Identifying a Suitable Form Of Property Ownership In France: A Generic Introduction To: French Inheritance Tax & French Succession Law As It Applies To: French Property Purchase
Prepared and Compiled by: Charles Hamer Financial Services (FRANCE), 87 Park Street, Thame, Oxfordshire, OX9 3HX | Tel: 01844 218956/7 Fax: 01844 261886 | e-mail: firstname.lastname@example.org | Website: http//
The report is based on the French Loi du 23/06/2006, French Finance Bill 2009 and Franco-UK double tax conventions of 21/06/1963, 22/05/1968 and their subsequent amendments.
The purpose of this booklet is to introduce the issues of French Succession Law and both French and UK Inheritance Tax, as they apply to the acquisition of a French property and subsequent death of one of the owners. It does not cover circumstances surrounding lifetime gifting, although much of what is described will remain valid to lifetime gifts. Equally, the report makes no pretence of covering all case scenarios and planning options.
Being, necessarily, only a brief summary of a subject, which - depending on individual circumstances - can get complex, the content of the report should not be construed as advice or a recommendation to put into effect one or more of the example solutions described.
Rather, the aim is to provide the reader with a basic understanding of the principal aspects, with a view to then following this up by seeking the appropriate professional advice necessary to formulate and implement a suitable arrangement to secure the devolution of the French property to intended beneficiaries, whilst being aware of any tax liabilities that may arise.
Finally, the report is based on legislation current at the time of issue. The validity of the information supplied is subject to future changes in legislation.
2. Introduction to French Inheritance Tax (IHT)
The French property will be assessed for French Inheritance Tax, either in full or in part, whenever it is owned directly, or by a company whose shares are subject to French IHT(1).
2.1. Current Rules and Tax Rates
The current report concentrates on tax on death, but the impact of lifetime gifting will be explained and illustrated when relevant in your client specific report.
French IHT is charged on the beneficiary, against the fiscal valuation of the benefit received. Rates vary according to the relationship between the beneficiary and the deceased, and can be best summarised in the following table:
Table 1: French Inheritance Tax Rates - From 01/01/2009
|Beneficiary Relationship to the Deceased & Tax Rates|
|Estate/Tax Band (Euros)||Children/Parents(2)||Spouse and Civil Partner (in a French "PACS")||Siblings||Nieces & Nephews (of the same bloodline)||Unrelated (Inc Common Law Spouse not in a PACS).|
|1.565 - 7.818||0%||Tax Exempt||0%||0%||60% On the|
|7.819 - 15.636||0%||On death||0%||55% on the||Value in|
|15.637 - 39.612||0%||Only||35%||Value in||Excess of|
|39.613 - 156.357||0%||Irrespective||45% on the||Excess of||1.5000€|
|156.358 - 164.280||5%||Of Existence||Value in||7.598€|
|164.281 - 168.241||10%||Or not of||Excess of|
|168.242 - 171.994||15%||Marriage||38.494€|
|171.995 - 698.394||20%||Contract|
|698.395 - 1.042.378||30%|
|1.042.379 - 1.928.399||35%|
(1). See section 3.4.6.
(2). The nil rate band for grandchildren is 31.271€ and 5.212€ for great grandchildren unless they are representing their parent (grandparent) in the succession
2.1.1. Lifetime Transfers
Lifetime gifts are assessable to IHT (droits de donation). In principle the charge rates are the same as for transfers on death, however, there are a number of important differences:
- Lifetime transfers between spouses and partners of a PACS are not tax exempt, but instead are taxable on any value in excess of €79.221 and on a scale similar to that provided for children, shown in Table 1 above.
- Lifetime transfers between other relationships all follow the allowances and tax bands illustrated in Table 1 above.
- For the purposes of calculating the tax payable, the value of lifetime gifts is cumulative over a period of 6 years. In practice, if the gift has been registered, (notified to the tax office), this means that gifts up to the nil rate band can be used every 6 years, as a means of mitigating IHT on death. On death, any tax paid on any gifts in the previous 6 years will be credited against the death rate IHT. If the gift has not been registered, the value of the gift is carried forward indefinitely(3).
