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French Property News, April
2007
The French budget 2007 is important in
particular from an estate planning point of view. Families might
find it very helpful as it follows up and completes the new French
Inheritance Act dated 23 June 2006 and brings more freedom in
dealing with Estates subject to French inheritance Law. Clearly
this will enlarge the numbers of options available to families and
to lawyers in order to achieve people's wishes such as the
following:
gift (Donation-Partage) between
generations with variation
Any child (the Donee) who is the beneficiary
of a gift can stipulate that his or her own children (ie the
grandchildren of the donor) can be nominated as beneficiaries and
can therefore take their place for part or all of the gift.
Should the original beneficiary not wish to receive any part of the
gift it will not be considered by the French Revenue as a gift by
the original beneficiary if they then pass the benefit to their
child(ren). You can bypass the middle generation. This will
allow them to accumulate the tax free threshold for each
beneficiary. The beneficiary can receive €50,000 free of tax
above which he would be taxed. In accordance with these new
rules he may then prefer to allocate the benefit to his own
child(ren) for anything above the tax free threshold and use the
€30,000 tax free threshold available for his child(ren). (For
example, a father can gift €80,000 by dividing the amount
between his child who will receive €50,000 tax free and a
grandchild who will receive €30,000 tax free)
gift (Donation-Partage) to a child
from a previous relationship
Any transfer of assets subject to French tax
(by death or gift) between non-related individuals is normally
subject to a 60% tax. However the new Budget indicates that a
gift made by a spouse to a stepchild can now cover assets held in
both spouses’ joint names (subject to conditions) without
attracting a 60% tax rate on half of the assets.
tax treatment of waiving inheritance
rights
The new Inheritance Act introduces the right
for children to waive their claim for what they would normally have
received under the statutory inheritance rules. This will
need to benefit one particular beneficiary and can apply to part or
the whole of their parent’s estate. The waiver is only valid
if it is signed in the presence of two Notaires and
incorporates the legal consequences of what the child is waiving.
From a tax point of view the Revenue will not be able to claim that
the waiver is a gift by the child.
gradual and residual
gifts/Will
The Inheritance Act 2006 also introduced new
methods by which a donor or a testator could have some control over
the future destination of his assets. He might wish to make
the following: (a) a gradual gift or Will (libéralité
graduelle), whereby he imposes on the recipient an obligation
to keep the property and, upon the recipient’s own death, to
transfer it to a further named beneficiary. The second beneficiary
will be deemed to have received the assets direct from the initial
donor/deceased; or (b) Residual gift or Will (libéralité
résiduelle), whereby the recipient of property is not obliged
to keep or conserve the property or asset, but to transfer whatever
remains upon his or her own death to a further named
beneficiary. The new Budget confirms that on the first death
the assets will have to be valued at their market value or if it is
a gift any allowance in accordance with the donor’s age at the time
of the gift. On the second death ie the first named
beneficiary’s death, the second beneficiary will be considered as
having received the assets from the initial donor/testator and not
from the first beneficiary. The assets will however be valued
on the first beneficiary’s death and there will be a tax credit for
what has already been paid by the first beneficiary. This
could be particularly attractive to those who wish to leave the
property to a spouse from a second marriage and then ensure that
the property goes back to the pre-deceased spouse’s own
children. In the past any transfer from a second spouse to
the step-children attracted 60% tax (in this example the first
named beneficiary can be the surviving spouse and the second
beneficiary the step-child(ren) who will be considered as receiving
the assets directly from their own parent as long as the waiver by
the children has been organised.
skipping a generation
The new Budget completes the rule introduced
under the Inheritance Act 2006 which authorises the child or a
sibling who refused to benefit from a French estate to pass his
rights to their own child(ren) and therefore keeping the tax
allowance they normally would have received (€50,000 for a child,
and €5,000 for a sibling). In the past a child or a sibling who
refused to become a beneficiary in his parent’s estate also
disinherited his own children. The share was divided amongst the
remaining beneficiaries. From now, the grandchild(ren) will not
lose their parent’s share and step into their parent’s shoes.
One can see that the New Inheritance Act 2006
and its fiscal dispositions 2007 will benefit many families such
as:
- siblings waiving their rights for the benefit
of a nephew
- someone who is already provided with
substantial wealth and wishes the benefit of his parent’s assets to
skip a generation and directly pass to their grandchild(ren) in
order to reduce the inheritance tax due
- a waiver from child(ren) from a previous
relationship which benefits the current spouse (step-parent)
enabling them to receive the assets on their partner’s death.
Please note that this must be combined with the obligation that the
surviving step parent transfers the assets on death back to her
step-child(ren). (Example: Mr and Mrs Smith are married. Mr Smith
has a child from a previous relationship. On Mr Smith’s death his
estate passes to Mrs Smith. The child has waived his claim to an
immediate benefit from his father’s estate but Mrs Smith has to
transfer the assets to the child on her death.)
For more information, please contact
Christophe Dutertre in
Blake Lapthorn's French Private Assets and Tax team
on 023 9253 0379; email christophe.dutertre@bllaw.co.uk.
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