Are you a British resident of France? Have you considered how living in France might affect what happens to your property when you die? Rupert Holderness of independent financial advisers Siddalls France explains the perils and pitfalls.
As a permanent resident of France, you will be considered “domiciled” in France for inheritance purposes and your worldwide estate will be subject to French inheritance rules and taxes.
Britain may also have the right to tax certain assets, UK property for instance, and may even try and claim your “domicile”. In the case of a dispute, it is the Double Tax Treaty on inheritance tax, which decides which country will win. The criteria are basically the same as for residence.
French inheritance rules state that your children are “protected heirs” and must inherit part of your estate. The amount involved depends on the number of children, but is at least 50% and is called the “Réserve Héréditaire”.
The remaining portion of your estate is freely disposable by will (“Testament”) and is called the “quotité disponible”.
Therefore, you need to know that, if you have children, a will leaving everything to the surviving spouse and then to the children will not be upheld in France, since the children must inherit their minimum share.
The question of the protection of the surviving spouse is therefore one of the main preoccupations of the British community in France. There are various solutions, which are more or les effective or advisable, depending on your situation.
French inheritance tax is a completely different system to the UK, since it is the beneficiary who pays the tax and tax rates and allowances vary according to your relationship to your heir.
In 2007, inheritance tax between spouses was abolished, as was tax between unmarried couples with a “Pacte Civile de Solidarité”.
For your children, French inheritance tax is perfectly reasonable, since tax rates are reasonable, even if the allowance has reduced by the Government of Mr Hollande. For a large estate, inheritance tax is normally considerably lower than in the UK and France also offers more opportunities for reducing tax.
The problem is for those who want to leave assets to other family members or friends. For example, nephews and nieces pay 55% tax, after allowances of only €7,967 each and unrelated persons pay 60% tax after an allowance of only €1,594.
If you want to leave assets to your partner (without a PACS), to stepchildren or to friends, you know that over half of your assets will be taken by the state, so it is imperative to find another solution.
New European Inheritance legislation
New EU rules on inheritance have recently been adopted and will come into force in three years time, namely in 2015. These new regulations will give expatriates the right to opt for the succession law of their country of nationality to apply on their death.
Without an appropriate will, the French succession rules above would continue to be applied to a French resident’s estate.
However, with a correctly drawn up will, it should become possible, from 2015, to opt to use the law of the country of your nationality. For British nationals, this should mean that you can opt to use British rules enabling you to leave your assets as you wish via an appropriate will. This should, therefore, allow you to bypass the strict French succession rules, whereby ‘protected heirs’ must normally inherit ahead of a surviving spouse.
It is vitally important to understand that whilst the new rules will make it possible to choose UK law for the distribution of your estate, it will not apply to tax issues.
Since it is perfectly possible to take sufficient action under French law, which will obviously be immediately applicable and since inheritance tax planning for your children can be easier under French law than British law, we still recommend that French solutions should be used where appropriate.
Rupert Holderness is General Manager of Siddalls France, Independent Financial Advisers, specialising in tax, inheritance, pension and investment planning for the British community in France since 1996.
For more information about Siddalls, please click here or visit www.siddalls.fr.
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