The final mission

According to the English Housing survey, in 2022 327,000 households had a second home abroad¹. So it is not surprising that charities may find that they are recipients of legacies of foreign property (either by British individuals or by foreign nationals who presumably had strong connections to Britain during their lifetime).

However, the usual complications of estate administration can be amplified when dealing with unfamiliar legal systems, different languages and new practical considerations.  This usually adds delay and cost – but, of course, inheriting a valuable foreign asset will still generally benefit the charity!

Some of you may have attended the webinars we have been running with foreign lawyers speaking about probate processes in their jurisdiction.  This article seeks to picking up on some key points arising out of those seminars.  Where we refer to foreign laws, it is from the legal position as explained in those webinars.  However, we are not qualified to advise on any law other than England and Wales, and will recommend that you take specialist foreign law advice, with which we of course will be happy to assist.

How do testators give foreign properties to charities?

Testators can leave foreign properties to charities:

• Under an English Will which is said to cover worldwide or foreign assets; or 
• Under a Will made in the country where the property is located.

If testators have not been properly advised, beneficiaries may find themselves trying to piece together multiple wills  made in different countries (and trying to establish whether some wills have been revoked or only apply in certain jurisdictions).  Depending on which jurisdictions are involved, they may also need to find out the testator's nationality and citizenship and work out where the testator was domiciled and/or resident to work out how the testator's estate devolves (and what taxes apply, see below). 

There is the additional complication of forced/restrictive heirship rules that apply in some jurisdictions (and whether these rules have been successfully bypassed in order to pass the property to the charity).

There may also be issues around the precise wording of the gift.  A testator could give the property itself, or the sale proceeds.  But, perhaps more critically, in England, if a charity is not completely correctly identified in the will, the executors can 'solve' the issue (usually under the cy-près doctrine).  However, this is not always the case in other jurisdictions.  In Saudi, for example, the courts require precise legal identification of the charity.  A vague or incorrect name can invalid the legacy, and so it reverts to the heirs under Sharia inheritance rules. 

What law governs the foreign property given to an English charity?

Private international law comes into play when there are assets in multiple jurisdictions– there are different rules on which countries' laws apply to different types of asset. 

In England and Wales, the law governing immovable property (eg a house) is the law of the place where the property is situated (known as lex situs). So, for example, English law will apply French law to the succession of a French holiday home, even if it is gifted under an English will by an English person to an English charity. 

Local law considerations in the country where the property is situated

Administration period (or lack thereof) and liability for debts

In England and Wales, the Will appoints executors who administer the estate, including paying tax and legacies, before distributing legacies.  

However, many civil law jurisdictions treat inheritance very differently: there is often no formal executor function and beneficiaries are responsible for dealing with the deceased's assets and liabilities.  Sometimes, the local law permits the appointment of an executor but that person has much more limited roles/powers than would be the case in England (this is the case, for example, in Italy).  This can create some confusion (or even frustration) about what an executor (either English appointed or otherwise) can or cannot do. 

Some jurisdictions will recognise an English executor appointed under an English will (for example, in Germany the executor can apply for an executor's certificate at the probate court) but others will not and require the beneficiary to take steps directly.  For example, in Jersey, there is no executor for immovable assets.  If the will leaves a Jersey property to a charity, that charity has to register the will with the public registry and then it is legally entitled to the property.

An implication of this is that the charity inheriting foreign property may take the asset and liabilities (including repairs, insurance, taxes etc) attributable to it, without necessarily inheriting liquidity from the estate from which to make those payments.  This can be even more problematic in circumstances where the liabilities and taxes outstrip the value of the property.  In such circumstances, it can be possible to accept 'subject to inventory' so that you can ensure the property has value before taking it on.

Tax

There is no UK inheritance tax payable on foreign property given to an English charity.

However, there may be inheritance tax payable in the jurisdiction where the property is located.  For example, in France there is inheritance tax of 60% on assets passing to non-relatives (unless they pass to a 'qualifying' French charity).

Charities should also note that other UK charitable tax exemptions may not apply overseas.  Local tax liabilities may therefore arise, even where the charity would benefit from relief in England. 

For example, in Italy, there are mortgage taxes (2% of the cadastral value) or cadastral tax (1% of cadastral value) which do not have a charitable exemption.  In Jersey, stamp duty is payable when a Will is registered.  A charity is only exempt if they can prove that they are an 'excepted foreign charity' under the Charities (Jersey) Law 2014.

Accepting or disclaiming legacies

In some countries, beneficiaries have to go through a specific procedure to accept their inheritance.  

