Protecting our family and those we love and care about is crucial to financial planning, so succession planning is vital… especially when moving to or living in France.
However, those moving from the UK to France will need to take this subject particularly seriously, given the complexity of the French succession system.
We work long and hard to create our wealth and are vigilant in protecting it into retirement.
However, it is crucial that you apply equal commitment and scrutiny to inheritance planning. Unfortunately, many UK expats residing in France are not necessarily up to date on their succession planning in the context of French law. They might not be aware of what will happen to their assets when they die and the tax implications.
In this article, we have outlined the essential things to know about succession planning in France and the steps that a UK expat residing in France may wish to take to ensure their estate passes in line with their wishes while minimising tax.
What are the key differences between succession planning in France and the UK?
There are several especially distinctive things for ex-pats to be aware of when it comes to inheritance in France, which are different to the situation elsewhere in the world:
The French civil law system and forced heirship
As its (unofficial) name suggests, the Napoleonic code in France dates to Napoleon Bonaparte’s time.
Still in force in France, the Napoleonic code was created to protect the bloodline. The practical effect of the code is that children are protected heirs. As such, they must inherit between 50% and 75% of an estate, depending on the number of children. The remaining “freely disposable” part of the given estate can be left to a spouse / PACS (civil) partner or whomever you wish.
This arrangement of how French law mandates the distribution of assets among heirs, with children being given rights to an estate over spouses, is known as “forced heirship”.
The relationship between the French and UK succession planning laws
To illustrate some of the complexity inherent in succession planning for UK expatriates living in France, I will use the example of a couple who wishes their estate to be left to the survivor when they die. Under such an arrangement, they may want the assets only to be passed to their children upon the survivor’s death.
However, if you write a will in the UK expressing such testamentary wishes and then move to France, eventually dying as a habitual resident of France, French inheritance law will apply to your worldwide estate.
So, in this combination of circumstances, any established UK will shall be overridden by French succession law, with its reserved heirship rights.
Who can inherit your estate under French law?
As referenced above, according to French succession law, children have rights to an estate over spouses. If you reside in France at the time of your death, between 50% and 75% of your assets must be left to your children, including those from previous relationships. It will be possible, however, for the balance to go to your spouse.
If you die without a will as a habitual resident of France, the inheritance will be transmitted according to the order of the heirs set by law. If, on the other hand, you die with a will, this would have enabled you to distribute your wealth, as well as choose your legatees. A will allows you to modify the order of the heirs set by law.
If you die as a habitual resident of France and were unmarried but have children, the entire inheritance will belong to them, or their descendants, if they have passed away. If you pass away without a child or brother and sister, your parents shall each receive half of the inheritance.
Marriage has a complicated impact on the practicalities of inheritance in France. As I have written about in the past, there are three main marriage regimes in France – Séparation des Biens, Communauté Réduite aux Acquêts, and Communauté Universelle.
In France, most couples who married in the UK and subsequently moved to France are regarded as married under the Séparation des Biens (“separation of assets”) marriage contract.
When married couples in France familiarise themselves with the potential implications of their marriage contract for succession planning, they will be better placed to plan in the most tax-efficient way while giving all their loved ones the best protection possible.
How can you mitigate the impact of forced heirship in France?
There are a few different routes that you may consider taking to circumvent the forced heirship rules and leave your assets according to your wishes. However, the exact solutions you can use will depend on your situation.
Use of a French will
Drafting a will that aligns with French law will help protect your interests. Compliance with French forced heirship rules is vital to ensure a mess is not left behind for the survivor.
As a UK national living in France, you might consider the merits of having two wills – one UK home(s) and another for everything else, which will fall under French law. These two wills must not conflict in any way.
Donations and gifting strategies
You might consider using gifts during your lifetime to manage inheritance. Sure enough, you will have the option of gifting set amounts cash-free during your lifetime; once these limits are exceeded, however, gifts will be taxable, with the exemptions only renewing every 15 years.
Giving away assets during one’s lifetime can bring risks, such as the given individual not leaving themselves with enough resources to live comfortably in the long term.
It is also crucial for individuals residing in France to be aware of the regulations regarding gift declaration. Indeed, gifts in France must always be declared to the tax authorities, even in cases where no “Droits de Donation” (French Gift Tax) is payable.