The actual tax payable, when making a lifetime gift, is reduced as follows according to the age of the donor at the time of the gift:
- Age less than 70: Reduced to 50% of death rates, (to 65% of death rates when the gift is a reversion).
- Age over 70 but less than 80: Reduced to 70% of death rates, (to 90% of death rates when the gift is a reversion).
- Age over 80: No reduction.
Tax bands are automatically indexed linked to inflation on the 1st January each year.
(3). Basically, if the gift has not been declared, it cannot have been assessed to tax. This is therefore an anti-avoidance measure.
2.2. Interaction Between UK and French Taxation
If you are UK tax domiciled, the French property will also form part of your estate for UK IHT purposes.
In principle, this could therefore give rise to a double tax charge - once in France and a second time in the UK.
This is alleviated in the UK, which provides for the French tax to be treated as a credit, (offset), against the UK tax arising from or attached to the same property as a result of the same transaction.
Accordingly, any tax planning which reduces the tax bill in only one country where that country's tax bill is already the lower of the two, generally serves no purpose.
Rather, any planning should first attempt to reduce the higher tax burden in the one state, with a view to bring this down to the level of the other state, before embarking on a strategy which, if available, then reduces the tax in both states in tandem.
2.3. Planning Options to Mitigate French Tax
The interaction of French and UK IHT is particularly relevant when planning for tax payable on second death, especially if you are married or in a UK civil partnership:
More often than not there is no IHT to pay in the UK on first death, whereas, without planning, French IHT may very well be payable.
In many instances, therefore, it would be reasonable to concentrate tax planning efforts on French strategies for dealing with taxes on first death, albeit with one eye on the second death consequences in the UK.
On the other hand, on second death, it will often be the case that the UK IHT burden in respect to the French property will be higher than in France, thereby potentially rendering French tax planning against second death IHT redundant, at least until UK planning is effective.
If you are also concerned by the wish to preserve the value of the estate for second death beneficiaries, then second death tax planning covering both France and the UK, or at least the flexibility to accommodate it, needs to be included in any initial strategy for the French Property - assuming the intention of the survivor is to keep or replace the French property, or live in France.
2.3.1. French Property Options for First Death:
Many of the solutions for dealing with French entrenched succession rights, introduced in Section 3.4, are also effective tools for mitigating French tax on either first or second deaths, or both. Notably, these include:
- Purchase as a Corporation: (see 3.4.6): Potentially reducing the French tax burden on both first and second deaths, subject to you remaining non French resident and the property being purchased by means of a shareholder loan to the company, or by a UK Ltd company.
- Arrangement of a Mortgage : (see 3.4.7): Either temporarily or permanently, (in the case of a Prêêt Viager), mitigating French tax on first (and possibly second deaths), if the mortgage is not cleared or is repaid on a discretionary basis by means of a life assurance policy written in trust.
- Démembrement: (see 3.4.7): Mitigation of tax on first and potentially second death, depending on structure. The termination of the Usufruit (4) and the conversion of the nue-propriété into pleine-propriété on termination of that usufruit is often, (but not always), exempt from French IHT.
- The Buy-out Option: (4. See section 3.3.1 for explanation of technology): If the intent is to make the surviving co-owner the sole beneficiary of the French property.
2.3.2. Options Applying on First Death Which May be Beneficial on Second Death
The following will not save tax on first death, (they may in fact worsen it), but can reduce the tax burden on second death:
- Single Universal Inheritor : (see 3.4.1). If the intended beneficiaries are not related to the first deceased, (e.g. spouse's children)
- Libéralité Graduelle / Résiduelle: (see 3.4.7) Particularly when the second line of beneficiaries are related to the first deceased but not the second, (e.g. children of the first deceased but not the second).
2.3.3. Mitigation Rather Than Tax Reduction:
The following do not reduce the tax burden, but instead help to mitigate its effects:
- Joint Life, Second Death, Whole of Life Assurance: This doesn't reduce the tax burden in any shape or form, but it is a cost effective and simple means of financing the liability without eroding the value of the estate transferred to beneficiaries, particularly if premiums are paid out of "normal expenditure", (i.e. they would not otherwise have been invested to build up estate value).
