In the case of Re R (Deceased)  EWHC 936, a claim was brought under the Inheritance (Provision for Family and Dependants) 1975 Act (“the Act”) for reasonable financial provision...
Estate Administration - French Law
When an estate includes a French immoveable asset or shares in a French property holding company (SCI), it is necessary to appoint a French Notaire to draft and submit the French probate paperwork to the relevant authorities and transfer the ownership into the beneficiaries’ names, for it to be kept or sold.
Notaires are French government appointed officials with sole authority to deal with transfers of ownership of French properties and will prepare various documents, including the following:
- The Inheritance Deed (acte de notoriété), setting out the applicable law (see below) and the identity of the beneficiaries
- A Deed of Transfer of ownership (Attestation Immobilière), transferring the share in the French property which falls into the deceased’s estate into the name of their beneficiaries
- A French Inheritance Tax (IHT) return (Déclaration de succession). Under the 1963 Double Tax Treaty between France and the UK, French immoveable assets give rise to the payment of French IHT (see below).
Fees charged by French Notaires are state regulated, and mostly based on the value of the estate.
If you are a beneficiary or Executor of a French estate, we can arrange for you to sign a French Power of Attorney in the UK. This gives authority to the Notaire to sign the paperwork on your behalf, removing the need for you to travel to France. This document will be prepared by the Notaire and signed in front of a solicitor or a Notary Public.
Before the French estate administration process begins, it’s important to review the Title Deed to confirm how the deceased owned the property. Historically, British couples purchasing in France were often advised to add a provision in their Title Deed called a tontine clause in order to bypass French forced heirship provisions. Therefore, it’s important to check whether any specific provision was added at the time of purchase, especially when several owners are involved.
A tontine clause helps to complete the estate administration process in France more quickly and reduces costs as it is similar to a joint tenancy situation in the UK, and the property will be deemed to have been owned solely by the survivor of the co-owners from the date of completion of their purchase. In such a situation, we will only have to submit the French IHT return, and a Notaire would not be required as there would be no property transfer involved.
Another historical option to bypass French forced heirship was for spouses purchasing together to partially change their matrimonial regime for their French immoveable assets only, to ensure that the surviving spouse received those assets on the first death. The regime adopted was known as “communauté universelle”. Although it is no longer possible to adopt this regime for French immoveable assets only, it is important to check whether the Title Deed contains any mention of the deceased’s matrimonial regime.
The Title Deed could also include provisions giving a pre-emption right over the deceased’s share to the other co-owners, who would then have the option to “purchase” it from the estate. It’s important to comply with such provisions and to ensure that the other co-owners are notified of the death to trigger the time period during which they can benefit from their pre-emption right.
If there are no such provisions in the Title Deed, the next and most important step is to determine which law is applicable to the French assets. This complex process involves determining whether there is an express or implied choice of law, as enabled by the European Succession Regulation which came into force in August 2015, or whether the law of the deceased’s last habitual residence will apply.
1. If the deceased left a valid Will
a. Choice of law Will
Under the Succession Regulation, it is possible for a person to choose the law of their nationality to apply to their worldwide estate, i.e. a British national to can choose the law of England and Wales (or Scotland or Northern Ireland where relevant) to apply to their worldwide assets, including therefore their French assets. France is a party to the Regulation and therefore is bound to apply it.
The choice of law can be express (specific wording inserted in the Will when drafted) or implied/demonstrated where the Will does not include a clear provision.
The Succession Regulation provides for situations where the deceased left a Will covering their French assets but did not make a choice of law, either because the Regulation did not exist at the time or it was not taken into consideration when the Will was drafted. In such cases, it is necessary to review the Will and other contemporaneous notes to determine whether a choice of law is indicated, such as references to concepts which do not exist under French law (e.g. the creation of Trusts) or references to specific laws and regulations of England & Wales. This involves complex interpretation of the terms of the Will and is something that can be contested if beneficiaries do not agree with the consequences.
b. Last habitual residence Will
Where the deceased did not make a choice of law, or if their English Will excludes French assets and there was no French Will, France will apply the law of their last habitual residence. In most cases we deal with, this is the international private law (IPL) of England & Wales. Under English IPL, England operates a renvoi towards French law for any immoveable asset located in France (e.g. a house). In other words, England still applies French law to those assets. However, it applies the law of domicile (England & Wales) to the deceased’s worldwide moveable assets (e.g. bank accounts).
When there is a renvoi to French law but there is also a valid English Will, France will not apply its intestacy rules. Instead, it will apply the English Will but only in so far as it complies with French law, including forced heirship.
Under French forced heirship rules, a part of the deceased’s estate (the “reserved part”) must go to their children, or to their spouse if they have no children. The rest of the estate, called the “available portion”, can be left by Will to whoever the deceased wishes.
Under French law, where the deceased did not have any children or spouse (which might in some cases need to be confirmed by a French genealogist), they can leave their estate to whoever they choose, even if French law applies.
