French estate planning for UK residents
When dealing with inheritance planning in
England, one automatically thinks of making a Will. But in France,
we soon realise that drafting a Will is only one of the options
available. The statutory rules of succession, which apply to the
Will, may indeed not allow you to bequeath their assets as they
wish. There are, however, ways to override or postpone the civil
and tax implications of this, such as holding assets with a
specific structure of ownership, or varying a marital regime for
married couples.
Various factors will influence the limits of
one's freedom under French rules:
- whether or not there are any children, and
whether they are from the current or previous relationship
- the way the couple hold the French
property
- whether you are relocating to France,
and
- the value of the estate.
So, before buying a property in or relocating
to France, we would always recomend seeking professional advice.
Below we summarise some of the key considerations.
1. the law applicable to the estate
Under the French rules of Private
International Law, a distinction is made between immovable and
movable assets. The laws of the country where the immovable asset
is situated apply to immovable property such as a house, a flat or
a farm. However, bank accounts, investments, shares, etc., are
subject to the law of the deceased's domicile.
For those who are not French residents, their
French bank accounts and other movables in France will remain
subject to their English Wills. Only the French property will obey
the French rules.
British nationals relocating to France will
see the French rules apply to their worldwide movables and French
immovable. If they are deemed to be domiciled both in France and in
England, a conflict of laws may arise as regards the movables
because of the differing concept of domicile.
2. the French statutory rules
without a Will
Under the French intestacy rules, the
deceased's children will inherit 75% of the estate subject to
French law and the surviving spouse the remaining 25%. When the
deceased's children are all from the marriage, the spouse can
instead choose a life interest (Usufruit) on the whole of the
estate instead of the above quarter share. When there are no
children, 25% will go to each of the surviving parents if any and
the balance to the spouse.
A life interest (or “usufruit” in French) is
an interest in the estate of the deceased, which grants the right
to use the property during the lifetime of the surviving spouse and
the right to receive any letting income. However, the surviving
spouse would not be entitled to sell the property without the
children’s agreement. The children or the surviving spouse could
also force a sale if they want to sell their share in the property.
Upon the subsequent death of the life tenant, the property will
revert to the children.
with a Will
In order to draft a Will however, we would
look at the testate rules. The number of children now becomes
important. With one child, the "reserved" portion of the testator's
estate is 50%, with two children: 2/3 and with three children
or more: ¾. This portion must go to the children (or the children
of a deceased's child). The remaining "free" portion of the estate
is 50%, 1/3 or ¼ and this can be bequeathed by Will.
Therefore, under a Will, it is not possible
for a couple with children to bequeath their estate to each other
on the first death. The spouse will only be entitled to the free
portion outright, or the whole of the estate in usufruit, or 25%
outright + the balance in usufruit.
It is worth mentioning that the reserved heirs
may sign a waiver so they cannot use their right to bring a claim
against the surviving spouse/beneficiaries if the deceased went
over the free portion of his estate. The waiver must be signed in
France in front of two notaires.
the French Will
The most usual Will is the testament
olographe. The only requirement is that it must be written out
entirely in the hand of the testator, dated, and signed by the
testator. The signature does not need to be witnessed. The
administration of the estate in France is easier with a separate
French Will. It is more straightforward and avoids any problem of
misinterpretation on the French side. Care must be taken not to
revoke inadvertently the English Will and vice versa.
Under the Hague Convention, dated 5th May 1961
on the form of Wills, it is possible for British nationals to
choose an English Will to cover their French property for instance.
However, the content of the Will as far as the property is
concerned will need to respect the above rules of succession. This
is why a separate French Will is likely to be more appropriate.
3. the French inheritance tax rules
Unlike the UK, France does not tax the
deceased's estate as such. Instead, the inheritance tax is levied
on the beneficiaries on their respective shares. The nil rate bands
and the rates vary according to the family relationship with the
deceased and the beneficiary. The figures below are for the year
2010.
Married couples or couples under a civil
partnership recognised in France have enjoyed a full exemption from
inheritance tax (but not on gifts) since August 2007 for assets
passing to each other on death (whether outright or in
usufruit).
Then come the children, who benefit from a
personal allowance of €156,974 in each of their parents' estate.
The balance would be taxed in accordance with a sliding scale from
5% to 40%. The middle rate is 20% for the share comprised between €
15,697 and € 544,173.
Siblings and nephews and nieces are the last
family members to qualify for an allowance of respectively € 15,697
and € 7,849 and flat rates will apply on the balance.
All other beneficiaries including stepchildren
or non married partners would only qualify for an allowance of €
1,570 after which their share is taxed at 60%.
4. further inheritance planning
To conclude, the French statutory rules
dictate what a testator can include in his Will. However, there are
other ways to set aside the property from those rules, subject to
conditions, by buying with a tontine clause (similar to the English
joint tenancy), signing a marriage contract or (for non French
residents only) purchasing through a company. This is especially
relevant when a couple wants to secure each other on the first
death without any children being involved.
This article has been published in French Property
News, the most comprehensive guide UK guide to buying
property in France.
View a fuller version of this article published
in Elderly Client
Adviser, leading publication and online guide to help
professional advisers to best manage the interests of their
clients.