- Election to defer payment of IHT: Useful for the cash strapped survivor. This is available to any inheritor receiving a nue-propriété, or to a surviving spouse (if the estate comprises the French property). The tax is payable on termination of the Usufruit, on sale of the Nue-Propriété, or death of the surviving spouse. Interest is charged on the tax and rolled up.
- Payment of Tax By Instalment: Paid in up to 6 monthly instalments over a maximum of 5 years. Again interest is charged.
3. Introduction to French Succession Law
French Succession Law will apply, in all cases, to any direct interest in French land and buildings.
It will also apply to global assets, other than directly held land and buildings located abroad, whenever the deceased is French legally domiciled at the date of death.
It will not apply however, to any interest in French property, held via a company, (e.g. an SCI), for as long as the shareholder is not French legally domiciled at death.
If you are currently UK domiciled by origin, in practice, even if you decide to move to France, you will tend be treated as retaining UK domicile - losing it only once you have demonstrated an intent to remain in France permanently or indefinitely with no current intent to return to the UK, (other than for visits), at any time in the future.
For as long as you remain a UK legal domicile, the scope for French Succession Law will be limited to any directly owned interest in French land and buildings, (fixed assets).
3.1. French Succession Law: Entrenched Succession Rights
In general terms, in very similar fashion to the UK Succession Laws, (be this English or Scottish), an individual is free to dispose of his estate as he sees fit - usually, but not always, via a Will.
There is, however, just one prime difference to the UK : the issue of Entrenched Succession Rights, or the "Réserve Héréditaire", which although limited in scope, is a common interference - it being relevant(5) in all instances where the deceased has:
- One or more surviving children or other direct line descendants, (grand-children etc.).
- A surviving spouse.
- One or more surviving parents, but only to the extent that the French property was previously gifted or part gifted to the deceased(6).
- One or more surviving brothers or sisters, when the French property was previously inherited or part inherited from a parent or other direct ascendant(7).
So, if you purchase the property, are not married and have no children, you are free to bequeath the French property as you wish - preferably by means of a French Will in order to avoid consequences of French intestacy, (see Section 3.2). The sole remaining issue in these instances is how to mitigate Inheritance Tax - firstly in France and then in the UK, (see Sections 2 and 3.4).
For those of you who are married or do have children, the next two sections, (3.2 and 3.3), are relevant, particularly if you would prefer the surviving spouse to inherit sole ownership or absolute control of the property.
(6)Limited to an overall value of ¼ of the deceased's estate per surviving parent, (i.e. in most cases ¼ of the deceased's share of the French property).
(7)When half of the inherited property is reverted to them, unless the property has been sold in the interim, in which case no rights are retained. Such rights only apply to siblings with a common parent to the deceased
3.2. French Intestacy
For the purposes of this report, French intestacy represents any death occurring in the absence of a French Will(8).
French rules of intestacy have changed recently, with new rules coming into force with effect from 1st January 2007. The order of succession depends on circumstances at date of death:
(8). The provisions of a UK Will, if provable in the French court, would be valid for avoiding French intestacy - although the costs and delays of translation and representation make the French Will option a more effective route.
3.2.a. Basic Order of Succession
In order of priority, this is as follows:
- Surviving Children, (or their representatives: namely grandchildren if predeceased by a child)
- Surviving Spouse
- Surviving Parents and Surviving Siblings, (or their representatives: nieces, nephews if predeceased by a sibling)
- Other surviving Ascendants
- Other surviving collateral, (uncles, aunts, cousins, second cousins through to cousins of the 6th degree, in order of degree)
With the sole exception of the existence of both surviving children and surviving spouse, (see 3.2.b), whenever one or more of beneficiaries of a higher class exists, they will inherit the property, in equal shares, to the exclusion of all others falling in a lower class.
