You may have put a lot of thought into creating wealth for your retirement years, but have you done the same for your succession planning?
Does it take both the UK and French systems into account and meet your wishes? Are you clear on how assets will be transferred to your heirs, at what cost, and how long it will take? Have you explored ways to mitigate inheritance taxes, and is your planning up to date?
Strategic estate planning is essential for foreign nationals residing in France.
French succession laws, combined with cross-border taxation, create complex challenges that affect how your wealth is passed on. Without appropriate planning in place, your heirs could face forced heirship restrictions, unexpected tax liabilities and administrative complications.
The good news is that, with expert planning, you can keep control of your estate, protect your family’s financial future, and ensure more of your wealth goes to the people you care about, rather than the taxman. Acting now ensures everything runs smoothly later, when it matters most.
French succession tax
If you die as a French resident, each of your beneficiaries is assessed for French succession tax. This applies whether the assets are in France, the UK or elsewhere, and regardless of where the recipient lives.
UK assets are subject to both UK inheritance tax and French succession tax; your heirs do not pay tax twice, but do pay the higher amount.
Inheritance tax allowances in France and the UK have been frozen for years. France’s tax-free allowance for children has been €100,000 since 2012 (when it was cut by almost €60,000), and the UK’s nil-rate band has been £325,000 since 2009. Your family will pay much more tax than if allowances had tracked inflation.
Both France and the UK exempt spouses and civil partners from inheritance tax on death, but French tax applies on gifts surpassing €80,724.
While the allowance for children is €100,000, it is much lower or negligible for other heirs. Succession tax is applied at progressive rates from 5% to 45% for children, but other heirs pay between 35% and 60%.
Fortunately, there are planning opportunities for liquid assets, cash and investments to reduce or potentially eliminate the succession tax liability on them. Savings and investment structures in France can provide significant succession tax planning benefits, plus tax advantages for yourself.
Contact Blevins Franks to find out more about making your money work for you in France.
Blended families
The UK levies its 40% inheritance tax (IHT) on the whole estate. France assesses each beneficiary individually for tax, and kinship makes an enormous difference.
A married or Pacs (civil) couple leaving everything to their joint children can structure their assets to fully utilise the allowance each child can receive from each parent, with tax rates then starting at 5%.
However, it is a different story for couples not in a legal relationship and/or with children from previous marriages. Succession tax for distant and non-relatives is a flat 60% on everything above €1,594. If you leave assets to a long-term partner but have not entered into a Pacs, 60% is lost to tax.
Stepchildren also fall into this category. Say, for example, you have three children from a previous marriage and leave assets worth €600,000 to your current wife, tax-free.
She later divides this equally between your children but, with no blood relationship to her, each child will pay €119,045 tax on their €200,000 inheritance. If you left this money directly to them, their tax bill would have been €18,195.
Blended families must also be careful when following French succession law. Civil/Pacs partners do not have the same rights as spouses here, and no rights over each other’s property. While you can opt for the relevant UK succession law to apply, children still have the right to make a claim to your French assets.
Inheritance tax on UK pensions
In a little over a year, the UK introduces a major change impacting anyone with UK pension funds, regardless of where they live.
From April 6, 2027, most UK pensions become subject to UK inheritance tax. Your family could pay significantly more tax as a result.
If your UK private pension is passed to UK resident beneficiaries, they could potentially pay not only the 40% IHT, but if you die after age 75, income tax up to 45% on the residual funds.
If you currently manage to keep UK assets below the nil-rate band, this may prove impossible once pensions are included.
There are a couple of options to extract pensions from the UK system, though they are subject to terms and conditions, and dependent on your circumstances, objectives and risk tolerance. Be careful to employ only regulated advice and solutions.
If leaving your pension in the UK is best for you, consider moving other assets (property investments, etc) out of the UK, to reinvest the capital more tax efficiently for a French resident.
Inheritance tax – France versus the UK
Since the UK and French regimes are so different, it is impossible to give a general assessment of whether heirs are better off if you die as a French or UK resident. Much depends on who the beneficiaries are, residence, amounts received, asset type, etc.
When passing assets onto children, the French system often proves more favourable, since each child receives €100,000 tax-free (potentially double that between two spouses) and rates start at 5%.
If you do not keep UK-based assets, you need not worry about UK inheritance tax at all.
However, if you are not married/in a Pacs, the survivor would suffer very high taxes in France.
Wherever you live, taking professional advice on strategic estate planning and structuring your assets correctly can make a significant difference to your inheritance tax liability.
It is always worth exploring the options available to British expatriates in France to establish how much tax you can save. As a bonus, you may well find that restructuring your assets to mitigate inheritance tax also improves your own annual tax position.
Rob Kay is a financial adviser and regional director of Blevins Franks
