Inheritance Tax And Rates

Inheritance Tax And Rates

Question

We have been reviewing our French succession arrangements to ensure that they are still effective as originally intended.

We are a married couple, both British and resident in the UK. We have two adult children from our marriage. Neither of us has any other children.

We bought a second home in France in 2004 for 200,000 €. The current value remains the same.

When buying the property, we put in place a French marriage regime (communauté universelle) and made French wills (testaments olographes).

These provide for our French assets to pass to the surviving spouse in the first instance and then to our children in equal shares. We have separate English wills. The English wills exclude the French assets.

We would like to know if these arrangements still sound suitable, or would there be any advantage in us invoking the 2015 EU regulation instead? J.W.

Answer

The adoption of the universal community marriage regime is a useful French estate planning tool for married couples who want to ensure that on the first death the surviving spouse becomes sole owner of the property. The marriage regime deed actually removes the property from the application of French Succession law. This marriage regime adoption is straightforward when the child or children are common to the marriage. It becomes more complicated if either spouse has a child or children from a previous relationship.

Supplementing the adoption of this marriage regime with French Wills is a belt and braces approach but is not essential.

The effect of the marriage regime is to postpone the reserved rights of your children to inherit a share of the property on the death of their first parent so that they will only inherit the property if it is still owned on the subsequent death of the survivor of you.

In terms of French inheritance tax, there will be no inheritance tax payable on the first death as any inheritance between spouses is exempt. When your children ultimately inherit the property (assuming it has not been sold before the death of the survivor of you), they will each benefit from an inheritance tax free allowance of 100,000 Euros.

If the value of their respective half share (assessed at the date of death of the survivor of you) exceeds this figure, they will each pay inheritance tax on the value above 100,000 Euros on a sliding scale starting at 5% and rising to 20% where the value of their share of the property does not exceed 552,324 Euros. The tax free allowance and the rates of tax indicated are those currently in force but they could of course change in the future.

As regards the EU Succession Regulation, as has previously been mentioned in this column, the Regulation is unfortunately not a panacea and needs to be approached carefully and with professional advice. In your case, you should definitely maintain the current arrangements which you have prudently put in place.

This article first appeared in The Connexion – Legal Notes – May 2017.