackle three main concerns, with a view to determine what tax is paid by who in each state.

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 is at odds with EU rules on the free movement of capital. As a result, a number of inheritance tax disputes have been successfully referred to the European Court of Justice since 2003.

There may also be instances of multiple taxation when a person dies, because some countries tax the estate of the deceased - as happens in the UK - while other states tax the beneficiary. Although double taxation can be avoided when there is an agreement between countries, there are currently only 33 double taxation agreements between EU states - out of a possible 351.

The European Commission is concerned that these problems are discouraging citizens from exercising their right to move and own property freely within the EU.

Katherine Neal 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."