Legal column
Charlotte Macdonald discusses the diff erences between the UK and French inheritance tax regimes
T
he way that inheritance tax – a tax levied following the death of a person – is
calculated diff ers from country to country, which means that, depending upon which country has the right to tax your assets on your death, the amount of inheritance tax payable can vary considerably. Whether the French or UK
system is ‘better’ is very much dependent upon your outlook and personal circumstances.
CALCULATING INHERITANCE TAX UK In the UK it is a person’s estate which is taxed on their death. The ‘estate’ is the value of that person’s assets, minus any outstanding debts, at the date of their death. Each person has a tax-free
allowance that they can leave to whomever they like when they die. Broadly speaking, this is £325,000 per person. There is also an additional tax-free allowance available in some circumstances when a person leaves their home to their descendants. This is worth up to £175,000, hence a person could leave up to £500,000 tax-free on their death. If a spouse or civil partner
leaves their assets to their spouse/civil partner, the surviving partner will pay no inheritance tax. On the subsequent death of that partner, their estate will usually be entitled to two tax-free allowances (e.g. using both spouses’ allowances). This means on the death of the second spouse/civil partner, their estate could leave up to £1m inheritance tax-free. Where a person dies with an estate valued in excess of
their tax-free allowances, the tax rate applied to excess will usually be a fl at rate of 40%. For example, Peter has
recently died. His wife Susan died fi ve years ago and left all her assets to Peter. Peter had a home worth £1m and savings of £1m. He decides to leave his assets to his three children and one stepchild equally. Peter’s estate has the full £1m tax-free allowance available to it. This means £1m will pass free of tax and the remaining £1m will be taxed at 40% – therefore, there will be £400,000 of inheritance tax for Peter’s estate to pay. The balance of the estate can be distributed to the children/ stepchild equally. Where a person is domiciled
in the UK, HMRC will seek to assess their worldwide estate for inheritance tax. This means that if a person dies while domiciled in the UK, and owning a home in France, HMRC will assess this French home for UK inheritance tax. Under English and Welsh
law, your domicile is not your nationality or even necessarily where you live. The concept is complex but, very broadly speaking, if your parents considered England to be their home at the time of your birth, you will have a domicile of England. You can also acquire a domicile of England if you move to England with the intention to permanently remain in England, or if you have lived in England for at least 15 of the last 20 years.
FRANCE In France, it is the individual benefi ciary, rather than the estate, who pays inheritance tax. Each benefi ciary has their own tax-free allowance and own tax rates which
82 FRENCH PROPERTY NEWS: January/February 2024
“Whether the French or British inheritance tax system is going to be better will depend on your personal circumstances”
are determined by their relationship to the deceased. As in the UK, a spouse/civil
partner pays no inheritance tax. A child has an allowance of €100,000 and pays tax on a sliding scale between 5%-45%. A stepchild is treated as a
‘non-related person’ so has an extremely low tax-free
allowance of €1,594 and pays tax at the fl at rate of 60%. For example, Peter has died
owning a property and bank account in France. Together they are valued at €2m. He wrote a will in which he left his assets equally between his three children and one stepchild (e.g. €500,000 each).
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