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Connexion's EU inheritance dossie

The Connexion has submitted a dossier of almost 200 reader comments to Brussels

1 November 2010

THE CONNEXION has submitted a dossier of almost 200 reader comments to a wide-ranging investigation by the European Commission into cross-border inheritance laws and tax problems.

The Brussels study will look at the case for coordinating all the EU member states and applying a consistent set of rules throughout.

The overwhelming majority of readers who contacted us expressed concern about the French policy of a réserve héréditaire, a strict legal quota system that dictates how much of your estate is left to each of your children.

Many respondents said the system was out of phase with modern society, where people remarry, and penalises step-children. French law does not recognise any relationship between a spouse and children of their spouse’s previous relationships, so stepchildren must pay the inheritance tax due for strangers: 60 per cent, if they are left legacies from a will.

Daniel Hannan, a Conservative MEP for south-east England, said it was important that people were free to choose who received their estate.

“Essentially, English common law allows people to leave their possessions to whomever they wish: Battersea Dogs Home, the Liberal Democrats, the Treasury. Napoleonic law more or less guarantees a share for surviving spouses and children.

“What’s now being proposed is that, if a Briton dies on the continent, the heirs might be allowed to activate the English rather than Bonapartist
procedure.

“We should be allowed to bequeath as we please, however eccentrically, provided we are of sound mind.”

However he said the proposed changes did not go far enough: “The directive is fairly soft, allowing people to opt for either system rather than imposing one or the other. Even so, I take the view that it is not a proportionate solution to an identified problem.”

The tax situation is especially complicated for expatriates as, at the moment, the United Kingdom and France apply different rules on how the elements of a deceased person’s estate are assessed.

If the deceased was resident in France, French inheritance tax is payable on his worldwide assets and English tax may be payable on English assets (depending on the English rules), but would then be deductible from the French tax bill. If the deceased was resident outside France, French tax is payable on French real estate only.

Gérard Picovschi, a Paris-based notaire who specialises in inheritance issues, said: “We have a lot of English-speaking residents who come to us for help with international succession problems.

“In French law, the right of inheritance often poses problems, but when you factor in other countries’ law, those problems take on almost insurmountable proportions.”

The European Commission’s latest investigation focuses mainly on tax. It has already made some progress on other elements of inheritance: last year, it proposed a regulation to simplify the settlement of cross-border successions within the EU.

The EC proposal provides for the use of a single basis for determining both the competent authorities and the applicable law: the habitual place of residence of the deceased. However, citizens living abroad will have the option to decide that the law applicable to their entire succession will be that of their country of nationality.

There are also provisions on recognition and enforcement of decisions on succession within the EU. The establishment of a European certificate of succession is also proposed – a document that shows who succeeds a certain person or has the right to deal with the estate and that applies throughout the EU.

That proposal is currently under detailed negotiation in the Council of Europe and the European Parliament has yet to give it a first reading. It could take up to three years and may be rejected.

If it goes through, then France would be obliged to transpose it into national law. However, French expatriates living in the UK will not have the same rights, because Britain has opted out of the law.

A European Commission spokeswoman thanked Connexion readers for their contributions. She said: “If, on the basis of the results of this research, the problems warrant action, the Commission will launch an initiative to address the problems by improving coordination of member states’ inheritance tax rules.”

The law in a nutshell

IF YOU die while resident in France, your estate will be subject to French inheritance law, which is much stricter than the legal system of England or Scotland. This also applies to British residents who have bricks and mortar property in France.

Your heirs are likely to have French inheritance tax to pay, which can be high, especially in the case of heirs with no close family ties, including unmarried partners. A spouse, French pacs partner or British civil partner would pay no French inheritance tax.

French law stipulates that your children have an automatic right to a certain percentage of your estate, though there are certain ways to modify this.

Heirs who have an automatic right to some of your estate are called héritiers réservataires, and their portion is called the réserve héréditaire. The rest of your estate, which you can either will freely or which in the absence of a will would go to relatives in a given order, is called the quotité disponible.

We just want the freedom to choose

JUDITH and Peter Donnelly, both 57, bought a house in Querrien, Finistère, in 2001 and moved there permanently last year.

They are retired, after both working more than 30 years in the UK. They own two properties in Britain, which are rented out, and bought their Brittany home en tontine: a legal arrangement whereby a couple can avoid succession law, with ownership of the house going directly to the survivor.

Mr Donnelly has two grown-up children from a first marriage. The couple have an English will which states their wishes and a French will for their Brittany home.

“We want all our estate to pass to the surviving spouse and thereafter equally to my husband’s two
children and my nephew and niece. Why should this be so difficult in France?” Ms Donnelly asks.

“The French inheritance system is against the human rights of women and I cannot understand how it can be allowed to continue in a modern society. In a modern world, both parties in a marriage have worked hard for financial gain.

“It also goes against the wishes of individuals and leaves no opportunity to leaving a bequest to a charitable cause.

“Unless we can eventually find a way around this issue, we may have to return to live in the UK.”

My children had no choice but to inherit

BRENDA Clark’s husband, Dave, died in a car accident in the Tarn-et-Garonne four years ago. He left everything to her in an English will, plus a French codicil to the same effect, but the notaire insisted that the couple’s three children receive their share.

The children wish to renounce because they have already inherited their grandmother’s estate. Mr Clark’s mother died shortly after him and an old will she had written when all the children were minors left everything to them.

Mrs Clark says: “The notaire has been told by an adviser to proceed under French law despite my late spouse’s UK will and a French codicil stating all to me.

“My children would renounce their rights to inherit here if they could be assured that neither they nor I would incur a further tax bill. However my solicitor only wishes to proceed under French rules.”

The couple sold their UK home in 2003 and lived in a caravan while they oversaw the building of their new home in France. Mrs Clark faces a sizeable capital gains tax bill when she sells because of a mix-up over her fiscal residency.

“The double taxation forms I completed were never sent by the French to UK. I was told I had insufficient income to be taxed here, but France would treat me as a second home owner. The UK taxman refuses to accept domicile here until France send the papers.

“When I sell, I will be left with a minuscule sum. As we have built a property here ourselves, that seems grossly unfair.”

Bid to harmonise law caused more confusion

JENNIE Poate is the area manager for Normandy at accountancy firm Siddalls.

She says: “The subject of French inheritance rules and taxes is always high on the agenda for English-speakers living in France or owning property here. Attempts to harmonise European law have caused even more confusion.

“The French approach to inheritance is radically different from the British system, imposing unfamiliar concepts and restrictions and considerable action is normally necessary to ensure that your inheritance wishes are met.

“This is one of the main reasons why Siddalls in Normandy joined forces with other business professionals, including The Connexion, to organise free inheritance
seminars in the region. In June, more than 130 attendees in the Manche came along for an afternoon to hear legal experts talk through drawing up a will, a Siddalls financial adviser explaining inheritance rules and taxes à la française and a funeral organiser’s advice on what to expect if someone close to you passes away in France.

“The seminars raised more questions than we could hope to cover in an afternoon but I think that, if nothing else, we managed to get over the message that everyone’s personal and financial situation is unique and this is why it is critical to seek out sound legal and financial advice when planning your succession.

“As a result of the interest the first seminar generated, a new venue has been booked for a second afternoon on the topic of inheritance planning in Juvigny-sous-Andaine in the Orne, 15 minutes from Bagnoles de l’Orne and Domfront. The date for your diaries is November 16. Joining us will be Gerard Barron, the bilingual avocat and a familiar face to Connexion readers.”

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