If you have moved to France it is important to review your estate planning to take the French succession tax and succession law regime into account. You want to ensure that the right assets pass to the right people, at the right time and with as little tax as possible.
If you have moved to France it is important to review your estate planning to take the French succession tax and succession law regime into account. You want to ensure that the right assets pass to the right people, at the right time and with as little tax as possible.
Have you made, or are you making, France your permanent home? It is essential to review your wealth management to ensure it is specifically designed around your new life in France. Besides considering how to achieve advantages for your lifetime, it is essential to get your estate planning in order.
Estate planning in France is particularly complex and challenging. Its ‘forced heirship’ regime does not allow you to freely distribute your assets on death, and succession taxes can be as high as 60%. Arrangements that worked in the UK are unlikely to achieve the same results there and could have unexpected consequences.
Succession law
French succession law protects your children above anyone else. This can be very restrictive and prevent you leaving all your wealth to your spouse, or leaving assets to other relatives, step-children etc.
Here are some examples.
Mr and Mrs X are on their second marriage, and own a house in France in joint names. Mr X has three children from his previous marriage. Mr X dies, and Mrs X expects to inherit his half of the property – however 75% must go to his three children.
Mr and Mrs Y both have children from previous marriages. Mr Y has two children, one of whom, the son, is estranged. Mr Y does not want to leave anything to his estranged son. When he dies he wants his assets to go to his wife and daughter. However, under French law he has to leave 33% of his assets to his estranged son.
There are however solutions to achieve your wishes.
The 2015 EU succession regulation, “Brussels IV”, gives UK nationals the ability to opt through their will for UK law to apply to their assets on death, instead of French law. This potentially means you can leave assets to whomever you want.
While this is the solution for many people, there is more to it than first meets the eye and it is not necessary the best route for UK nationals.
It is still obligatory for a French notaire to handle your estate, and he will have to administer it under a law he is not experienced with. Adopting UK law could negatively affect your existing succession planning arrangements, and may also mean that your estate becomes liable to UK inheritance tax as well as French succession tax.
You therefore need to seek personalised advice and consider your options carefully. There may be arrangements available under French law that achieve your aims.
Succession tax
Whichever law you opt for, French succession tax continues to present a significant hurdle.
Spouses/PACs partners are exempt from this tax, and children (under 2016 rates) receive a €100,000 allowance each, with tax rates up to 45%. For everyone else the tax rates get higher and the allowances much lower. If, for example, you pass assets to stepchildren, they pay tax at 60% and only get a €1,594 allowance.
Here is an example of how succession tax can have unexpected consequences.
Mr and Mrs Z each have two children from their first marriages. The plan is that when the first spouse dies their wealth passes to the survivor; then on the second death, using Brussels IV, it will be split evenly between the four children, expecting them to receive around €300,000 each. In fact the amount two of them will receive will be very different to the other two.
Based on an inheritance of €300,000 each, the natural children of whoever dies second will each have a succession tax bill of €38,195.
The other two, who are not bloodline relatives of the person leaving them the assets, will each pay tax at €179,044.
Again, there are structures you can use here in France that can provide significant succession tax planning benefits. You should look to accomplish tax advantages for yourself at the same time. Make sure the structures you use achieve what you wish. While some arrangements may appear similar, small differences can have big implications.
The first step with estate planning is to decide who you want to inherit your assets, in what amounts, and when. Then take specialist advice to establish the most effective structures to achieve your wishes. With good advice and planning it is usually possible to structure your affairs so your assets pass to your chosen beneficiaries – in many cases with lower succession taxes than under the UK inheritance tax regime.
Blevins Franks specialises in tax and wealth management advice to British expatriates. With decades of experience, we understand this market extremely well and have the expertise to analyse all your estate planning options and advise on the selection. Our advisers, who live and work in France, are supported by qualified tax and legal specialists based in our offices in London. Our expertise in UK/French cross-border tax and estate planning is, we believe, unsurpassed. Our service is highly personal and tailor-made to meet the particular requirements of each of the families who are our clients.
Any questions? Ask our financial advisers for help.
Tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; an individual is advised to seek personalised advice.