3.2.b. Surviving Children, Surviving Spouse
Whenever there is an intestate succession and there are both children and a surviving spouse, the children do not inherit in full to the exclusion of the spouse. Rather, the situation is as follows:
The surviving spouse retains the following rights and options according to the status of the children and the French property at the time:
|Status of Children||Status of French Property||Entitlement to Spouse|
|Common to Spouse||Not Main Residence||¼ share absolutely or :||life interest(9) in the whole estate|
|Main Residence||¼ share absolutely or :||life interest in the whole estate|
|Not Common to Spouse||Not Main residence||¼ share absolutely only||No other entitlement|
|Main Residence||¼ share absolutely and :||Lifetime right of occupation and income from the French property(10)|
If the spouse chooses to adopt the life interest, (whether this be an "Usufruit" or a "Droit Viager"(11) ), this can be bought out by means of an annuity in lieu, at the instigation of any child, or - by mutual consent of the surviving spouse - as a lump sum, unless the interest refers to the main residence.
(9). Strictly speaking it is an “usufruit”. Technically this differs in certain ways from an Anglo-Saxon “Life Interest”, which may give rise to UK Inheritance Tax issues, but for the purpose of the current general description, I have defined an “usufruit” as a life interest.
(10). Known as a “Droit Viager”, this is more akin to an Anglo-Saxon Life interest.
(11). See notes 1 and 2.
3.3. French Will
Remember that the previous description only relates to an intestate succession.
The above rules of intestacy can be diluted in the presence of a French Will (12), whereby the child's entitlement, ("Reserve"), can be reduced as follows:
Table 2: Children's Right of Inheritance to the Estate Governed by French Succession Law: "The Reserve"
|No. Of Children||The Reserve||Freely Disposable Estate (La Quotité Disponible)|
The establishment of a will therefore frees up a proportion of the estate, (the “Quotité Disponible”), to be allocated to other beneficiaries as may be preferred.
The Quotité Disponible is expanded when there is a surviving spouse, (this does not include common law spouses or survivors of a civil partnership):
Table 3: Maximum Estate Which May be Devolved to a Surviving Spouse in the Presence of Children “The Special Quotité Disponible”
|No. of Children||Choice For Surviving Spouse|
|Option A||Option B||Option C|
|1||50% Absolutely||25% Absolutely + 75% Life Interest||100% Life Interest|
|2||33% Absolutely||25% Absolutely + 75% Life Interest||100% Life Interest|
|3+||25% Absolutely||25% Absolutely + 75% Life Interest||100% Life Interest|
Usually it will be Option B that provides the maximum value to the surviving spouse.
Option C: 100% Life Interest: If this is chosen by the spouse, the children can demand that, unless the interest refers to the main residence of a surviving spouse, it be converted into a lifetime annuity instead - so enabling them access to the underlying capital of the asset now, rather than in the future.
(12). See note 8.
3.3.1. Definition of Absolute & Life Interests
The form by which the disposable estate may be devolved can be any of 3 types, or a combination of the 3:
- "Pleine Propriété" = Absolute Entitlement
- "Usufruit" = Roughly equates to a Life Interest, although there are some specific differences which, in certain circumstances, render it closer to a life tenancy
- "Nue-Propriété" = Reversion
- An Usufruit = the immediate right to the use of and income from the property, (as in the case of a life interest), plus the right to a proportion of the proceeds on sale, when the usufruit is terminated, representing the present capital value of the remaining lifetime use and income foregone, (unlike an Anglo-Saxon life interest which remains attached to the replacement asset or cash proceeds themselves).
- An Usufruit for one party implies that there is a future interest for another - the child - this being the Nue-Propriété.
- Nue-Propriété = the future right to the underlying capital value of the asset, received on the termination of the life interest, (on death of the life interest beneficiary or on sale of the asset to which the interest is attached).
- Pleine-Propriété = a combination of life and reversion interests.
- The splitting of the Pleine Propriété into its Usufruit and Nue-propriété components is known as a Démembrement de Propriété.
- Subject to the value of the life interest not exceeding the proportion of the estate which may be freely disposed, per tables 1 or 2 above, the whole of the estate can be passed on to a surviving partner in this way.
3.4. Dealing with the Entrenched Rights
For many of you, the requirement for children to participate in the inheritance of the French property on the death of one of the owners, (the "first death"), will be of no consequence and may even represent sound strategic Inheritance Tax planning.
For others, entrenched succession rights may present problems, for example:
- There may be children from previous relationships, whose relations with the current spouse / partner are not sound.
