Under France’s Napoleonic code, children are protected heirs and may inherit up to 75% of a client’s estate – spouses are not protected in the presence of children.
You cannot override this by simply stating in your will whom you want your assets to go to. Again, this can make life much more complicated where children of previous relationships are involved.
Brussels IV regime
Since 2015, British expats in France can use the EU Certificate of Succession regulation, ‘Brussels IV’, to elect for the succession law of your country of nationality to apply instead of that of your country of residence. Clients need to state in this in thier will, or French law will automatically apply.
While this is a welcome development, it is all very new and untested and choosing UK law may have unexpected consequences.
It is obligatory for a French notaire to handle your estate, and they would have to administer it under a law they are not experienced with. The UK opted out of Brussels IV and there is uncertainty over how the rules will be interpreted.
Adopting UK law could negatively affect a client’s existing succession planning arrangements, and may mean their estate becomes liable to UK inheritance tax as well as French succession tax.
You need specialist, personalised advice and to consider your options carefully. There may be options available under French law that achieve their aims.
Tax rates and allowances vary depending on who the beneficiary is, so they need to plan accordingly.
There is no tax between spouses/PACS (civil) partners on inheritances (there is on gifts). Children each receive a tax-free allowance of €100,000 (£85,723, $105,251) and pay tax at progressive rates of 5% to 45%.
Stepchildren, however, are treated as non-relatives. Their allowance is a mere €1,594 and their tax rate 60%.
If there are children from a previous relationship and the client leaves everything to their spouse, when the children inherit from him or her on the second death they are treated as stepchildren. The difference in how much tax they pay compared to natural or adopted children is staggering.
Taking a €400,000 inheritance as an example, a natural child would have a tax bill of €58,195, while a stepchild would pay €239,044.
These tax liabilities are without tax planning in place, which can make a considerable difference.
The tax rates for siblings, nephews, nieces etc are between 35% and 55%, with allowances of less than €16,000.
Note that Brussels IV does not allow you to choose UK inheritance tax instead of French succession tax. So be aware that if a client uses UK succession law to leave assets to distant or non-relatives, they face tax of up to 60%.