Where do we pay house inheritance tax in France?

John Kitching, a director of French Law Consultancy Limited, answers a reader query

Dual taxation treaties can affect how these taxes are paid

Reader Question: We are British but have lived in France for 18 years in a small house worth around €160,000. Most of our money is in rental properties in the UK. Everything is in joint names, all houses are tenancy in common, so the surviving partner does not automatically get the house. 

The reader continues: “We have children from previous marriages. Our UK wills stipulate every property and all assets are left as a life interest to the surviving partner, and our children inherit after that (from their bloodline parent). 

“As UK law is elected, is UK or French inheritance tax payable on the French house?”

This is a complex situation, and while I can give a general reply, you should seek specialist advice.

Unfortunately, you cannot elect which tax regime applies to your estate – it is based on your domicile at date of death – and there is a possibility of double taxation without any tax credit under the Double Taxation Treaty.

What usually happens for a deceased French resident is that France taxes the global estate and the UK taxes the UK estate. 

UK tax that has been paid is then treated as a payment to reduce the French tax, in relation to what is due against those same assets.

Read more: Why have French notaires said my husband’s UK will is not valid?

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The problem with taxation of life interests is that France taxes these when they are created – on the first death. 

The UK taxes these on the death of the life tenant (death of the surviving spouse) at their value at that point. 

These are not the same tax events at the same time, and not even the same taxable value, so there is no tax credit available.

While the value passing to the spouse is tax-free, the part passing to children is taxable and could present a significant bill in both countries.

It might, however, all end up within the tax-free bands. 

And even if additional tax is due, it may still meet your overall wishes and be worth considering.

Read more:  Can we leave our French estate to our grandchildren?