As a UK national living in France, are you liable for UK inheritance tax, French succession tax, or both?
Since France and the UK have a double tax treaty for inheritances, the simple answer is that your estate is taxable in France if you are a habitual resident – but, of course, nothing is ever simple with taxation.
There are many different inheritance circumstances you need to be aware of, and UK inheritance tax might continue to affect you more than you realise.
Cross-border estate planning and taxation can be a minefield.
Make sure you get it right if you want your assets to be distributed according to your wishes and to reduce inheritance taxes for your heirs.
The domicile issue
The UK domicile regime, with its ‘domicile of origin’, ‘domicile of choice’ and ‘deemed domicile’ statuses, is particularly complex.
Generally, liability to UK inheritance tax (IHT) depends on domicile rather than residence.
You can live outside the UK for years and remain domiciled there, potentially making you liable for death duties in two countries. In any case, assets in the UK are always assessed for UK IHT.
The situation is different with France, though.
France and the UK have a specific tax treaty on inheritances, designed to avoid double taxation.
Both countries tax worldwide assets but, under this treaty, UK nationals who are long-term residents of France are deemed to be domiciled in France for inheritance tax purposes.
You do, however, need to be careful with the EU succession regulation.
‘Brussels IV’ covers cross-border inheritance issues and enables foreign nationals living in France to choose whether French or their national succession law will apply on their death.
However, if you opt for UK law, you might in some circumstances not be deemed French-domiciled by the UK, and UK inheritance tax would therefore apply to your worldwide estate as well as French succession tax.
Depending on your situation, there may be other ways of circumventing French succession law, so take professional advice.
French residents leaving or gifting worldwide assets
If you live in France permanently, assets you gift during your lifetime or pass on in the event of death are subject to French succession tax, subject to any tax treaty.
Provided you do not elect UK succession law to apply to assets, you are not liable for UK inheritance tax on assets outside the UK (but gifts might still have UK inheritance tax implications).
French residents leaving UK assets
In this case, tax is due in both countries, but credit is given in France for tax paid in the UK.
You do not pay tax twice, but you do pay the higher amount.
French residents receiving an inheritance or gift
If you have lived in France for at least six out of the last 10 years, you generally have to pay French succession tax on inheritances or gifts you receive (subject to tax treaty terms).
This applies even if the donor and assets are outside France. There are penalties for failing to declare such inheritances/gifts.
Thanks to the UK/France tax treaty, however, this general rule does not apply to French residents receiving an inheritance from the UK.
You do not need to pay French succession tax, provided the deceased was UK-domiciled and there are no French assets. The estate will have been subject to UK tax.
Note, though, that the France/UK treaty only applies to inheritances.
If you receive a gift from a UK domicile, you will pay French tax if you have been resident for six of the last 10 years.
UK residents owning assets in France
As a UK resident, assets you own in France are liable to French succession tax and also form part of your estate for UK inheritance tax purposes if you are domiciled in the UK.
Your heirs are entitled to a credit for tax paid in France.
UK inheritance tax
In the UK, tax is calculated on your estate as a whole and paid by the estate.
Spouses are generally exempt, but otherwise it makes no difference who the beneficiaries are.
The fixed 40% tax rate and £325,000 allowance apply to everyone.
The UK has an additional allowance (the ‘residential nil rate band’), which is currently £175,000 (both allowances are frozen until 2026).
This benefits many families, but there are limitations.
It only applies to residential property you have lived in, for example, and only where received directly by descendants (so excluding many trusts).
The relief tapers away for estates worth over £2million, and estates over £2.35million do not receive any residential nil rate band.
French inheritance tax
In France, spouses/civil (Pacs) partners also receive inheritances tax-free, but pay tax on gifts.
Tax is calculated on, and paid by, each beneficiary – every person you leave assets to has to personally pay the tax due.
The rates and allowances vary according to the beneficiary, with immediate family being much better off than distant or non-relatives.
For example, children pay tax at progressive rates from 5% to 45%, and each receives a €100,000 allowance.
On the other hand, non-relatives pay a fixed 60%, with a small €1,594 allowance.
‘Non-relatives’ include unmarried partners (unless in a Pacs/civil partnership) and stepchildren.
Children could be taxed as ‘non-relatives’
If you have adult children from a previous relationship, you may not think of them as your spouse’s stepchildren – but if you leave assets to your spouse, who then passes them to your children when he/she dies, they will be taxed as non-relatives.
Your children will therefore pay tax at 60% and lose the €100,000 allowance.
Research all your options to see how you can protect both your spouse and children.
For British expatriates, estate planning is a complicated part of living in France – there are so many ways to get it wrong.
But there are also planning opportunities to achieve your wishes and secure lower taxation for your heirs.
A little time and effort with specialist, professional advice will prove beneficial and give peace of mind.