14 Succession and Wills
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14722/09
+ ADDs 1-2
COM(09) 154
| Draft Regulation on Jurisdiction, Applicable Law, Recognition and Enforcement of Decisions and Authentic Instruments of Succession and the Creation of a European Certificate of Succession
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| Legal base | Articles 65 and 67(5) EC Treaty; QMV; co-decision (in future Article 81 TFEU;OLP)
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| Department | Ministry of Justice
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| Basis of consideration |
Minister's Letter of 17 December 2009
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| Previous Committee Report
| HC 5-ii (2009-10), chapter 6 (25 November 2009)
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| To be discussed in Council
| No date fixed |
| Committee's assessment |
Legally and politically important
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| Committee's decision |
Cleared |
Background
14.1 Article 65 EC Treaty (now Article 81 TFEU) provides for the
adoption of measures in the field of judicial cooperation with
cross-border implications, which expressly include measures "improving
and simplifying the recognition and enforcement of decisions in
civil and commercial matters, including decisions in extrajudicial
cases" and "promoting the compatibility of the rules
applicable in the Member States concerning the conflict of law
and of jurisdiction." The numerous instruments which have
already been adopted on this basis, in particular Regulation (EC)
No. 44/2001 ("the Brussels Regulation"), exclude succession
from their scope.
The Document
14.2 The proposal seeks to address this lacuna and establish common
rules in the area of wills and succession. There are three main
areas for which it proposes uniform rules.
Jurisdiction
14.3 Articles 3 to 15 deal with jurisdiction, i.e., which court
should deal with a succession. Courts are defined widely to include
public authorities dealing with succession. As a basic rule the
proposal envisages that the Member State where the deceased was
habitually resident at the time of death should have jurisdiction
(Article 4). If the deceased chose the application of the law
of another Member State, limited provision is made for the case
to be transferred to the courts of that Member (Article 5). Rules
of 'residual jurisdiction' address situations where a deceased
was not habitually resident in any Member State at the time of
their death (Article 6). In addition, the Regulation contains
various supplementary jurisdictional provisions, for example provisions
relating to concurrent and related proceedings (Articles 13 and
14) and the taking of supplementary provisional and protective
measures (Article 15).
Applicable Law
14.4 As a general rule the proposal envisages that the law applicable
to the succession should be that of the state where the deceased
was habitually resident at the time of death (Article 16), whatever
court or authority would have jurisdiction and even if this results
in applying the law of a third country. The 'habitual residence'
rule would also work as a default provision. In addition and as
an exception to the general rule, a testator would be able to
choose the law of his or her nationality to apply to the succession
(Article 17).
14.5 The scope of the applicable rules in the Regulation
is defined in broad terms (Article 19) and would cover, for example,
the validity and interpretation of any will, the capacity to inherit,
the rules on the transfer of the property, responsibility for
paying the debts of the estate, the rules on compulsory inheritance
(i.e. rules for the benefit of relatives that cannot be changed
by a will). Notably the choice of law rules would extend to "any
obligation to restore or account for gifts and the taking of them
into account when determining the shares of heirs", i.e.
the claw back of lifetime gifts. The Regulation would expressly
permit the preservation of regimes of the Member States where
there are "special succession regimes" applying to immovable
property, enterprises or other "special categories of property"
on account of their economic, family or social aims (Article 22).
Finally, the applicable law rules of the proposal may not be applied
if the determining court considers that it is incompatible with
the public policy of its Member State (Article 27).
Recognition and enforcement
14.6 Article 29 of the proposal provides for automatic
recognition of any decision of a court of another Member State
except in the very limited circumstances set out in Article 30.
Article 31 excludes the possibility of review by an EU court of
the substance of a decision by a competent court in another Member
State. Authentic instruments shall, as a general rule, be recognised
and enforced irrespective of country of origin provided there
are no public policy objections in the Member State where recognition
or enforcement is sought (Articles 34 and 35). Finally, provision
is made for the creation, recognition and enforcement of a new
"European Certificate of Succession" (Articles 36 to
44). Its use would not be obligatory and it would not replace
existing procedures for other enforceable documents.
14.7 When we originally looked at this proposal late
last year we expressed broad agreement with the Government's basic
position in relation to the potential benefits of Community rules
in a field of growing cross-border significance. We found that
the proposal raised no significant subsidiarity issues.
14.8 At the same time we shared the Government's
concerns about the incompatibility of the possible or implied
claw back provisions of the proposal with the established succession
regime in the United Kingdom. We were concerned about the administrative
burdens imposed by rules allowing for the recovery of inter vivos
gifts. We therefore asked the Minister to indicate if the Government
intended to 'opt in' to the proposal only if appropriate amendments
could be obtained to exclude the claw back of lifetime gifts.
We also expressed cautious agreement with the Government's preference
for a definition of 'habitual residence' although we asked the
Minister to clarify why the lack of definition was likely to be
of particular importance in relation to this proposal when the
same criterion was used in several other recent civil judicial
cooperation measures at EU level.
