Buying second home in the UK

We are French tax residents, UK nationals, in the process of buying a maison secondaire in the UK to rent out. What are the tax implications, eg. do we declare rental income in UK or France or both? Is the property still subject to French inheritance rules if we remain in France?
Mr and Mrs W

Property (in the sense of bricks and mortar), tends to always buck the rules since is it the only asset that is truly non-portable.

The consequence is that it, and anything to do with it, is usually always first assessed for taxation in the country in which the property is situated.

So, yes, the profit will have to be declared, assessed and possibly taxed in the UK, to then be assessed again here in France.

However, just because the French assess the same profit does not mean that it is taxed anew.

With the special system available, the tax effectif, all that really happens is that any other income that is French assessable and liable to taxation in France will possibly be taxed at a slightly higher tax rate than otherwise would have been the case (because of your higher worldwide income).

Therefore, in answer to your question, yes, the rental profit will have to be declared in both the UK and France but note that the French increasingly accept the UK rental profit of the rental year which ends in the assessable French tax year.

Thus UK rental profits up to April 25, 2007, could fall to be taxed in the French 2007 tax year. With regards to inheritance rules, the answer is yes again.

However, it is best to consider this aspect in two separate ways, one for the legal side of things, and then the other with regards to taxation.

On the legal side, where the property goes will fall under UK law (possibly under a UK will) since the property is situated in the UK.

As a result, the property will succumb to UK inheritance tax if its value is in excess of the threshold.

However, under French succession law, it is the provisions of the French will that are initially considered.

These beneficiaries are then liable to be taxed under French rules whether French residents or not.

Accordingly, if the UK will and French will do not contain the same dispositions, a situation could arise where one or more persons inherit and are taxed under UK succession provisions but, under the French succession provisions, it is someone else who is liable to be taxed on the same asset - even though they do not inherit it.

It is vital to ensure that the UK will is drawn up with French succession rules and taxation in mind, confirming that there is no substitute for appropriate Franco-British advice.