The most tax-efficient way to leave assets to a niece/nephew

I would like to know the most tax efficient way of leaving our French home and other French assets to our niece and nephews. My wife and I have an English will. We have lived here for five years and have modest savings in the UK.

As French residents, your worldwide estate – moveable and immoveable assets – would be subject to French inheritance tax, including your assets situated in the UK such as your savings.

Distant family members such as nieces or nephews benefit from a French inheritance tax allowance of just €7,967. Once this tax allowance is applied, French inheritance tax will be calculated on a flat rate of 55% on the remainder of the value of the property and other assets passing to them.

However, where a beneficiary inherits from a non-blood relative, there is only a very modest inheritance tax allowance of €1,594 (at current rates) and each beneficiary is then liable to pay inheritance tax at the fixed rate of 60% on the remainder of the value of the property and other assets passing to them.

Such a tax allowance and rate would be applicable to your niece and nephews if, for instance, everything passes to the surviving spouse on the death of the first of you and then the survivor of you left a legacy to his/her spouse’s niece or nephew who is not a blood relative of the surviving spouse.

It would be possible to revert back to the tax allowance of €7,967 and rate of 55% if you make a French will naming the surviving spouse as sole beneficiary and include a legs résiduel naming a residuary beneficiary of your choice (e.g. your respective niece and nephews) who would then inherit whatever assets remained on the death of the surviving spouse.

One way in which to reduce the future inheritance tax burden on your intended beneficiaries is to take out a French life insurance contract known as a contrat d’assurance vie. It is essentially a tax-efficient wrapper into which money can be transferred, which would provide a lump sum in the event of your death to cover any French inheritance tax arising.

As for your English wills, it is advisable you review these and consider updating them to apply to your UK assets only.

You should then consider making new French wills to govern your other assets including the French property.