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Moreover, two years ago, a French version of a Trust, called a “Fiducie” was created, after twenty years of research by the authorities. However, from a tax point of view, the treatment of a “Fiducie” is based on three main principles:


ŸThe person, who put in the capital remains the “owner”. ŸThat person is liable for all taxes generated by the “Fiducie” investments. ŸThe “Fiducie” can in no way be used to pass ownership to another generation.


This suggests that the thinking of the tax authorities was moving towards the second idea of making trusts “transparent” for tax purposes.


So what has changed ?


It would appear that the basic idea of the new adopted rules is to ensure that :


ŸEither a French resident Settlor, or a French resident beneficiary of a foreign trust declares the assets as “theirs”. ŸOr the French resident Settlor/beneficiary will be taxed anyway!


In the second case, the value of the Trust assets would be automatically taxed at 0.5% per year, which is now the recently adopted highest rate of “Wealth Tax” for the future and the French resident Settlor/beneficiary would be liable for the bill.


Worse, if it could be shown that the Settlor was a French resident at the time of setting up the Trust, on his/her death the beneficiaries would be liable to inheritance tax at a set rate of 60% on the value of the Trust assets.


Obviously, these adopted changes continue to show that the French authorities have not understood the concept of a Trust, since Trusts come in all shapes and sizes and have completely different conditions and objectives.


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We would hope that, in practice, the authorities will not apply this to the French resident beneficiary of a Trust set up through the will of a member of that person’s family in the UK, which gives the French resident an income, but with no power to dispose of any of the Trust assets.


Likewise, one would hope that they would not apply those rules to a Trust set up before you become resident, if the French resident Settlor is excluded as a beneficiary.


Finally, we would hope that these new rules are not to be applied to a British Trust (as opposed to one in Jersey for instance), since the new Double Tax Treaty includes Trusts for the first time.


Evidently the aim of the changes is to “catch” the French resident, who has simply established a Trust with a view to not declaring the income or assets for taxes in France, while retaining considerable control over those assets and benefiting from the income.


For the immediate future, it will be a case of interpreting the eventual “Decrets d’Application”, which set out how any new rules will apply in practice. However, it appears, the new rules could keep the Law Courts very busy in the future, with likely challenges to the future application of the new rules that would appear to be inevitable.


If you have any questions on the above, or should you have any other financial areas you wish to review confidentially, do not hesitate to contact us for the name of your local advisor on 05 56 34 75 51.


Siddalls France, Independent Financial Advisers,


specialising in tax, inheritance, pension and investment planning for the British community in France since 1996.


Financial solutions for your life in France Siddalls France SASU, Parc Innolin, 3 Rue du Golf, 33700 Mérignac - RCS BX 498 800 465. C.I.F. N E001669 auprès de ANACOFI-CIF association agréée par l’Autorité des Marchés Financiers (AMF) et Courtier d’Assurances, Catégorie B - ORIAS 07 027 475. Garantie Financière et Assurance de Responsabilité Civile Professionnelle conformes aux articles L 541-3 du Code Monétaire et Financier et L 512-6 et 512-7 du Code des Assurances.


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