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French Property News, January 2007
The French Civil Code which emerged during
the first empire, introduced statutory rights for children of
a deceased person which take precedent over a Will.
Nevertheless, even if a Will cannot override inheritance rules on
assets subject to French law, there is still some freedom to
bequeath part of these assets under a Will. Statutory
inheritance rights also apply to gifts.
In the UK and France, inheritance law is
generally determined as follows.
- The succession laws applying to property (or 'immovable
assets') will be the law of the place where the property is
located.
- The laws of succession applying to movable assets (contents,
cash, stocks and shares) will be the law of the country of
'domicile'. We probably come closest to understanding French
domicile if we treat it as the place of 'habitual residence'.
Thus, if the deceased was living in France, French inheritance law
will apply to his worldwide moveable assets and also to his French
property.
Some of the deceased's children might try to
claim that the UK-based assets, for example, are subject to the
French compulsory inheritance system. Any gifts and legacies
made during the deceased person's lifetime might also be
ineffective as the world-wide movable assets could be governed by
French inheritance law if the deceased was French-domiciled.
Therefore, it is important to note that any
provisions indicated in the UK Will, or even a gift made in the UK,
might be challenged once the donor or testator has relocated.
Beneficiaries who believe they haven't received what they are
entitled to under French rules can start proceedings in France and
ask the court to register a charge against the French based assets
(eg against a house).
For the purpose of calculating the value of
the estate and the children's statutory inheritance rights, the
estate is deemed to include property previously disposed of by
means of a gift during the deceased's lifetime. If the
deceased person gifted assets away or transferred some into his/her
spouse's name with the belief that it would overcome the reserved
rights, then any assets previously gifted will be virtually
reincorporated in the estate on death. Donees will have to
provide what the heirs should have received. Reserved heirs
have a 30-year claim against those who have received more than they
were entitled to.
However, the new Inheritance Act 2006
introduced a waiver which can be signed by heirs entitled to
statutory rights from 1 January 2007. The act also provides
for a number of substantial changes to rules affecting lifetime
gifts, as well as creating new methods by which gifts (whether
lifetime gifts or testamentary bequests) may be made including:
- gradual gifts (liberalite graduelle)
whereby the donor may impose 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 gift direct from the initial donor
- residual gifts (liberalite residuelle) whereby the
recipient of a property is obliged to transfer the remainder of the
property or asset to a second named beneficiary. In contrast
to a gradual gift, the first beneficiary is not obliged to keep or
conserve the property or asset, but merely transfer what ever
remains upon his or her own death
Wills and succession have become the next
target area for EU law. Various initiatives have resulted in
a European Commission paper covering both testate and intestate
succession. This comes as the European Commission is seeking
harmonisation of the inheritance rules within the EU. The
European Parliament's Legal Affairs Committee is expected to adopt
the recent report by Guiseppe Gargani, Rapporteur, MEP. Under
the new directive (if adopted) a British testator would be able to
deal with his assets under UK law.
From a tax point of view there is no double
tax treaty between France and the UK in relation to gifts.
Any gifted French-based assets fall under French gift tax rules,
even if the donor and donee are not French-domiciled. The
gift of non-French-located assets made by a non-French-domiciled
donor to a French-domiciled donee are taxable in France, unless the
donee has been domiciled in France for no more than six of the last
10 years. If the donor is French-domiciled, gift tax will
apply wherever the assets are located.
Another major difference in France lies in the
amount which can be transferred free of tax. You can make a
gift free of tax only if the donor survives for six years.
However the nil rate band between the donor and donee that can be
gifted every six years free of tax is generally the same as the
inheritance tax nil rate bands. The nil rate band gift
between siblings and gifts between uncles or aunts to nephews and
nieces is 5,000 euros.
The tax allowances depend upon whether the
donor retains a lifetime right to use the property (ie
usufruit) or not. If he retains the
usufruit the allowance will be 35% if the donor is less
than 70 years old, and 10% if he is under 80 years old. Any
other gift (in full equity or usufruit) will receive a 50%
allowance if the donor is under 70 years old, and 30% if he's under
80.
In addition, any gifts which have been made
prior to death (less than six years) will be transferred back into
the deceased's estate for tax purposes. It is important to
note that death does not trigger any capital gains tax liability in
France.
Even with a forthcoming European directive,
you should remain aware of the pitfalls when tax planning.
Dismissing the impact of a Will or the consequences of estate
planning advice tailored in one country could become a source of
complications or even create a tax issue in another country.
For more information contact Christophe
Dutertre, a French lawyer in Blake
Lapthorn's French Private Assets and Tax team on 023 9253
0379; email christophe.dutertre@bllaw.co.uk.
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