Beneficiaries may also have options as to how they accept the estate, such as accepting with the benefit of an inventory.  The inventory sets out which liabilities are owed by the beneficiary and means that the beneficiary is not liable for any further debts of the estate.  

There are some rules specific to charities too – for example, in Italy, an Italian charity can only accept an inheritance if there is an inventory (the Civil Code is unclear on whether this applies to English charities but our understanding is that it likely will).  

Conversely, in some countries it may be harder than expected to refuse the legacy.  In France, for example, it is only possible to disclaim the legacy where there is at least one heir who accepts it. 

In some countries there are strict timelines – both to accept a property with a benefit of an inventory and to disclaim.  

Charities should look to take local advice quickly so that they do not miss both deadlines (and therefore find themselves inheriting a property with the risk that they need to pay estate liabilities that could exceed the value of that property).  

In Italy, if the charity has 'possession' (eg the keys), it has three months to carry out an inventory and then 40 days from the completion of inventory to accept the property with the benefit of the indemnity.  Yet if it does not have 'possession', it has 10 years to accept the property! 

In Greece, heirs who do not renounce their inheritance in time risk their personal property being seized to pay the deceased's debts (although the law is due to change this year so that the default position in Greece is that a beneficiary has accepted with the benefit of an inventory and heir's personal assets are legally segregated from estate obligations). 

There may be limitation periods in which liabilities in relation to a property can be raised, and these vary between countries.  For example, in Spain, the limitation period for inherited debts is five years from death and so in some circumstances a charity may be advised to wait until this period passes before it accepts the legacy. 

Charity ownership and sale of inherited property 

In many jurisdictions, it is permissible for charities to own property directly in their own name; however, this is not universal.  

For example, in Saudi, real estate must usually be sold rather than inherited directly by a charity, as foreign ownership restrictions apply.

Charities selling properties abroad do not need to obtain a s119 Charities Act report.  Rather, the charity trustees should just take a commercial, pragmatic view on what evidence is needed to have confidence that the property is being sold for an appropriate price. 

Practical considerations when inheriting foreign property 

Local lawyers

A charity notified that they have been named as a beneficiary of a property abroad should seriously consider whether local lawyers are needed.  If it is an English will, it may be sensible to first liaise with the English executors on this. 

In many countries, local lawyers will require a power of attorney from the charity so that they are able to act on behalf of the charity. 

Local counsel should be able to advise on local succession rules (where applicable), accepting or disclaiming the legacy, taxes, as well as guide through the practical steps. 

Taxation can be particularly complex.  In some cases, potential taxes may exceed the value of the property itself.  Moreover, the basis for taxation may differ from the UK: for example, in Greece taxes can be calculated on the 'commercial' value of the property, which may be lower than market value.

Notary

In some countries, the role of a notary is very important in the estate administration, in a manner that can be difficult to understand from an English perspective.

For example, notaries are often required to draft the inheritance certificate, and draft title transfer deeds for properties and witness documents. 

Estate agents

There is also value in liaising with local experts such as estate agents to understand the local property market.  Local lawyers will usually assist with this. 

As in England, if the market is temporarily depressed, waiting a short period may significantly improve the eventual sale price.  Minor improvements such as painting or repairs can also materially increase value.  If a legacy is made up of numerous plots of land, consideration should be given to either waiting for one buyer of the whole or selling the plots individually.  

English legal opinion

Where English law governs an inheritance, some countries require an English legal opinion stating the heirs and the devolution of the assets (with the will and grant of probate translated and sometimes apostilled too), before any steps can be taken to transfer assets to the charity. 

Tax reporting

In jurisdictions where the charity inherits the property directly (usually because there is no executor), the charity may be required to report any tax due to the authorities (where in England the executor would usually do this). 

In Greece, for example a charity has to first register with the Greek authorities to obtain a tax ID number, before it can report any tax. 

Co-owners

It is not uncommon for charities to find themselves owning only a share of a property, with families or the individuals owning the balance.  Similarly, it is not uncommon to find the property has issues such as squatters or boundary disputes.

Local counsel will be able to assist with the legal issues and charities should be guided by the same principles they would apply when dealing with such issues in England. 

Is foreign property worth the difficulties?

There may be additional costs (in terms of hours invested by charity personnel and in professional costs) and delay (in navigating difficulties and in jurisdiction where any legal processes are slower than England) but the charities should, at the end of the day, approach foreign property with the same commercial sensibility they would apply to English assets, bearing in mind their charity's objects and their trustees' duties. 

Our webinar series continues and we are hoping to look to Asia next to explore probate processes in jurisdictions such as Hong Kong and mainland China, and Singapore.  Watch out for invites!

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