You may have put a lot of thought into your financial planning to make sure you have enough for the retirement lifestyle you want. Have you given the same kind of attention to your estate planning? If so, is it up to date?
Writing your will is by no means the only step. Estate planning is complex and there are various things UK nationals living in France need to consider. How will your wealth be passed down to your children, grandchildren and any other chosen heirs? How will they handle it? Will it help give them long-term financial security? Or will they spend it hastily and make decisions they will regret? How much will they actually receive, and how much will go to the taxman?
With careful planning, you can have peace of mind that your legacy will be distributed as you wish without leaving your heirs a hefty tax bill.
Who your legacy goes to
If you are a French resident, you need to take account of the ‘forced heirship’ succession law. This imposes strict restrictions on how your legacy is divided. Children are ‘protected’ heirs who can inherit up to 75% of your estate, regardless of what your will says.
As a UK national, you may be able to override this rule through a European Union regulation (Brussels IV) that allows you to apply British law to your estate. However, this is a new and complex development, so you need to carefully examine how the law works for your personal circumstances, including how it could affect your liability for UK inheritance tax. You should weigh up the alternative options available under French law that could achieve your aims in the most suitable way.
When and where your legacy goes
You may want to establish a way to gift with certainty, where you keep some control over when your heirs receive your legacy and how they can use it. This will be important if you worry that your heirs might spend their inheritance unwisely or you have reservations about their partners.
For example, you could delay the timing of an inheritance until your heirs reach an age where they are likely to be financially mature. Or you could ring-fence what you leave, so it can only be used, say, for your grandchildren’s education.
What your heirs will pay in tax
With French succession tax reaching as high as 60%, you need to establish how best to legitimately protect your heirs from paying too much. The French regime is particularly daunting if your family is more complex, for example, if you remarried and have children from previous marriages, or stepchildren. The rules treat certain family members very differently.
The French regime is generous for natural or adopted children, with a tax-free allowance of €100,000 per parent and progressive rates from 5% to 45%. Stepchildren, however, are treated as non-relatives – their allowance is only €1,594 with the rest taxable at 60%. This means that stepchildren will pay significantly more tax than their siblings, regardless of what the parent intended.
Note that the same ‘non-relative’ allowance and rate is used for unmarried couples, so 60% succession tax applies if you are not married nor in a recognised civil partnership. Inheritances between married partners, however, are not taxable at all.
If you have assets in the UK they may also be liable for UK inheritance tax, if they are above the £325,000 (£650,000 for a couple) nil rate band.
Other tax considerations
It is not just inheritance tax that you need to think about. If you are leaving savings and investments, once your heirs receive the funds they will start to pay tax on the income and gains. You should think about which arrangements to use to hold your investment capital so that it is tax efficient for them. Also consider how these investments will pass on to your chosen heirs – will it be a drawn out and costly process, or can ownership easily change hands?
Don’t forget your own needs
While you may want the best for your heirs, you should also make sure you enjoy your wealth in the meantime. Look for arrangements that allow you to continue to benefit from what you have, providing tax advantages during your lifetime as well as for your heirs in the future.
Estate planning is a specialist and complex area, especially when you have to consider the rules of two countries and how they interact. Take professional, personalised advice to make sure the right money passes to the right hands at the right time while still meeting your retirement objectives.