- The surviving spouse / partner may be financially reliant on the control or sale of the French property to make ends meet.
- There may be an intent to sell and return to the UK on the part of the survivor.
- The children may be minors, making life difficult if a subsequent sale is planned. Formal representation of the children's interest would be required. Solicitors and barristers in both the UK and France would have to be instructed to administer proceedings through the French and UK courts before the property could be sold - causing great delay and substantial cost.
- There may simply be a preference to leave the surviving spouse in absolute control of the marital / family assets, ultimately deferring the distribution of the estate until "second death".
There are, however, solutions to these and other problems brought about by the enforced succession rights of any children.
Over the next few pages are very brief examples of some of the main planning tools for either avoiding, deferring or mitigating the effects of entrenched succession rights.
3.4.1. Appointment of a Single Universal Inheritor - Exceeding the Quotité Disponible
From 01/01/2007 it is possible - via a French Will - to override the entrenched succession rights, at least in kind:
Provision can be made for any individual to be the sole inheritor of the estate, which - in the case of the death of a non French domiciled individual - will be the French property only, (i.e. the land and buildings).
This does not, however, enable the deceased's wishes to ride roughshod over the rights of any children. Rather it simply enables the intended beneficiary to keep possession of the asset itself - cash compensation would need to be found, equal to the value of the reserve, (the entrenched rights), should any child wish to claim their rights.
- The means for providing compensation is flexible. An obvious example is life assurance:
The proceeds of a whole of life assurance policy, with a sum assured kept in line with the underlying value of the reserve, paid to the universal beneficiary to provide the means to pay the compensation, reserve, (the entrenched rights), should any child wish to claim their rights.
- Or a more subtle example: Flexible Use of the UK Will.
Making provision in the UK Will to provide a compensating amount from the rest of the estate on condition of the child formally renouncing their right, with the proviso that on their failure to do so, such funds be devolved to the beneficiary of the French property to enable them to fund the compensation should the child choose to pursue their claim to the reserve.
3.4.2. Use of a Buy-Out Clause for the Surviving Co-Owner
To retain control over the property in the hands of the surviving co-owner, the property purchase contract can include a facility enabling them to buy out any reserved inheritance.
This solution is very similar to the universal inheritor route, but with the following principle difference:
- In the first case, IHT is assessed on the universal inheritor, (at least to the value of the reserve should the child decide to pursue their entitlement).
- In this second case, IHT is assessed automatically on the child.
The tax consequences of one route as compared to the other may determine which planning route is the more effective, but there are other issues:
- Relations between beneficiary and the reserved inheritor
- The age of the reserved inheritor
In terms of financing the buy-out, however, these solutions are similar to the universal inheritor route.
The buy out option needs to be exercised within a few months after death - usually within the first 4 months - prior to completion of the succession.
Evidently, funds would need to be readily available to effect the buy-out - from life assurance proceeds, if the aim is to leave reserves intact.
3.4.3. Role of a Marriage Contract "En Communauté" (Including a Clause "D'Attribution Intégrale").
Another option for dealing with the Succession law issues is to adopt a French marriage contract.
The benefits of a French marriage contract providing for communal ownership of property are generally twofold:
- Any asset or debt acquired by either spouse and governed by the contract can be deemed owned on a 50/50 basis during their lifetime, irrespective of the source of funds.
- The clause "d′attribution intégrale" can be included. This may require that up to 100% of the property subject to the contract be passed in full to the surviving spouse, so bypassing French Succession Law on first death.
When written like this, the marriage contract essentially achieves the same result as the universal inheritor solution described in section 3.4.1 above, albeit usually both ways(13), (i.e. no matter who is the surviving spouse, they inherit in full). On the other hand, when all children are common to both parties, there is no need for the compensation payment otherwise potentially applying to the universal inheritor via French Will solution.
When all children are not common to both parties, we end up back at the same destination as is followed by the universal inheritor route, (i.e. provision of compensation).
(13). This clause does not have to apply to both parties, it can provide, for example, that for one party assets are to be transferred in full and en pleine propriété, whilst for the other it may be that only the usufruit is so transferred, the balance being governed by separate Will.