14.9 Finally, we asked the Minister to explain the
Government's position with regard to the tax neutrality of the
measure and, in particular, whether the current wording of Article
21 of the proposed text was sufficient to ensure this objective.
We asked the Minister to assure us that the proposal would be
without effect with regard to the existing regime governing inheritance
tax payable on assets held in one Member State but bequeathed
to a beneficiary in another Member State according the law of
another State. We decided to hold the document under scrutiny
at least until we had received the Minister's reply.
The Minister's Letter
14.10 The Minister (Lord Bach) has now replied and
informs us of the Government's decision not to 'opt in' to the
measure. He comments as follows:
"I am writing to inform you that the Government
has decided not to opt-in to this proposal and to answer the other
points you raised in relation to this dossier.
"You asked to be kept informed of the Government's
thinking on the opt-in question. The Government's decision not
to opt-in to this proposal at this stage was announced to both
Houses on 16 December 2009. We felt it was important to communicate
this decision as soon as it had been reached and ahead of the
Parliamentary recess. I attach the terms of the announcement.
"Whilst we will not opt in at this stage, and
clearly that means we will not be bound by the resultant Regulation
if that remains the position, the Government intends to engage
fully with the forthcoming negotiations between Member States
on this proposal, with the aim of removing the points which currently
cause concern and to deliver further improvements for citizens
with links and assets in more than one country. If that can be
achieved, the Government could then decide to seek to adopt the
final Regulation. That will be considered and consulted upon as
appropriate at that time. I hope that your Committee will continue
to consider and comment on the proposal as we move forward.
"I turn now to some of the more detailed points
you raised.
"You asked about 'habitual residence' and why
the lack of a definition of that concept is of particular importance
here when the same concept has been used in several other recent
measures in the field of civil judicial cooperation.
"The primary reason for this concern is that
the deployment of such a concept on its own could subject the
estates of individuals, either on short-term secondments overseas
or otherwise without a sufficiently substantial connection with
a particular legal system, to that system's law of succession
if they were to die whilst resident in the country in question.
This would be the case notwithstanding that it had been their
intention to return to another State at the end of their secondment.
"The Government considers that such outcomes
would be inappropriate and would not accord with the reasonable
expectations of individuals and their families. This contrasts
with the underlying rationale behind the currently applied connecting
factor in the UK, namely domicile, the purpose of which is broadly
to identify the jurisdiction where an individual intends to settle
on a permanent basis. The Government's view is that this concept
correctly requires a substantial degree of connection and would
therefore exclude individuals on short term work secondments or
in analogous situations.
"The Government considers that it would be appropriate
to explore various ways in which the connecting factor could be
made fit for purpose. One option is that it could be defined in
some way to require a substantial degree of connection. The Government
is aware that such an approach might encounter significant opposition
among other Member States on the basis that such a definition
could have undesirable repercussions in other areas of the law,
for example in the area of child custody where habitual residence
plays a pivotal role and a less substantial degree of connection
may be thought appropriate. Another possible approach would be
to leave the concept of habitual residence undefined, but to use
it in combination with other requirements such as a minimum period
of actual residence. This was the basis of the solution adopted
in the 1989 Hague Succession Convention. Such a solution may not
encounter such opposition from other Member States. This will
have to be tested in forthcoming negotiations.
"In respect of your specific point about the
bald term not being problematical in other areas of law, that
is of course true. It is accepted, for example, that this is the
position in EC Regulation 2201/2003 ('Brussels II bis') where
habitual residence plays a crucial role in the context of international
child custody disputes within the Community. However in one important
respect that context differs from that of succession. The former
will very often involve litigation between parties who are unable
to agree on the outcome. In those circumstances the court can
determine the habitual residence as a matter of fact based on
all relevant factors. Courts are well used to applying the principle
in that context. In succession, however, most cases are not at
all contentious and will not involve litigation or court judgments.
It is vital for the success of this Regulation that this should
remain the case and that solicitors should be able to advise with
confidence on the application of the connecting factor in any
particular case.
"I turn now to the points you raise in relation
to tax, and your request for an explanation of the Government's
position with regard to the tax neutrality of the Commission's
proposal, in particular whether the current wording of Article
21 of the proposed text is sufficient to ensure this objective.
"The advice received from HM Revenue and Customs
(HMRC) is that the proposal is thought unlikely to affect tax
in any significant way and, if it does affect tax neutrality and
the collection of revenues, it will only do so in a limited number
of scenarios in relation to inheritance and other related tax
matters.
"UK inheritance tax is charged on the worldwide
estate of UK domiciled individuals and long-term residents in
the UK, and on property situated within the UK where the person
is neither domiciled in the UK nor a long-term resident. In respect
of property situated within the UK, a Grant of Probate / Letters
of Administration can only be issued by the Probate Office (or
in Scotland, Confirmation issued by the Sheriff Clerk) after HMRC
has certified that any inheritance tax due has been paid or that
none is due. This process ensures that HMRC are notified of the
death of an individual and that inheritance tax on an estate is
paid before the assets are distributed to beneficiaries.
