How Is UK Inheritance Taxed In France?
If you’re a British Expat in France, you may be concerned about the tax implications of either receiving or passing on an inheritance.
Will you be subjected to British Inheritance tax, or the French Succession tax?
Will you need to pay in both countries?
What about gifts and other received assets?
This article will cover all of the above, and explain how assets are treated from a taxation perspective between the UK and France.
UK or French Domicile?
Where you will be taxed will depend on where you are domiciled. This can be complicated as many British expats who are resident in France may still remain UK domiciled, which could result in tax bills from both countries.
Thankfully, France and the UK have a tax treaty to avoid double taxation on inheritances. The 1962 Estate Double Taxation Treaty deems UK nationals who are long-term residents of France (having spent 6 of the past 10 years in France) as French domiciled for inheritance tax.
When it comes to an estate which you will be leaving behind, UK expats living in France can now choose whether French succession or UK inheritance law will apply upon your death. This can lead to complications if your heirs are domiciled In France, so consult a professional to ensure your wealth is protected from unnecessary taxation.
UK Inheritance Tax
The main difference in the British and French laws when it comes to inheritance tax, is that the UK calculates and charges taxes based on the value of an estate as a whole, and these taxes are then paid by the estate. Conversely in France, the responsibility of their ‘succession tax’ falls entirely on the beneficiary of any asset received.
In the UK, Spouses are usually exempt from tax. After that, all other beneficiaries (even children of the deceased), are taxed at 40% with a £325,000 tax free allowance.
The “residential nil rate band” is a second allowance of £175,000 which can only be applied to a residence the deceased has lived in, and only when passed down to their direct descendants.
These reliefs do not apply to estates worth over £2 million, or to any gifts which were received in the 7 years before death.
The Estate will be taxed at 40% on anything above these allowances, meaning that in the UK, all tax will have been paid before any assets reach the beneficiaries.
French Succession Tax
In France, any beneficiary of an estate is responsible for paying succession tax. Spouses and civil partners are also relieved from this tax but will be taxed on gifts. From here tax rates depend on the relationship to the deceased- with children and close relatives paying lower rates.
Direct descendants receive a €100,000 allowance and are then taxed from 5%- 45% depending on the value of the asset received. All non – relatives (including stepchildren and unmarried partners) will pay a 60% tax rate with only a €1,594 tax free allowance.
As illustrated, succession tax law in France can vary greatly depending on each individual situation, and seeking advice from a specialist is essential.
French Residents Receiving UK Inheritance
Under the 1962 Estate Double Taxation Treaty between the UK and France, you will not be taxed twice if you are a French resident receiving a UK inheritance and the deceased was domiciled in the UK, as the Estate will already have been taxed in the UK.
If you are given any French assets, these may still be taxed.
French Residents Receiving Gifts From the UK
Unfortunately, the Estate Double Taxation Treaty only applies to inheritance. If you have been resident of France for 6 of the past 10 years, you will still need to pay tax on any gifts received from the UK.
French Residents Leaving UK Assets to Beneficiaries
In this case, whilst tax will be due in both countries, France will give a credit for any UK tax paid. The beneficiary of the assets will pay whichever tax is the higher amount.
French Inheritance Tax Advice
As illustrated, French succession law can be very complex and difficult to navigate. Whilst there are strategies available to ensure you are protecting yourself and your loved ones from unnecessary tax bills, it’s so easy to get it wrong when it comes to these policies. Seeking professional advice when it comes to inheritance is crucial.
Whether you are receiving an inheritance in France and want to explore the most tax-efficient options, or you want advice on how best to manage your estate so you can leave your heirs with the best inheritance possible, our expert team can help.
To get started, book a free discovery call using the diary below to explore your options.