Life insurance policies (assurance vie)
Holding one’s investment assets in an “assurance vie” might be one of the best succession strategies. This strategy allows beneficiaries to be paid directly outside the estate and may benefit even those who are not related at all.
We have previously covered in detail exactly what an assurance vie is. It is a well-known French savings vehicle outside the estate and, therefore, succession law.
Family pacts (pacte successoral)
It may be possible in some circumstances to use a family pact – a pre-inheritance contract, also sometimes referred to as a pacte successoral or pacte de famille – to agree on inheritance terms within a family.
However, family pacts also often result in a heightened liability to inheritance tax for inheritors. For this reason, the taxation implications of such an agreement will need to be carefully weighed.
Adopting an international approach
Since 2015, foreign nationals have been able to use the European Union (EU) succession regulation known as “Brussels IV” to elect the law of their own country to apply to their assets when they die rather than the law of their country of residence.
It is vital to understand that this applies only to succession law and has no impact on inheritance tax.
In theory, using your will to make this election could enable you, as a UK expatriate, to stipulate that your wealth is distributed according to your wishes instead of the Napoleonic code.
However, as with so much else about French succession law, any potential use of “Brussels IV” is complicated. Not least among these is a controversial French law that took effect in 2021 and effectively allows France’s forced heirship rules to override “Brussels IV.”
By seeking professional advice before taking any action, you can help ensure you make the most appropriate decisions for your needs and those of your family.
What are the tax implications of succession planning in France?
UK nationals residing in France are likely to need to be mindful of the below factors when they are considering what their inheritance planning decisions will mean for tax liability:
French Inheritance Tax (Droits de Succession)
Concerning French inheritance tax, each child benefits from a tax-free allowance of €100,000. The next €8,072 after that is subject to a 5% tax rate, and the rates progressively climb to 45% in cases where the excess amount is higher than €1,805,677.
The situation is different for stepchildren, who are generally required to pay 60% tax while receiving virtually zero allowance. Of course, this also applies to unmarried couples who must plan carefully before moving to France.
Wealth Tax (Impôt sur la Fortune Immobilière, or IFI)
With effect from the start of January 2018, the former solidarity wealth tax in France – Impôt de solidarité sur la fortune, or ISF – was replaced with Impôts sur le fortune immobilière, or IFI.
The new tax is levied on an individual’s real-estate assets, with €1.3 million being the critical figure above which it is triggered. We have previously outlined the reasons why most people will have no reason to fear this newer wealth tax.
International considerations
The double taxation treaty between the UK and France may also affect your estate. We have previously explored some of the most relevant provisions in this agreement from the perspective of UK nationals living in France.
What steps should expats take to ensure their wishes are honoured in France?
Here are some of the most fundamentally important actions that a British expat may decide to take concerning inheritance planning when residing in France:
- Creating and registering a will: As I mentioned earlier, for a will to be effective, it is crucial to set up a will that is sure to be recognised in France.
- Consulting legal and financial experts: the sheer complexity of French inheritance laws underscores the necessity of receiving professional advice if the given expat is to navigate them effectively.
- Reviewing and updating their estate plan regularly: Expats should ensure their current plan reflects any changes in their family situation or French law.
- Coordinating between their French and UK estates: The careful and skilful management of estates that span multiple jurisdictions will further help ensure minimal tax liability and the passage of the expats’ assets to their heirs according to their wishes.
How can you ensure a smooth succession process for your heirs?
The below steps are likely to be integral to your efforts as a UK expat to keep the succession process as trouble-free as possible for your heirs:
- Communicating your wishes clearly: discussing your plans in good time with your heirs will significantly help to avoid disputes once you are gone.
- Documenting everything properly: the correct drafting and filing of legal documents will also help avoid legal headaches at a later stage.
- Avoiding procrastination: beginning your planning as early as possible, with minimal hesitation, will put you in a better position to avoid last-minute complications.
- Dealing with unforeseen circumstances: as you plan succession arrangements, you will need to be as prepared as possible for any unexpected changes in your estate or family situation that could come to pass.
Conclusion: proactive, careful, and vigilant planning is essential
Hopefully, the above will have helped clarify the importance of thorough and careful succession planning for UK expatriates residing in France.
By preparing now, expats can effectively navigate the notoriously complicated French inheritance rules and ensure the people they wish to receive their assets do so when they want to.
Contact Kentingtons today for comprehensive and tailored advice and guidance on your financial affairs in France.