Ownership "En Tontine" is a similar model to Joint Tenancy in English Law, whereby the right of ownership of the asset to which the Tontine relates, reverts entirely to the last surviving original co-purchaser.
In effect, on death of one co-owner, it is deemed - in terms of property rights - that they never held an interest in the property in the first place, and that retrospectively the surviving party held exclusive rights of ownership all along. To all intents and purposes, therefore, each party has a 100% interest in the property on condition that they are the last survivor.
Accordingly, as the property interest never existed so it cannot form part of the estate for the purposes of Succession Law.
For Inheritance Tax purposes, however, there is deemed to have been a taxable interest amounting to half of the gross value of the property at date of death.
It is worth noting that Tontine is not always a watertight solution, particularly if there is a substantial age difference between the purchasing parties:
The tontine is supposed to be an arms length transaction whereby the contribution towards the purchase price from each party reflects the relative chances of being the ultimate beneficiary. When this is not roughly equal, care may be needed to document the relative contributions to the purchase, if the tontine is not to risk being successfully challenged by disinherited children.
3.4.5. Advanced Reenunciation by the Protected Inheritor of Their Right to Recover Their Entrenched Succession Rights
This is not so much a stand alone planning strategy, but rather one which works alongside the universal inheritor clause of a Will, or indeed the attribution intégrale clause of a marriage contract en communauté.
With effect from 01/01/2007 adult children can renounce by formal deed, in advance, their right to reduce the quotité disponible to the reserve, (other than in certain exceptional circumstances - e.g. murder of the deceased by the universal inheritor).
Note that the new rule does not authorise the advance renouncement of the réserve itself, but simply the exercising of the reduction of the quotité disponible to the reserve should the former impinge on the latter.
The renunciation can only be made for the benefit of one or more pre-determined beneficiaries
There can be no condition imposed on the person from whom the renouncing beneficiary is due to inherit. Nonetheless there is nothing to prevent a gift being made by separate deed.
If the deceased has not fully made use of the supplementary freely disposable provision, the contract will be null and void - either in its entirety or in part, depending on whether or not and the extent to which the additional freedom has been used.
This therefore implies that the renunciation itself is of no use without a corresponding arrangement, (Will or marriage contract), providing for the value freely allocated to that same pre-determined beneficiary to exceed the quotité disponible.
3.4.6. Purchase as a Corporation: Société De Personnes Or UK LTD Company
This is a complex option with potential tax consequences that go beyond IHT, extending to the tax treatment of capital gains and income.
It is not within the scope of this introductory report to fully explain the implication of these other taxes in your circumstances. A more detailed assessment can, however, be provided should you wish to look at this option more closely.
- As regards the use of a company in French estate planning:
Instead of a direct purchase, the option exists to acquire the property through a company.
There are several potentially suitable corporate structures to choose from - including a UK Ltd Co - but the most commonly recommended is a French entity: a SCI (Société Civile Immobilière). Other structures which may equally be suitable for dealing with French IHT and Succession Law, depending on personal circumstances, would be a Société en Nom Collectif (SNC) or a Société A Responsabilité Limité (SARL) de Caractère Familial.
- What Is the Benefit of Corporate Ownership Within the Context of IHT Mitigation & FRENCH SUCCESSION LAW?
There are three main motivations:
- The ability to transfer value by way of shares - so avoiding the constraints of French Succession Law for the non French domiciled individual. This would enable absolute control over one party's interests to be passed to the other and vice versa - without any interference from France.
- Easier lifetime estate planning through lifetime gifts of shares, without losing control over the administration and use of the property.
- To mitigate French tax on lifetime transfers and on death - for non French resident individuals - by representing part of the property interest in the form of loan capital rather than share capital.
Shares - being movable property are subject to the law of personality, (domicile of the owner) - and therefore English Succession Law. For as long as all shareholders are not French legal domiciles, the devolution of the shares therefore falls outside of the scope of French succession Law.
Under the Anglo-French Double Tax Treaty dealing with IHT on death, loan capital, (when representing an asset to the estate), when issued from the UK is located in the UK, whilst shares are taxable in France whenever the company is incorporated in France.
