If you are thinking of moving to France, or already live there, planning your estate will give you peace of mind, says Rob Kay
Whether you are planning to live in France, already do, or are buying or already own French property, there is one thing you must consider: your estate planning. Whatever assets you have, your peace of mind will only be assured once you have organised how and to whom you will leave them after your death, and preferably without leaving them a large tax bill. And you need to consider a tax-efficient income for your own, hopefully long, retirement as well.
Cross-border tax and law is complex and you need to take professional advice from someone who understands both the French and British regimes. In France it is made further challenging by its ‘forced heirship’ law and succession tax rates of up to 60%. Many people are not aware of how the French regime will affect both them and their beneficiaries.
As with UK inheritance tax, French succession tax is a tax on inheritances and gifts, but there are differences. French succession tax is calculated on, and paid by, each individual who receives the assets (unlike the UK, where the estate pays the tax, unless specifically provided for in the will).
French succession tax always applies to French real estate, regardless of whether you or the recipient is resident there. It is payable on your worldwide assets if you are resident in France at the date of your death.
WHAT YOUR HEIRS PAY
Tax rates and allowances vary according to their relationship to the deceased in terms of bloodline and marriage. The more distant the relative, the higher the tax rate.
Inheritances (but not gifts) between spouses and PACS (civil) partners on death are tax-free. Tax rates for children (including adopted but not stepchildren) and other relatives in the direct line start at 5% and rise in stages to 45%. Under the current rules, your children will each receive a tax-free allowance of €100,000.
Siblings get a €15,932 tax-free allowance and pay tax at 35%-45%. (If an unmarried sibling has been living with you for the past five years and is either over 50 or unable to work because of a disability, they benefit from the same rules as spouses.) If you choose to leave assets to nephews and nieces, their allowance is €7,967 and their tax rate is 55%.
There are also tax rates and exemptions for nephews and nieces, and grandchildren. Certain rules govern bequests to grandchildren and the potential tax exemptions and they can be quite complicated. Always seek professional advice if you plan to leave them something.
More distant relatives and non-relatives will lose 60% of their inheritance to tax, and their tax-free exemption is just €1,594. If a couple is not married and have not entered into a PACS arrangement, they have to pay tax at 60% as they are classed as non-relatives.
Stepchildren are also taxed as non-relatives. So if you and your spouse have children from previous marriages, if you plan to leave assets to each other on the first death, then shared between the children on the second death, the amount natural and stepchildren receive will be very different, even if you leave them the same amount. The natural children of whomever is second to die will receive a tax-free allowance of €100,000 and pay tax at progressive rates from 5% to 45%, while the stepchildren will only receive an allowance of €1,594 and will pay tax at 60%, regardless of the amount. Under France’s forced heirship law, a minimum proportion of your assets must pass to your children. When you die, your spouse may expect to inherit your estate, but under French law one child would receive 50% of it, two children 66%, and three 75%, regardless of what you state in your will. But there is another way to address it.
The new European Succession Regulation, commonly known as ‘Brussels IV’, was devised to end confusion over cross-border inheritances. The default position is that the law of the state in which the deceased had his habitual residence at death governs how his assets are distributed within the Brussels IV zone. So if you are living in France, French succession law will apply to your worldwide assets.
However, Brussels IV allows you to opt for the law of your country of nationality to govern your assets after your death across the zone