As regular readers will know, this column was written by Bill Blevins for many years until he sadly passed away this summer.
Bill spent more than 40 years advising British expatriates and was passionate about estate planning, inheritance taxes and succession law because of the issues his clients encountered. He felt it was an important subject for readers and came back to it regularly.
With that in mind, we thought it timely to remind you about the estate planning challenges British expatriates face here and the steps you can take to improve your position. And what better way than answering the questions we are most frequently asked?
As a UK national living in France, should I have a UK will or a French one?
It is often beneficial to have two wills – one for your assets in France, and a UK one for British-based assets. These should align and cross-reference each other to avoid conflict.
A UK will can be effective in France, but after going through the UK probate process, it needs to be translated and notarised before obtaining probate here, so separate wills can prevent delays and expense for your heirs.
Your will should follow French succession law, or officially opt for UK succession law to apply to your estate, otherwise it will be invalid.
How much French inheritance tax will my children pay?
Each child benefits from a €100,000 tax-free allowance. The tax rates start at 5% (for inheritances up to €8,072) but rise progressively to 45% (for the excess above €1,805,677).
This does not apply to stepchildren, who generally pay tax at 60%, with virtually no allowance.
This could potentially apply to your own children too, however. If, for example, you leave assets to your wife who is not their natural mother, who then leaves the assets to your children on her death, they are treated as her stepchildren and taxed accordingly.
I do not have children and plan to divide my estate between my sister, nephew and godchild. What tax will they pay?
The tax rates can be rather eyewatering: generally speaking, it is 35% or 45% for your sister (with a €15,932 allowance), 55% for your nephew (€7,969 allowance), and 60% for your godchild (€1,594 allowance).
Can I bypass succession tax by giving assets away while I am still alive?
You can give away set amounts tax-free but, above this, gifts are taxable and the exemptions only renew every 15 years.
Be careful when giving assets away. Some people do not leave themselves the resources to live comfortably long term. Gifting your home to children or making them part-owners can also cause problems later if there is a falling out, divorce, or you need to sell it.
Our house is in my name. I want to gift half to my wife but will she pay tax on the transfer?
While inheritances between spouses are tax-free, gifts are not. Anything above €80,724 is taxable. You also need to follow French succession law, since children are ‘reserved heirs’.
Why can’t I leave my assets to my spouse?
Under French succession law (the default position unless you make other arrangements), inheritances must pass down the bloodline.
Children are protected heirs and must inherit between 50% and 75% of your estate (depending on the number of children). You can only leave the ‘freely disposable’ part to your spouse/PACS (civil) partner. If you have not made a will, it is even more complicated.
My partner and I have been together for 10 years but have no wish to get married. What happens when one of us dies?
I am afraid you may feel the force of the French succession regime. If you are not in a PACS (civil partnership) either, you will pay the highest rate of inheritance tax – 60%.
Remember that if you have children, they have inheritance rights over your partner. If you successfully bypass this rule and leave assets to your partner, who then passes them back to your children from a previous relationship, your children will also pay 60% tax.
More complicated families face more complicated rules, so advance planning is key.
Can I bypass French succession law?
You can use the EU succession regulation Brussels IV to opt for the succession law of your country of nationality to apply on death instead of French law. You must opt for this in your will.
Be careful, though, and establish how it affects your family. For example, you risk making your worldwide estate liable to UK inheritance tax.
Remember that if you leave assets to people other than a spouse or descendants, they will face huge tax bills – we have seen cases where the family home has to be sold so they can pay.
There may be other ways to leave assets to your chosen beneficiaries. For example, inserting an en tontine clause into the conveyance when buying a property ensures it will pass to the surviving tontine holder.
The different types of marriage contracts available in France can also affect how assets are owned and are worth exploring, but they may have tax consequences, so take advice.
Do the same succession rules apply to my capital investments?
Yes, generally speaking, both succession tax and law apply. However, it is easier to avoid these than with real estate.
A widely used solution is to hold investment assets within an assurance vie. These policies can considerably mitigate succession tax and are exempt from succession law, passing automatically to the nominated beneficiaries when the life assured dies. Normally a savings vehicle, they are a great source of beneficially taxed income – but they are also fantastic succession planning structures. Arguably, the estate planning advantage of an assurance vie outweighs all the other benefits.
The French succession regime is complex, so I can only touch on some issues here in very general terms.
Do sufficient research but also take professional, specialist advice to ensure you get it right and your wishes for your heirs are fulfilled.
Author: Rob Kay, Blevins Franks. Blevins Franks provides tax and wealth management advice
Tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our, Blevins Franks, 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.