Unfair ‘double’ inheritance tax comes under the EU spotlight

Aug. 26, 2010 - PRLog -- Local law practice Oxley and Coward Solicitors LLP of Rotherham has welcomed the set up of a consultation by the European Commission, which aims to tackle these ‘unfair’ taxes levied by member states. Rotherham’s longest established legal firm says that an EU wide legal protocol is long overdue and would benefit everyone by greatly simplifying matters; cutting costs for those concerned.

“This problem has grown up alongside continued EU expansion and the hope must be for this review to finally pin down where the main IHT liability arises, and then allow tax paid in other EU states to be set against this primary liability,” said Jayne Jackson, Partner and Head of Probate with Oxley and Coward Solicitors LLP. “It may be that no tax is saved at the end of the process, but greater simplicity will inevitably lead to reduced costs for the ordinary man on the street.”

The European Commission has called for the review to tackle the main concerns, with the aim of establishing an EU wide protocol to address the most serious flaws in the current position:

Firstly, the inheritance tax rules applied by member states often impose higher levels of tax on the estates of citizens who have lived in other member states or who have owned assets in other countries. This discrimination runs counter to the EU rules on the free movement of capital and a number of IHT disputes on this issue have been successfully referred to the European Court of Justice as far back as 2003 on these grounds.

More worryingly, there can be instances of multiple taxation when a person dies. While some states tax the estate of the deceased (as happens in the UK) other states tax the beneficiary. In these cases, citizens can find themselves ‘taxed twice.’

“This double taxation can be avoided where there is an agreement on the issue between member states,” added Jayne. “But currently there are only 33 of these ‘double taxation agreements’ in place between EU states, out a total of 351. When you look at these numbers and the UK opt-out, it is easy to see why so many people find themselves caught.”

Britain has chosen to opt out because of fears that solving this tax problem could cause others to arise. One example is the setting up of ‘Lifetime Gifts’. These gifts or transfers of assets during life are viewed very differently, depending on the law of the country you live in, with correspondingly different tax implications too.

“Under English Law, if a person makes a Lifetime Gift, then it is (with very rare exceptions) considered final and cannot be undone,” added Jayne. “But in some EU countries, such gifts can be claimed back by family members, potentially offering a way to avoid the tax payable.”

The problem is not insurmountable and if differences like these can be harmonised, most commentators believe the UK may adopt the new regulations once finalised, as along as such issues have been satisfactorily addressed. The Commission is also concerned that the problems outlined above are discouraging EU citizens from exercising fully their right to move and own property, freely within the EU - an important consideration for this country given the millions of expatriates who currently buy property or choose to live in Europe.

“It would certainly be very helpful to both individuals concerned and advisors like Oxley and Coward if there were an EU wide protocol setting out more clearly what tax is paid by whom in each country. It would clarify the current position and remove some of the confusion and injustice that can arise with regard to inheritance tax at the moment,” concluded Jayne. “A practical outcome from the European Commission, if adopted by the UK should ensure as much inheritance as possible goes to the chosen heirs of the estate.”

If you are affected by any of these issues, contact Jayne Jackson and the team at Oxley and Coward LLP on 01709 510999 or e-mail probatedept@oxcow.co.uk

ENDS


Photograph and caption

Jayne Jackson, Partner and Head of Probate with Oxley & Coward Solicitors LLP in Rotherham.

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Ref: OXCOW082 – Unfair EU Double Taxation

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