The complexities of French inheritance laws

French legal expert, Matthew Cameron, explains the importance of understanding the complexities of inheritance law when it comes to planning the succession of your French estate.

I recently attended a conference on international inheritance matters organised by STEP (the Society of Trust and Estate Practitioners).  Inevitably one of the recurring themes of the conference related to the EU Succession Regulation (known as ‘Brussels IV’).  One of the presenters referred to how Brussels IV is not the answer to all of the complication arising out of a multi-jurisdictional succession; one of his slides included the rather blunt – but hopefully relevant here – statement that complications existed particularly as between the UK and France.

Regular readers will no doubt have seen many references in previous articles to Brussels IV, which came into force in 2015.  It is sometimes implied that the Regulation will rectify all cross-border inheritance problems, and we certainly do have many enquiries in which potential clients will contact us to say that they need us to draft an English Will to cover their assets in France.  Yet while it will indeed cover many potential problems, it is certainly not a panacea: as highlighted only too clearly by the presenter and his PowerPoint slide.

Before we look at the limitations and benefits of Brussels IV, it is perhaps sensible to consider some issues that have perennially caused concerns for Brits buying property in France.  The most obvious of these is the requirement under French law that a person would have to leave at least a proportion of their estate to their children.  This may often be perfectly acceptable; indeed it is commonplace in many other jurisdictions.

As an aside, another speaker at the conference pointed out that it may well be seen in other jurisdictions as somewhat bizarre that a British person may want to retain the right in their will to impoverish their family – or ‘freedom of testamentary disposition’ as we tend to refer to it, rather euphemistically.  He was referring, of course, to the right in English law for someone to leave their estate to anyone they may choose, with only a limited right for disinherited people to challenge the Will.

The overarching impact of Brussels IV is that it applies the law of a person’s place of habitual residence at the time of their death to the whole of their estate, wherever it may be situated in Europe.  Alternatively, they are able to opt for the law of their nationality to their assets in other jurisdictions.

The impact of this, for a Brit with assets in France, is that they may be able to apply English law to the devolution of their French house.  They can, by extension, avoid those rules of French succession we saw above, such that a set minimum amount does not have to go to the children.  The estate can, by a Will, be left therefore to the surviving spouse, or possibly anyone else they may choose (as mentioned there is a limited right for certain people to seek a Court order that more should have been left to them, but this is certainly less powerful than the fixed rights of inheritance that exist in French law).

Being able to avoid fixed inheritance law rules is, however, a common starting point of many new enquiries.  Yet it is not always the right thing to do.  It does not address any taxation issues.  So while there may be an understandable interest in leaving the house in France to the surviving spouse, this should be considered with the interests of the children: if the surviving spouse is not the other parent of those children, then it is likely that inheritance tax would be imposed at 60%, with only a negligible tax-free allowance.  And if the parent and their partner are not themselves married or in a registered civil partnership, then any legacies left by one to the other would also attract 60% tax.  120% tax is a high price to pay for preferring to leave the French house to ones surviving partner before they then leave it to their step-children.

We still need to consider the tax situation when advising on inheritance matters.  Depending on where the clients live or where they are domiciled (this is not necessarily the same thing, although readers will be delighted to appreciate that space in this article prevents a full analysis of the different definitions of ‘domicile’ in the UK and France), we may need to advise on both French and UK inheritance tax.  In many circumstances, inheritance tax may apply in both jurisdictions, because while a house will be subjected to inheritance tax in the country where it is situated, the total worldwide estate will also be taxed in the country of that person’s domicile.

There is a double tax treaty that prevents the same tax being applied twice, in most cases.  The double tax treaty works broadly by allowing as a credit to the inheritance tax bill in the state where a person has domiciled any tax that was paid in the other jurisdiction.  For example, if the estate of a deceased person who was domiciled in the UK and owned a property in France would have been subjected to inheritance tax in both jurisdictions, the French house would first be taxed in France; then the whole value of the estate would be taxed in the UK, although a reduction would be claimed in respect of the tax that had already been paid in France.

This example may appear quite complex, and largely hypothetical.  To some extent that is true; yet it is a typical situation that we see on a regular basis.  There are of course many variables: whether the estate would be taxable in the UK, in France, or in both depends on many factors, including the value of the assets, the deceased’s domicile, and who will inherit.  Thus inheritance tax advice cannot properly be given on a generic basis: as everyone’s circumstances change, so the impact on them of the inheritance tax regimes will change also.

And perhaps a fundamentally important point about Brussels IV is that it is not always the best option.  To counterbalance the previous example, we can just as easily anticipate a couple who sold their house in the UK to move to France, and intend for their house to pass to their children in the long run, while ensuring that the surviving spouse would have a right to live in the property for the rest of their life.  In such circumstances, a French life-interest structure may be perfectly suitable.

The only conclusion to draw from all of this is that that there really is no: “one size fits all” answer to French estate planning.  Whether you are looking to buy a house in France in the future, or already own one, it is most important to give thorough consideration to the most suitable structuring; that consideration must take into account the rules of both French and UK inheritance law, as well as French and UK inheritance tax.

To add further complication, another common request that new clients first address to us is the need to write an English Will, in order to apply English law.  Aside from the points above about whether English or French law may be most suitable, simply writing an English Will does not automatically invoke English law.  It is perfectly possible to invoke English law in a French Will.  The form of the Will may be a pointer to the choice of law, but the choice of law can be made in other ways, if it is to be made.

Complex, isn’t it?

This article was featured in the March 2020 edition of Living France.