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Inheritance implications?


Geranium
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My father has taken great care to see that inheritance tax is minimised in UK by giving my brother and myself Power of Attorney, and organising their will so that whichever parent dies first, the other retains half of the property and I then own the other half of the estate.  On the death of the second parent, my brother would then inherit the second part.  This sounds rather like the inheritance tax law in France.

However, they are considering moving to France, renting a house here and renting out their house in the UK.  Does anyone know what the position would be with their house in UK then? Would they be able to retain the same arrangements? Or would their UK property come under French law?  They are both 72 and would spend the rest of their lives here in France.

Thank you!

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You are getting into a rather controversial area here. The rule applied by many countries (including France when it suits the French) is that in the case of immovable property (e.g. land or buildings), inheritance is governed by the succession law of the country in which the property is situated. However, the French also stipulate that if you become tax domiciled in France, your worldwide property is subject to French inheritance laws and taxes. 'Domicile' is the awkward word here. To the French, it is almost interchangeable with 'residence', but in Britain it is quite a different concept - you can be fiscally resident in France, but remain domiciled in Britain, all the time that you have property, family ties or similar in Britain. See HMRC booklet IR20 (this seems to be the subject of the day) for more official definitions.

So if your parents can retain their UK domicile, and with an owned property in the UK and a rented one in France they can probably do this, there is a good case for the British house remaining under the UK inheritance regime.

You would need to take expert advice on this, as there are many factors to be taken into consideration.

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Well I am going thorugh the process I think to become domicilled here;  I am waiting for further information from my accountant. I am working - self-employed and will probably become a Sole Trader and pay tax here on that business although I have a business in UK which will remain taxed in UK. 

Mmm sounds a bit complicated.  if no-one knows the definitive answer here, is there somewhere I should go for this advice?

Thank you

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You definitely need to take advice from somebody qualified, but I think that if you retain an active business in the UK you would have a strong case for, although being French tax resident, retaining UK domicile status. This could be advantageous in inheritance matters (you would of course be subject to UK inheritance taxes but, depending on the value of the estate, these are generally less onerous than the French). This may not be possible, and I am sure the French would try to get their pound of flesh from your France-based inheritance - it's up to you and your advisers to structure things in such a way that you get to keep as much as you legally can.

Going back to your original question, your parents, when they take up residence in France, should take the appropriate steps with a notaire to ensure that their marriage regime, as registered in France, offers the best options for their needs.

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I would rather like to know what happens if a french resident inherits from someone living in the UK. Especially if there was no UK tax involved. As things are quite different in France, ie maybe a step mother who is ofcourse no relation and one would cop for 60% inheritance tax in France after a minimal allowance is given.

I suppose I too will have to get qualified help with this.

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I think the rules of tax domicile (as opposed to residence or nationality) would apply, so if the inheritor was French domiciled the legacy would be treated as if it arose in France. You would definitely need to ask somebody qualified.

As the rules of domicile, unlike residence, are supposedly fixed in international law, the UK's definition (http://www.hmrc.gov.uk/pdfs/ir20.htm - section 4) should offer a good starting point..

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You're opening up another can and the worms are crawling out already RH.

If its is a small business, employing only BB and spouse, say, then it would be very difficult indeed for it to remain taxed in UK, as you say, particularly if the actual work it carries out is undertaken in France. It would be differeent if it remained in place as the principal for BB's French subsidiary, and paid corporation tax etc in UK. However, if it is a UK business with UK staff (even one part-time employee) then it should definitely be able to remain as a UK entity. But then we get into the tricky business of drawing dividends and being a director, living overseas, but employed in the business, which is where you really do need some of Gluestick's creative accounting.

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Will is absolutely correct in that residence and related issues are a minefield and have been for many years.  Centres of economic interests come into play.  Also such matters as remaining family grandchildren investments a whole host of things.   The UK law takes a differing approach to the question and there are literally text books on the subject and they are full of stated cases from the Court of Appeal and the House of Lords.  As in all things in depends...........upon the circumstances of the case.  There is no hard and fast approach.  You need to take appropriate advice and even then the law is continually evolving so you are never absolutely certain if you are protected.  There could be a stated case next week which then becomes binding and thus 'law' so as I say it depends.

We have a UK will drawn up by a colleague and which mirror images each other and hopefully with careful planning our investments in the UK will be outside the clutches of France and we have set up a discretionary trust with the Trustees knowing our wishes.  But you never know.

 

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[quote user="Teamedup"]

I would rather like to know what happens if a french resident inherits from someone living in the UK. Especially if there was no UK tax involved. As things are quite different in France, ie maybe a step mother who is ofcourse no relation and one would cop for 60% inheritance tax in France after a minimal allowance is given.

I suppose I too will have to get qualified help with this.

[/quote]This happened to me last year.  I was not liable for tax in France, although I am a French tax resident, but would have been if I'd been a tax resident in France for more than 5 years.  My accountant sent me the relevant documents about this but I do not have a web link, sorry.
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I can see that full expert advice is needed. Who do you recommend? There are various companies advetising in Living France and French Property News but I'd like to have some recommendations if possible. I need to find out quickly as I am seeing my father next week.

 

 

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