2. If the deceased left no Will (intestacy)
If the deceased was habitually resident in England & Wales and did not leave any Wills then, as per above and under “last habitual residence”, England will renvoi to French law for the immoveable assets, and the moveable assets will be dealt with under English law as the law of the domicile. This means that French immoveable assets will pass under French intestacy, and French moveable assets will pass under English intestacy.
Crucially, when French intestacy rules are involved, it’s often necessary to instruct a genealogist to officially confirm the family tree. The Notaire can source a genealogist for an additional fee.
When the deceased did not have a surviving spouse, French intestacy rules are set out at Articles 734 (and following) of the French Civil Code. Four categories of beneficiaries exist and, if at least one blood relative from a category exists, then the further categories are excluded.
Category 1: the deceased’s children and their descendants
Category 2: the deceased’s parents, siblings, and descendants of the siblings
Category 3: Ascendants other than parents (i.e. grandparents and previous generations)
Category 4: Collateral blood relatives other than siblings and descendants of siblings (e.g. aunts, uncles, cousins)
Where are there several blood relatives in one category, the estate devolves to them in shares determined by the French civil code.
If the deceased left a surviving spouse, the relevant rules are Articles 756 and the French Civil code is followed:
- Surviving spouse and children: they will share the estate, but the proportions will be based on whether the children are also the children of the surviving spouse, and how many children the deceased had
- Surviving spouse, surviving parents, no children: the surviving spouse and the parents will share the estate. The proportions will depend on whether both parents survived the deceased or only one
- Surviving spouse, no children and no surviving parents: surviving spouse receives the entire estate
French Inheritance tax (IHT) considerations
The European Succession Regulation does not affect Inheritance Tax so, regardless of the above, French IHT rules and rates will apply to the French assets as follows:
- French IHT will be due on the French immoveable assets (and property contents)
- Under the 1963 Double Tax treaty, where a deceased was domiciled in the UK at the time of their death, the moveable assets (with the exception of the property contents, see above) are to be taxed in the UK, even if it is a French bank account (but there are some exceptions such as shareholding accounts)
French IHT works very differently from English IHT. It is personal to each beneficiary and calculated based on the value of their entitlement and their relationship with the deceased.
The current rates and tax-free allowances are as follows:
- A child of the deceased (descendant) benefits from a tax-free allowance of €100,000. Anything above this is taxed on a sliding scale ranging from 5% to 45% (see below)
- A parent (ascendant) of the deceased also benefits from a tax-free allowance of €100,000. Anything above this is taxed on a sliding scale rate ranging from 5% to 45% (see below)
- A sibling of the deceased benefits from a tax-free allowance of €15,932. Anything above this is taxed on a different sliding scale (see below).
- Anyone who is not a blood relative of the deceased or a family member beyond the 4th degree is considered to be a third party to the deceased, and it is important to note that this includes unmarried partners (who are not in a civil partnership). As such, they benefit only from a small tax-free allowance of €1,594, and anything above this will be taxed at 60%
Sliding scale of tax rates for ascendants and descendants:
|Tax free allowance||0%|
|The next €8,072||5%|
|€8,072 to €12,109||10%|
|€12,109 to €15,932||15%|
|€15,932 to €552,324||20%|
|€552,324 to €902,838||30%|
|€902,838 to €1,805,677||40%|
|€1,805,677 and above||45%|
Sliding scale of tax rates for siblings
|Tax free allowance||0%|
|The next €24,430||35%|
|Anything above €24,430||45%|
French IHT deadline: French IHT must be paid within a year of the death for someone who died outside France, or within six months for someone who died in France. Irrespective of domicile, a simple physical presence (e.g. whilst on holiday) will trigger the shorter deadline. Once this date has passed, late payment interest and penalties will start accumulating. The current rates are a fixed penalty of 10% of the amount of French IHT due, and a further 0.2% per month late (going up to 0.4% per month late in January 2021).
Double taxation: If IHT is paid both in France and in the UK then, under the 1963 Double Tax Treaty, it will be possible to apply for double-taxation relief (this is done through HRMC when the domicile was England) but only once tax has been paid in both countries. Once the tax has been paid in both countries, it will be necessary to ask HRMC to issue us a form which must be completed with details of the assets declared and taxed in France. It must then be returned to HRMC who will liaise with the French tax authorities to confirm the information provided and, once everything is in order, issue the relevant tax credit.
British charities: Unless a British charity benefits from a specific “agrément” (approval) from the French authorities (the application process is long, complex and costly), they are not able to benefit in France from an IHT exemption and will be taxed as a third party.
Trusts: Trusts aren’t a familiar concept in France and, unfortunately, it treats them with suspicion as they are considered to be “tax dodging” instruments. This results in punitive tax rates ranging from 45% to 60%, depending on the type of Trust relating to French assets.
This is a very frustrating situation and there are no risk-free solutions available in estate administration, although these issues can be prevented during the estate planning stage.
Keeping the assets in a Trust also creates administrative issues, as the Trust needs to be declared in France and annual returns must be lodged to avoid incurring heavy fines. Currently, French Land Registries are also experiencing difficulties with registering Title Deeds in the name of a Trust/Trustees, because their paperwork is not adapted to such situations.