"Article 21(2)(b) provides that the law applicable
to the succession shall be no obstacle to the application of the
law of the Member State in which the property is located where
it subjects the final transfer of the inheritance to the beneficiaries
to the prior payment of taxes relating to the succession. Although
this provision should protect the UK's position in relation to
taxation, were the text of the final Regulation to be such that
the UK probate process would not in some cases be engaged in the
administration of property situated in the UK, this could present
a risk to the collection of inheritance tax in those cases.
"Article 21 is certainly welcome in principle,
but we will nevertheless be giving it further consideration in
order to assess that it is drafted in terms that adequately cover
this important issue.
"You have also requested assurance that the
proposal is satisfactory with regard to the existing regime governing
inheritance tax payable on assets held in one Member State but
bequeathed to a beneficiary in another Member State according
the law of another State. You seek assurance that in such cases
inheritance tax will remain payable on any assets within the jurisdiction
on exactly the same terms as if the deceased and his beneficiary
were residents here and the succession governed by domestic law.
This should be the case even if there is and has been no further
connection between the State imposing the tax and the deceased
or the beneficiary and even if the tax were chargeable at such
rate as to necessitate the liquidation of the assets at below
market value.
"The advice received from HMRC is that inheritance
tax is calculated by reference to the value of a person's worldwide
estate immediately prior to death and is unrelated to where a
beneficiary may reside. On this basis the proposal should not
undermine the UK's ability to assert rights to tax worldwide property.
"Finally, you have asked for a summary of the
responses to the consultation. The consultation exercise closed
on 2 December and a report of the results will be published in
the New Year. I can tell you that we received 99 responses, mostly
from the charitable sector but legal professionals and their representative
organisations also provided a significant number of responses.
These overwhelmingly stressed the potential difficulties the Regulation
might cause if introduced as drafted and urged the Government
not to opt in. Many also expressed the view that if we did not
opt in we should continue to engage constructively with the negotiations
in an attempt to secure improvements which might make it acceptable
or better at a later point. Of course, this is exactly what the
Government has decided to do. If you wanted further details of
the consultation before the fuller report is published please
let me know."
14.11 The Written Ministerial Statement by the Secretary
of State for Justice and Lord Chancellor (Jack Straw), addressed
to both House and communicated on 16 December 2009 and referred
to in the Minister's letter, reads as follows:
"The Government has today decided not to opt-in
to the European Commission's proposed Regulation on succession
and wills. This means the UK will not be bound by this Regulation.
"Hundreds of thousands of UK citizens live and
work in other EU Member States, and millions of others enjoy holidays
in the EU. The diversity of rules and systems that apply to succession
in different Member States can make for considerable complications
where a person owns property across borders. In principle therefore,
efforts to simplify and clarify the rules which apply to international
successions could produce huge benefits for UK citizens, and the
Government is strongly supportive of the project in principle.
However, there are potentially significant problems identified
with the proposal that the EU Commission has published. These
were set out in a public consultation document, copies of which
are available in the libraries of both Houses.
"That consultation document highlighted two
key problems. The first, and most difficult of those, was 'clawback',
which describes a legal mechanism where gifts made during a person's
lifetime can be recouped after their death. The introduction of
this concept into the UK could create major practical difficulties,
particularly for the recipients of such gifts including charities.
"The second key concern was the proposal's reliance
on 'habitual residence' as the sole connecting factor, i.e. the
factor of a person's circumstances which determines when the Regulation's
other rules apply. Using 'habitual residence' in isolation in
this way could mean that the relatives of anyone who lived abroad
for a relatively short period of time and then died there would
find their estate was subject to a law with which they had no
real connection. That could lead to unforeseen and unfair outcomes.
"The Ministry of Justice's recent public consultation
confirmed that these issues are widely considered to be of very
significant concern. A report of that consultation will be published
in due course.
"The Government has concluded that the potential
benefits of this proposal are outweighed by the risks and has
therefore decided that the best course of action is not to opt
in to the proposal and the UK will therefore not be bound by the
outcome.
"The Government intends, however, to engage
fully with the forthcoming negotiations between Member States
on this proposal, with the aim of removing the points which currently
cause concern and to deliver further improvements for citizens
with links and assets in more than one country. If that can be
achieved, the Government could then decide to seek to adopt the
final Regulation. That will be considered and consulted upon as
appropriate at that time."
Conclusion
14.12 We thank the Minister for his detailed and
helpful comments and clarifications. We welcome the Government's
decision not to 'opt in' to the measure, at least in its present
form. Accordingly, we are content to clear the document on the
understanding that any new proposal which may induce the Government
to change its mind about UK participation would have to be very
substantially revised and thus be deposited for parliamentary
scrutiny in any event.
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