Although shares in all French companies are still taxable in France, for as long as the shareholder is not French tax resident on their death, only the net share value will be taxable, so reducing the value of the estate taxable by the value of the outstanding company debt.
So, in the case of a company acquiring the French property via a combination of share capital and shareholder loan capital, (or even a mortgage repaid by the shareholders), French tax may only apply to the initial share value plus the appreciation enjoyed on the property as a whole. The original investment value can remain almost entirely outside the scope of French IHT.
In the case of a purchase by a UK Ltd company, by virtue of the double tax treaty, on death the shares themselves are not charged to French IHT, thereby enabling both the original investment value and subsequent appreciation to devolve free of French Inheritance Tax and French Succession Law.
Whilst this may therefore seem to make the UK Ltd Company option the ideal tool of choice, there are severe French Capital Gains Tax implications, as well as potential UK income tax issues, which should be fully addressed and accepted before embarking on this route.
3.4.7. Other Estate Planning Options
- The arrangement of a mortgage on the property (a tool for reducing both the value of the reserve and mitigating French IHT, subject to ensuring any life assurance arranged to cover the debt does not automatically pay out to the lender). The benefit is only temporary - lasting only as long as the mortgage term - unless arranged as a "lifetime mortgage" (Prêt viager).
- Sole Ownership: By the party who has no entrenched succession right issues - if this is relevant. Although there are CGT and Inheritance Tax issues, as well as possible future implications for a co-investor in the event of fall-out, (namely the lack of any ownership rights whatsoever).
- Démembrement: The purchase of the Usufruit by one party, (the party with the entrenched succession right issue), and the Nue-Propriété by the other. A more sophisticated version involves the splitting of the property into 2 component parts "A" and "B". One party owns the Usufruit of part A and the Nue-Propriété of part B, the other party vice versa. This can get around entrenched succession rights if this applies to only one co-purchaser, whilst it can also be IHT efficient, (if carefully planned).
- Libéralité Graduelle and Libéralité Résiduelle: Whereby the property is passed on to the preferred beneficiary with the proviso that the same property is either retained for the benefit of a second string on the first beneficiary's death, (Libéralité Graduelle), or passed on in this way only if not sold in the interim by the first beneficiary, (Libéralité Residuelle). These options need to go hand in hand with the advance renunciation of reserve, however, in order to be effective against the entrenched succession rights.
4. Charles Hamer: Summary of Services and Fees
The following table summarises our menu of service and fees.
Table 4: Menu of Charles Hamer Fees(14):
|Content of Study & Advice||Our Fee|
|Are you obtaining a mortgage through Charles Hamer?|
|Implement Client Directed Solution without further study||£270||£630|
|Recommend and implement solution based solely on your estate devolution requirements.||£630||£900|
|Recommend and implement solution based on estate devolution requirements after quantification of French IHT only on first death||£720||£1,080|
|Recommend and implement solution based on estate devolution requirements after quantification of French and UK IHT on first death only||£810||£1,170|
|Recommend and implement solution based on estate devolution requirements after quantification of French IHT only on first and second death||£900||£1,260|
|Recommend solution based on estate devolution requirements after quantification of French and UK IHT on first and second death||£1,170||£1,530|
(14). This menu of advice and fees does not include assessment of the suitability of a company purchase, which necessarily requires analysis and explanation of the Capital Gains and Income tax implications as they apply to you. When the company purchase option is included, a supplementary fee of £450 will be applied.
4.1. Other Expenses
In addition to our fees you need to be aware that in order to implement the recommendations, you may incur additional legal fees and disbursements in France and/or the UK, for the drafting and registration of notarised documentation, including:
- Wills, marriage contracts, deeds of renunciation, company "statuts" (or memorandum and articles, with the translation thereof in the case of a UK Ltd Company).
These fees will vary according to document type and notaire / solicitor used. We do have our own correspondents both in France and the UK. Whilst, for reasons of familiarity with our work, we would prefer to use these, we are happy to liaise with your own notaire or solicitor.
Since such legal fees relate to implementation, rather than the provision of advice and implementation, they will be substantially lower than if advice had been sought from the solicitor / notaire.