Short answer needed, inheritance tax !!

[miaviv]

I have lived in France for 14 years, married to Frenchman, still

British citizen but presume I am "domiciled" here. Have worked here pay

tax here etc...

My parents still live in the UK and wish to gift their house to me but

will not pay rent so still counted in their assets upon their death.

When I inherit this house, do I pay inheritance tax (presuming I am

over the threshold) in the UK or in France ?  Anything else I

should know ? Thanks

[Quillan]

To be honest we don't have 'experts' in our forum although some can give very good basic advice. For the best advice I strongly recommend that you visit a specialist in this subject such as a notaire or (French) accountant. Although this may cost you some money it is better to spend a little now to discover your exact position in the future. This is after all quite a serious issue and you need to get it right else it could cost you a lot of money in the future.

[Alan Zoff]

An outright gift of the house to you will not attract IHT until the death of the donor. It's their domicile that will count, rather than yours as the recipient.

On your death, your "domicile" - and therefore the IHT position under UK law - is not as clear-cut as you might think. The "residence" provisions for income tax and capital gains tax do not apply in the same way to domicile and IHT. For IHT, domicile is as much about long term intention as current fact.

In simple terms, you retain your original domicile until you have done enough to convince HM Revenue & Customs that you have adopted a new permanent domicile. So if there is any suggestion at your death that you might only have been temporarily resident abroad - even if you have been there for 20 years or more! - and might at some date have resumed occupation of UK, you are likely to be treated as UK domiciled for IHT purposes when you die (and therefore subject to UK IHT on your worldwide assets, normally with some set-off for local equivalent tax). You really need to break all ties with the UK if you want to establish a new "domicile of choice". Ownership of land in UK, retaining membership of UK clubs, etc, are "negative" factors - as is prepaying for a burial plot in the UK! Each case is considered by the Revenue on its merits.

[lacote0_0]

There is, however, another question; whether the gift of the house would attract droits de donation now because you are a French fiscal resident.

 

[Alan Zoff]

I hope it was implied but I should perhaps have made clearer that my comments applied only to the UK tax implications. I am unable to help with the French side of things.

[miaviv]

Thanks for comments.

I would imagine that I would count as domiciled in France as have lived

here for 14 years, do not own anything in Uk and not member of any

clubs etc (no burial plot prepaid either !!!).  My husband is

French, kids were born here and have dual nationality etc.  I have

worked here and pay taxes etc since 1994.  Does this mean I will

pay IHT based on UK rules or in France ?  What are the French

rules anyway, I understand they are in the process of changing ?

Thanks again for any answers

[Alan Zoff]

Based on the information you have given, I think it is a fairly safe bet that if you died still residing in France you would be treated as domiciled outside the UK for IHT purposes. Your estate would then only be subject to UK IHT on (non-exempt) assets in the UK (and you don't appear to have any).

I will leave someone else to comment on the French position - and on whether or not it is an advantage to be treated as being French-domiciled....

 

[Pierre ZFP]

There is a related thread here:

http://www.completefrance.com/cs/forums/901009/ShowPost.aspx

It sort of indicates that its better to die in the UK than France, but of course you'd still be dead so.............

[SC]

Miaviv:

In France it is the beneficiary who is taxed, rather than the estate of the deceased.

The rules are here: http://impots.gouv.fr/portal/dgi/public/particuliers.impot

Allowances depend on the beneficiary's relationship to the deceased, you can find this information here:

 http://www.bnpparibas.net/banque/portail/particulier/Fiche?type=fiche&identifiant=Calculer_ses_droits_de_succession_20021010135112 

Bill Blevins wrote in a recent copy of French News that a French resident such as yourself would not be taxed on an inheritance from the UK. This apparently contradicted the French government rules (link above) and I contacted him about it. His reply was as follows:

"The page quoted from the  www.impots.gouv.fr website makes no mention of the impact of double tax agreements (DTAs - conventions internationales ). DTAs override domestic legislation. There is some conflict between the UK and French inheritance tax systems, because the UK taxes the estate of the deceased whereas France taxes the beneficiary. However, Clause 5(2) of the inheritance taxes convention of 1963 between the UK and France makes it very clear that:

"Where a person was at the time of his death domiciled in some part of Great Britain duty shall not be imposed in France on any property not situated in France, and in determining the amount or rate of duty payable on a property which is chargeable in France, any property not situated in France shall be disregarded".

The agreement also extends to Northern Ireland. 'Property' means assets. 'Domicile' has different meanings in the UK and France and where there is any doubt about the deceased's domicile for the purposes of the DTA, it is defined along normal tax residence lines. So, in practical terms where a deceased individual died tax resident in the UK, there can be no French inheritance tax (succession tax) except on French-situated assets (which would normally just be French real estate and shares in French-incorporated companies that the deceased had owned)."

Much of this is on previous posts but it may be helpful to you grouped together. As Quillan says, I should speak to a notaire, and also make note of lacote0_0 's important comment regarding donation taxes. A wrong decision could cost you a great deal of money.

I am sure we'd all be interested in what you learn.

Steve

[lacote0_0]

I assume that your parents are both UK domiciled.

What is

contemplated is a gift to you, but with them benefitting from a right

to live in the house until they die. Their occupation of the house makes the transfer a "gift with reservation". As such, it would be subject to Inheritance Tax in UK as part of their estate when they die (if the estate exceeds £300,000):

http://www.hmrc.gov.uk/manuals/ihtmanual/IHTM04071.htm

You really need professional advice in UK, as do your parents.

You yourself also need advice in France.

[Alan Zoff]

The question arises: As the property will remain subject to IHT in view of your parents' continued occupation, what is the point of the immediate gift as opposed to a gift by will? Your parents may be putting themselves in a vulnerable position without anyone really gaining.

If it's to avoid the house being counted as part of their capital should they have to go into care, bear in mind that there is a provision known as "deliberate deprivation of capital" which the local authority will throw at you if Social Services are asked to meet the care home fees. That is based on intent. In effect (much like the Inland Revenue's stance for IHT purposes), Social Services might treat your parents as still owning the house even though they don't.

And going back to the domicile point, although you stated earlier that you have no assets in the UK, you will of course own a valuable one there - your parents' house - if the gift proceeds. Apart from IHT considerations, will that ownership have any French wealth tax implications?

No need to answer any of the above as no business of anyone else. Just throwing a few extra points into the pot for you to think about.   

[ebaynut]

Hi Miaviv,

Why not do it this way?

On the death of the first parent they leave you their half of the house, you can receive up to 300k before any IHT is payable. If the second parent needs to go into care then they can only take fees from their half of the house.

On the death of the second parent, you receive the other half of the house, and again you can receive up to 300k before tax.

Dont pay anything to the C of the E if you can avoid it. This way you can receive up to 600k from their house tax free!!!!!

 

Of course on the down side our MP's may have to settle for a slighly cheaper cigar and bottle of bubbly at lunch time.